While there have been a few negative economic aspects that have resulted from the recession, not all has been doom and gloom, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
“In fact,” says Goslett, “many opportunities have opened up. For one, the prime interest rate has been reduced by 5.5% since the property boom. This has been very positive for both existing homeowners and those wanting to get into the market for the first time. Although financial institutions no longer offer interest rates on residential property below the prime rate, the vast reduction has ultimately still led to the general monthly bond repayment being lower than those seen during the boom.”
He adds that homeowners who bought a home for R1 million during the boom at an interest rate of 14% over a 20 loan period, were paying around R12 435.21 per month on their bond. With the reduction in the interest rate, those same homeowners are currently paying around R8 678.23, which translated to a saving of R3 756.98 per month, R45 083.76 per year and a massive R901 675.20 over the term of the loan - a total saving that is over 90% of the initial purchase price of their property.
Goslett notes that with the large majority of the South African population loan-dependent when it comes to purchasing property, any fluctuation in the interest rate will have an impact on the housing market and buyer’s levels of affordability. “While there are consumers in the current market that are able to purchase property cash, this is only a very small percentage of the general population. Most potential buyers will require finance from a bank, which in turn means that they will be affected by the interest rate in some way,” he says.
He notes that one of the biggest problems South African consumers have faced in the past has been access to finance. “The challenging economic times and introduction of the National Credit Act forced the banks to re-evaluate the way they conducted business, making it a lot more difficult for buyers to raise finance to purchase property. However, this is changing with financial institutions approval rates increasing and more consumers getting used to the idea of putting down a deposit,” says Goslett. “The lower interest rates have also assisted potential buyers to show higher affordability ratios and qualify for larger bonds.”
Even though demand dropped and so did the property prices in most regions across the country post 2008, it made the property market a lot more accessible to far more people than it was in the past. “However, prices have already seen massive recovery in most regions, with prices in some areas reaching levels far above what was seen during the boom,” says Goslett.
He warns that favourable conditions for buyers will not last forever, as interest rates will eventually begin to rise again, and the demand for property will keep growing. “Demand drives property prices and those who are considering investing, but are holding out for the market to change, could lose out on the current opportunities. There have already been significant changes in the market with higher numbers in sales transactions over the past two years and things certainly looking up for sellers,” says Goslett. “In the property world, timing is everything. If buyers decide to invest too late when property stocks have diminished, they may find themselves paying higher prices and reaping less reward on their investment,” he concludes.