Archive | April 2014

Market is shifting towards the middle

More than 70% of the home loans currently being granted are for amounts under R1 million, according to the latest statistics from BetterBond Home Loans, which accounts for more than 25% of all residential mortgage bonds being registered in the Deeds Office, and is South Africa’s leading mortgage origination group.

Another 26% of the loans being granted are in the R1 million to R2,5 million range, leaving only about 3% in the over R2,5 million category, says company CEO Shaun Rademeyer.

Mansion

“Indeed, despite all the attention currently being given to the increasing sales of multimillion-rand trophy homes, the real backbone of the housing market at the moment is the lower end, where every month sees many thousands of people making offers to purchase and applying for home loans.

“This is reflected in our figures, in the fact that 48% of applications are still coming from first-time buyers, whose average home purchase price is R630 000, and who are paying an average of R67 000 as a deposit.”

However, he says, there have been a few quite noticeable shifts in lending patterns over the past 12 months, in line with a gradual upward shift in property prices, and an increase in purchasing in the middle-income sector, which has more repeat buyers with equity in existing homes that they can leverage as deposits.

“For example, the proportion of bonds granted in the R250 000 to R500 000 price range has dropped by more than 16% in the past 12 months, while the proportion being granted in the R1,5 million to R2 million range has risen by 33%.

Meanwhile, Rademeyer says, it is interesting to note that despite the banks’ increased appetite for mortgage lending in the past 12 months, the percentage of loans being grated for 100% of the purchase price has declined, with the result that 61% of all borrowers are now required to pay a deposit.

“And according to our figures, the average percentage of purchase price required to pay as a deposit has been a not-insignificant 18,5% over the past 12 months – although it does vary greatly depending on the home price category and, of course, on the individual borrower’s credit profile.

“This trend is tilting things further in favour of middle-sector buyers, and we expect it to gain momentum as interest rates and household expenses continue to rise over the next 12 months.”

Don’t get burned on bricks-and-mortar insurance

Bricks

Everyone who owns a home – whether it is still bonded or they have already paid it off – should check at least once a year to see that they have enough home insurance (HOC) to cover the total cost of replacing it if it is destroyed by fire, flood, or other disaster.

So says Shaun Rademeyer, CEO of South Africa’s leading mortgage origination group BetterBond, who points out that if your home is under-insured, as it may well be if it has increased in value since you bought it or if you have made additions and alterations, you could be in for a big financial blow if something untoward happens.

“Taking the example of a home bought 10 years ago for R500 000, this may well have doubled in market value to R1 million now, and will no doubt have an even higher replacement cost due to the fact that building costs have increased substantially in the meanwhile.

“According to Absa, for example, the cost of building a new home is currently 37% higher, on average, than the cost of buying an equivalent pre-owned home.

“But if the HOC has not been adjusted, it would only cover the original R500 000 cost of the property, so the ‘under-insured’ component of the replacement cost in the event of a disaster would be a whopping R870 000 – which the homeowner would have to pay himself. And that does not include the additional cost of any demolition that may be necessary, architects’ and other professional fees, and new local authority connections.”

Insufficient HOC, he says, is one of the unintended consequences of one of the lesser-known provisions of the National Credit Act (NCA), which is that home buyers are not obliged to obtain their HOC from the bank that grants their home loan.

“Homeowners are now free to source their HOC from other insurers, but if they do, they pretty much have to accept the responsibility for updating it themselves, much as they have to manage their own car insurance and home contents insurance to ensure that their belongings are adequately covered.”

It is also important, Rademeyer says, for those who have paid off their homes not to let their HOC fall away. “Just because you are no longer making monthly bond repayments does not mean that you should stop paying HOC premiums.

“In fact, as you get older, and especially if you are retired and living on a fixed income, it is even more important to ensure that your home is fully insured and that you would be able to replace it if necessary.”

Schools now even more important in home choices

Schools

More and more family buyers want to live really close to good schools now, and this is really driving home sales in suburbs like Parkhurst in Johannesburg, Rondebosch in Cape Town, and Durban North, which are all known for their proximity to several excellent schools, and in gated estates like Dainfern and Cornwall Hill that have their own schools.

Consequently, says Shaun Rademeyer, CEO of BetterBond, South Africa’s leading mortgage origination group, this might be a good time for those who live in such areas but don’t have school going children to consider selling.

The main reason for the “edugration” trend is the huge demand for places in the top schools, which has forced most of them to impose strict rules about only taking new learners from their immediate “catchment” areas.

“Thus if you don’t live in the right suburb, your children probably won’t be able to go to the school of your choice.”

Another reason, he says, is the ever-rising petrol price, “which means that the cost of driving children to and from a distant school and to any extramural activities, added to the cost of commuting to work, could impact significantly on the household budget”.

This is why, if one examines the suburban buying patterns related to schools, properties within walking distance are “ideal” and generally attract a premium price. Thereafter as the radius of travelling distance extends from the focal point of the school, homes prices decline.

Similarly, home prices in estates with their own schools or very close to a sought-after institution tend to be higher than those in developments where parents still have to transport their children to school.

Related to this, says Rademeyer, another important consideration for family buyers is the range of extramural activities offered by their preferred schools. “If children are able to participate in their after-school sports and cultural activities on the school premises, this obviously cuts down on afternoon trips for parents – and if they and their friends can then walk or cycle home in a safe environment, so much the better.”

Don’t let tenants tangle your sale

Tenants

With the demand for property still strong at the moment, a growing number of property owners believe the time is right to sell homes they have been renting out – but they should be aware that this can be difficult if they still have a tenant in place.

“Unfair as it may be, tenants generally have a reputation for not keeping homes in the best condition, and many potential buyers seeking a home for themselves will be reluctant to look at a property with a sitting tenant,” says Shaun Rademeyer, CEO of BetterBond, South Africa’s leading mortgage originator. “In many cases, even buy-to-let investors who might be interested in adding the property to their portfolio would prefer to find their own tenants.

“And incumbent tenants who do not want to move can create major problems for a seller. To start with, they may be difficult about giving an agent access to the property to show it to prospective buyers, or perhaps deliberately leave the home in a mess when they know the agent is coming round with potential buyers.”

He says tenants have also been known to try to block a sale by regaling potential buyers with every real or imagined fault in the property or the neighbourhood.

“In addition, property owners who have not made regular inspections may be in for a nasty shock when they decide it is time to sell because maintenance has been neglected, and expensive repairs are necessary before the property can be put on the market. And if pets or animals have been kept inside, the home will at the very least need thorough cleaning, and perhaps re-carpeting.”

There may, of course, be no problem where tenants have been carefully selected from the outset, says Rademeyer, and often if the property is to be sold, the best course is to first find out whether these sitting tenants might like to buy it themselves.

“But if that is not possible, it is generally better to give them reasonable notice and then prepare the empty property for sale, with the incentive for prospective buyers that it is ready for immediate occupation.”

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