Buying your first property

Private Property South Africa
RE/MAX

For first-time buyers taking their initial steps towards purchasing a property, there are a few essential aspects that should be considered beforehand, such as whether the buyer is ready for investment and well researched on all the types of options available to them.

The reason for this is that home ownership is a major commitment that should not be entered into lightly. Purchasing a property won’t just affect the buyer’s financial well-being now but possibly in the future as well. First-time buyers should make the most informed decision possible by obtaining all the necessary information they can. Making a rash incorrect decision without considering all the consequences will only result in the buyer paying heavily in the future. Due to the long-term nature of property investments buyers will need to evaluate the decision in terms of their life plans, which include their financial situation both currently and in the years to come. It is important that buyers ask the questions: When, where, why and how to invest in your first property.

Guideline for first-time buyers:

WHEN

This all depends on the individual buyer and their financial situation. The market conditions are currently ideal for buyers wanting to invest, however affordability still remains the crux of the matter. There is no doubt that the current market favours buyers and there is no better time to invest than in an emerging market, however many buyers still have high debt-to-income ratios and don’t have the required deposits. As soon as a buyer can show affordability and have the necessary lump amount saved up for a deposit and other costs; they should take advantage of the low interest rates and good prices that the market currently offers.

Buyers should consider whether they can afford and sustain the necessary financial obligation before making the commitment. To precisely assess this, a buyer can use the resources available to them such as financial advisers, banks and bond origination companies like Betterbond. This will give the buyer estimated repayment figures based on bond requirements. As a general rule, monthly bond repayments cannot be more than 30% of total expenses and the majority of first-time buyers will be required to provide a deposit of between 10% and 30% of the purchase price of their home before being granted finance. Reducing debt levels will increase the chance of approval.

It is not just the bond repayments that should be taken into consideration as there are other costs involved in a property transaction. These costs can add up to a relatively large amount and it is essential to include these when assessing affordability.

WHERE

Ask any professional in the property industry and they are likely to say that a property’s location is one of the biggest influences in terms of return on investment. In most cases it is better to buy the worst house in a good area, than the best house in a bad area. A property can be renovated but a property’s location will still largely determine its market value. If the property is in the right area it will continue to appreciate in value over time.

When looking at an area, buyers should consider the general upkeep along with proximity to excellent amenities such as schools, medical facilities and shopping centres. Estate agents specialising in an area can provide buyers with a comparative market analysis, which will give an overview of the property’s appreciation as well as the sales dynamics of that area. Online property search portals can also be used to find statistics on areas and values of property.

WHY

Generally, South African consumers have a poor savings culture. Purchasing property is a way of saving for the future by investing in an asset with excellent potential for long term appreciation. Property is an inflation-hedged investment, meaning that the return on the investment either keeps up with inflation or outstrips it in terms of growth.

While the outstanding bond on the property steadily decreases, the capital value of the property will continue to increase over time. There is also the possibility of the property generating an income through rentals. Although a first-time buyer will initially feel the financial impact of purchasing a home, as their salary increases and the bond decreases, home ownership will become much more affordable. The same cannot be said about rentals.

HOW

Those who want to purchase a home will be required to have a savings plan, in order to cover the additional costs and the banks deposit requirements. A large deposit will assist the buyer in two ways; firstly it will increase the chances of bond approval and secondly it will reduce the monthly bond repayments. It is also important for a buyer to reduce their debt levels in order to increase the percentage of income they have at their disposal, this will once again increase the chances of bond approval and assist the buyer in sustaining affordability. Lower debt levels will also improve the buyer’s credit rating, which is invaluable to a potential property owner. When a buyer is ready to enter the market, they can partner with a reputable estate agency to help source their perfect property.

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