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How To Buy Your First Property

HOW TO BUY YOUR FIRST PROPERTY

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 the investment and well researched on all the types of options available to them, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

He says that 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," advises Goslett.

"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."

Goslett offers first-time buyers a guideline to finding the answer:

When

Goslett says that 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," he says.

He adds that 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. This will give the buyer estimated repayment figures based on bond requirements.

As a general rule, monthly bond repayments cannot be more than 30 percent of total expenses and the majority of first-time buyers will be required to provide a deposit of between 10 percent and 30 percent of the purchase price of their home before being granted finance.

Reducing debt levels will increase the chance of approval.

Goslett says that 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," says Goslett.

He advises that, 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

Goslett says that, 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," says Goslett.

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," says Goslett.

"When a buyer is ready to enter the market, they can partner with a reputable estate agency to help source their perfect property," he concludes.

How to bargain hunt for real estate

The continued Eurozone crisis; slowing growth in China, India and Brazil and an American economy unable to maintain momentum are issues that fill the news daily.

The world economy seems worse off than in 2009. Further fears are mounting around Spain's financial health while the US has, for the third successive year, stalled at the mid-year milestone despite a promising start.

The consequence is that globally property prices have collapsed, paving the way for savvy investors with the required capital to acquire investments substantially below their market value.

Property remains a long-term wealth creator and, in finding bargains, that return on investment grows exponentially.

What then should bargain hunters consider before parting with their cash?

The first step is to look and see what is available in the market and not rush into the first opportunity presented.

The best time to purchase property is at the bottom of the cycle, but there are no definitive bells signalling when that day arrives. It demands reading the trends and taking a calculated risk accepting that even if you have not succeeded in securing the very bottom of the trough, property is a long-term investment and the price paid now will become relatively cheap 10 or 20 years hence. In practice finding a bargain might mean that the price offered tomorrow could be cheaper than the one you paid today, but equally it could be more. It’s part of the risk. One insight into where the market may be is the supply of housing. When there are plenty of properties on agents' books, buyers are in a far stronger position to negotiate good deals than when stocks are short and buyers plenty.

Take cognisance of over-valued properties.

Even in depressed markets, there are areas that will remain over-valued and purchasing properties in that bracket will take longer to yield returns than securing a similar property in another neighbourhood or city. However, if you invest for the long-term, overpaying marginally for a property in a good area may translate into a bargain in the years ahead. Sought-after neighbourhoods can yield higher relative returns than less popular areas.

Another element to consider is that properties may be listed below their market value because the owners were initially greedy — asking too much for their home and now being forced to lower that request to bargain-hunting levels.

While South Africa is currently benefitting from the lowest home loan rates in nearly 40 years, there are still owners being forced into distressed sales, even in good neighbourhoods. That makes those sellers desperate and thus more likely to drop their prices below market value.

Distressed markets imply low prices and sometimes attractive bank deals, particularly on repossessed properties causing liabilities on their books.

Likewise, savvy buyers should also seek out stale properties — those that have been on the market for months and gone through the cycle of a too-high asking price; disheartened agents often warning prospective buyers that the house was overpriced and finally lacklustre sellers now wanting to close the deal and move on with their lives. Unless of course there is something structurally wrong with the property!

Another tip for the long-term investor would be that future rezoning can boost property values. Consider those investors who acquired properties around Sandton in the late-1980s and early 1990s or those who owned homes along Old Main Road in Hillcrest 15 years ago. Those previously-residential neighbourhoods have exploded as commercial zones and the value of their houses grown in the same fashion.

This particular approach is typically a very long-term view and requires insight in municipal town planning or market trends for shifting outside traditional central business districts, but when achieved it can pay dividends.

However, South Africans are not bound to only holding property locally. Exchange control regulations allow, subject to foreign investment clearance certificates, a once-off offshore investment totalling R2-million and UK-based below market value property specialists IPS recently compiled a short list of the world's eight most distressed property markets.

Ireland tops the line-up followed by the US where the sub-prime market crisis originated. Not surprisingly, the balance of the list also comes out of Europe — Hungary, Greece, Bulgaria, Cyprus, Spain and Portugal.

Only recently there was news that Ireland is demolishing property developments constructed during the boom years as there was little hope of finding buyers — and that in itself is a warning for investors to do their homework to ensure they do not stray too far off the beaten track.

Yet, the bottom line to savvy purchasing is realising the balance between the capital growth and the income derived from that investment. This is a market not only about buying and selling, but the combination of managing that long-term investment during its life cycle.

When it coms to bargain hunting on the SA property market Auctions are fast becoming the favourite way for investors and end buyers to quickly secure theit desired property at well below market value. The main considerations are aligning with the correct professionals and acquiring all necicary knowledge to make informed , sound property decisions. Repoproperty.co.za can assist with all considerations. Please visit www.repoproperty.co.za or join us on facebook, LinkedIN and twitter

 
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