Take the property plunge and start building equity

Private Property South Africa
RealNet

Young people planning on buying their first home should not get too hung up on interest rates or market cycles, or they might miss out altogether on the advantages of property ownership.

That’s the advice of Jan Davel, MD of the RealNet estate agency group, who says that in buying a home, as in purchasing shares, market timing is not the only factor that should be taken into account.

“While ‘buying low’ in the stock market is certainly important, the reality is that the most successful investors and investment fund managers don’t rely on being able to buy stocks at the very moment they reach their lowest price, or sell when prices are at their very highest. They also look at factors such as prospects for growth or the sustained delivery of earnings.”

And homebuyers should take the same approach, he says. “Apart from interest rates and home prices, they need to consider variables such as the type of home they want, price trends in the area they prefer, possible renovation costs, transfer costs and the availability of finance, and be prepared to jump in when it seems most of these factors are lined up in their favour.”

Realistically, there is very little chance of achieving “perfect timing” in the property market, Davel says. “Many of those who waited for interest rates to reach their lowest levels in 2014, for example, then found that the major price escalations that had taken place after the 2008 crash meant that they had actually missed the boat on getting the best deal.

“Similarly, those who are standing by now in the hope that prices will come down as interest rates continue to rise are likely to be very disappointed – and should not forget that rising rates will also make it increasingly difficult for them to qualify for a home loan.”

Indeed, prospective buyers should rather concentrate their energies on actually getting into the market and starting to build up equity in their own homes, he says. “First-time buyers, especially, should just focus on finding a home that suits them in an area with good growth prospects, at a price that is within their current loan qualification limit, because their chances of doing so at the moment are relatively good.”

Davel points out that stock levels have risen in many areas over the past few months, giving potential buyers a bigger range of homes to choose from and more room to negotiate price. At the same time, interest rates are still relatively low and the banks are still offering good home loan options to prospective borrowers with clean employment and credit records.

“And while interest rates and monthly repayments are bound to go up and down during the 20-year term of a home loan, borrowers who do take the plunge will find that they tend to average out – while the value of their property tends to keep rising, and gearing continues to work in their favour.”

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