Buy while interest rates are low

Now is as good a time as any to buy a home thanks to the slowdown in South Africa’s residential property price growth.

According to Mortgage Plus, as the economy recovers, property prices remain reasonable and the effect of lower interest rates is felt.

Mr AM Prinsloo, provincial sales manager at Mortgage Plus says confidence will return to the bricks and mortar investments.

Would-be home buyers and property investors with cash have an opportunity to get into the property market, he says.

Although the property market got off to a slow start in 2011, estate agents are seeing an improvement in the market.

Pam Golding Properties (PGP) report that sales are being concluded with more people purchasing homes in the more affordable category priced under R2 million.

Last month, Absa Home Loans said affordability remains key in the housing market and more buyers will be looking at smaller and affordable properties.

Carol Reynolds area principal for PGP Durban North and La Lucia says affordability remains the key driver of bond acceptance and that it is imperative to factor household running costs into the equation when looking at buyer affordability.

“Buyers who have the means to put down a sizeable deposit will be better positioned to negotiate with the banks.”

She says in general, one aims for between 15 and 20 percent deposit as banks are beginning to look more favourably on 10 percent deposits.

FNB Home Loans reports a lower rate of household sector indebtedness compared to the previous quarter.

According to the FNB Household Sector and Consumer Update Q2 2011 report, although household indebtedness has come down, there has not been an improvement in the household sector’s saving rate lately.

John Loos, FNB Home Loans property strategist says the household sector does not save enough to fully cover the depreciation of fixed assets in its possessions.

For many households, this translates to lack of money to put down for a deposit towards buying a new home while in others, this impacts on their ability to repay their mortgage loans.

For buyers who have saved money and can afford to buy, now presents a good opportunity as interest rates are at their lowest, he says.

He explains that in the past few years, estate agents surveyed pointed to a greater portion of home owners not doing full home maintenance and the number of those still maintaining their homes or doing any upgrades has declined since the boom years.

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Finance Minister Pravin Gordhan’s announcement that the threshold at which transfer duty applies will increase from R500 000 to R600 000 is welcome news for the property industry, particularly the residential market, which has been depressed since 2008, David Warmback, a partner at Durban-based law firm Shepstone & Wylie, says.

This year’s Budget is the first time in five years that property transfer duties have been adjusted. The new rates, effective from February 23 this year, are:

* You will pay no transfer duty on property with a value of up to R600 000;

* On the value between R600 001 and R1 million, the duty is three percent of the value above R600 000;

* On the value between R1 000 001 and R1.5 million, the duty is R12 000 plus five percent of the value above R1 million; and

* On the value at R1 500 001 and above, the duty is R37 000 plus eight percent of the value exceeding R1.5 million.

Gordhan said in his Budget speech this week that the sliding scale at which transfer duty is levied will also apply to companies, close corporations and trusts. Previously, the sliding scale applied only to individuals, whereas companies, close corporations and trusts paid transfer duty at a flat rate of eight percent.

Warmback says although transactions in the commercial and industrial property sector are often subject to VAT (transfer duty does not apply if the seller is a VAT vendor), smaller businesses that buy property from a non-VAT vendor will benefit from the new transfer duty rates.

“With the stagnation of property prices over the past few years, the change to transfer duty should bring welcome relief to those in the property market – not only first-time and low-income home-buyers but buyers in higher price ranges as well,” Warmback says.

Jacques du Toit, the senior property analyst at Absa Home Loans, says the decrease in transfer duty rates is an attempt by the government to promote homeownership and to address the affordability of housing, especially among the lower-income population.

“This, together with government’s housing subsidy and the banks’ mortgage lending criteria for low-income and first-time property buyers, will support the lower end of the market.”

Du Toit says that in the absence of further interest rate cuts expected in 2011, the lower transfer duty and expected higher level of economic growth should support the residential property market this year.

Gordhan also announced that the government is exploring establishing a savings scheme that will provide first-time homeowners with a deposit as an alternative to the exemption on interest earnings.

Mortgage Plus offers a wide range of advice on different bond options and further advice on the above. Please call us for further information on:

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