NEARLY TIME TO REVIEW THE HALF-YEAR

Can you believe it, the year is far advanced. And what a year it has been with probably the only gorilla in the national room being the arrest of our Minister of Finance. So far, everybody has confirmed it is not going to happen so let’s rest with that knowledge.

One of the reasons he would be hectic on government business is the soon-to-be rating by Standard & Poor which is due to make its decision on 3 June whether to downgrade SAInc to non-investment grade. The jury is out on what this could mean for us. For instance, PSG is buying Bonds because it believes the bond yield has discounted the likelihood of a down grade whilst RMB has surveyed it’s leading clients and decided the re-rating would not have a deleterious effect on the market. Moneyweb Today is reporting that the re-rating will have a dramatic effect on shares, quoting Standard Bank, and up to a 60% decline in value with a dragged bounce back over 12 months. Chris Hart, ex-Standard bank economist, is stating that under a particular set of circumstances, the Rand could collapse to R60:1US$. What a see-saw of opinions!

On the positive side, the SARB decision to hold rates was interesting. The view is that Inflation won’t stay out of the target band ie above 6%, for as long as expected. So they held the rate. Surprising to me as my sense is that that Rand will drop after the S&P re-rating and would have needed an interest rate hike to protect it. I still expect 2% this year and we are some 0.5% away from that point. You may recall that I called 2% against the general consensus of 1-1.5% for the year. Certainly I see the next 0.5% being inevitable. However, let me make it clear that I don’t believe the rate hikes are good for anything other than the protection and stability of the Rand. We simply cannot afford high interest and low growth but, if I was to choose between a devalued Rand and high inflation or raising interest rates, I would raise rates. Another point to remember is that S&P look for sound monetary policy and the independence of the SARB especially at these times – all of this is being demonstrated.

Assuming all the information above, where is property at?

 

  1. Prices continue to rise slowly but, surprisingly, real price rises around 0% are occurring. Why “surprisingly”? Well, we expected negative real growth in house prices and the figure is better than expected. Good News! What is interesting according to ABSA at end-April was that the affordable segment is performing well and pushing up the average. Their think is that down-buying [the tendency to buy a smaller house that you know you can afford] could be creating price resilience in the lower market. My sense is that government employees can afford these houses and are wanting to enter the property market.

  2. The rand is under strain whichever way you cut it. If that is so, building prices will rise and new houses will become more expensive that existing properties. That will push the price of houses in all sectors. By how much, I do not know but it is good news for ad valorem money earners like estate agents.
  3. The issue is affordability and this is driven by two things: Employment and Interest rates. Employment, whether it exists/remains and the stability around “my job” lends confidence. If rates are rising [and this must be a dead cert], I question my ability to afford a bond. The move earlier in May by the FED to hold back again on a rate increase in the USA coupled with our decision last week to hold fire is cause for positivity but we must accept rates will tend to rise – we’re in such a cycle. Rates rising has a mathematical impact on affordability but if I’m unsure about my job, I lack confidence to buy in any case. As a knock-on, that affects even my willingness to sell. The nutshell of this is that sales will be slow.

  4. The downgrade is possible and imminent. We really don’t have long to wait. I want to be with those who believe it will not occur; my heart is there. My head says it is inevitable. Unless PSG is spot-on, it will raise the cost of borrowing for government, decrease the value of shares and dent the Rand. None of this we need at a time of slow growth and drought. It will make us feel poorer before the markets rally back over a year. Let’s raise our genes of faith and trust for the best outcome for all our Peoples.

My best advice – Know what you can control and work hard at it. Rest with what you can’t control and allow things to take their course. If you really do have money to buy offshore hard currency then do so.

 

Yours in Property

Jack Trevena

What is a Bond Originator?

A bond originator can prevent nightmares when buying your dream home.  We have the tools to secure the best financing terms possible for you and the answers to all of your questions. Throughout South Africa, our Homeloan Junction consultants know their way around the business of home buying. Simplify the multifaceted process of home buying with a single contact to deal with the whole lending process.

What can a bond originator do for me?

When you consider the many benefits of a bond originator, you will be glad to have one working on your behalf.  Your estate agent works on your behalf to find and negotiate a purchase contract for your new home; we at Homeloan Junction can take care of finding the finance … and much more!

Homeloan Junction offers services to you both before you find your new home and after signing an agreement to purchase. Before you even begin shopping for your new home, use the calculators on our website. They make it easy to calculate how much house you can afford and what your monthly payment will be. You can then direct your estate agent to show homes to you that are within your price range. Prequalifying yourself avoids wasted time and disappointment.

9 Good reasons to choose a bond originator?

Are you ready to apply for home financing? The benefits of using a bond originator are many.

  • At Homeloan Junction, our advice is free. You pay nothing for our expertise
  • Your bond originator will walk you through the application.
  • Homeloan Junction has built up a relationship with the banks. Your bond originator  will know who has the best deals at any given time.
  • Your bond originator will submit your application to nine different banks,  one of which will have your best deal.
  • Your bond originator will negotiate with the banks on your behalf to secure the best interest rate possible.
  • Your bond originator does all the paperwork for you and explains the benefits of each offer.
  • You could prepare and submit an application to multiple banks yourself. However, an experienced bond originator will likely find you a better deal than you can negotiate yourself.  It will also save you time and aggravation. Remember, this is a free service.
  • Homeloan Junction has an impressive approval rate for home loans.
  • Your bond originator will work with your estate agent to make sure all agreed to terms are met in a timely manner.

Do you need these home loan services?

Bridging Loans: This short-term loan bridges a time gap. Your contract to buy calls for funds on a specific date. Your funds may not be available until 90 days after that date. What do you do?
Bridging Loans will prevent a delay, allowing you to uphold the terms of the contract. Bridging loans are the solution for those buyers unable to coordinate the purchase of a new home with the sale of their old one.

Home Improvement Loans: Home improvement loans are secondary home loans. Use one to remodel a kitchen, add a pool or an extra bathroom. They are also a lifesaver when homeowners need expensive emergency repairs. The payments are usually small and extended for several years.

Personal Loans: Personal loans are smaller than major home improvement loans. You can secure these flexible loans quickly and often over the telephone. This kind of loan will allow for quick completion of your new home décor. Maybe you need a new bedroom set complete with a memory foam mattress. Sometimes furniture and curtains from the old house do not work in a new one. The payoff term of a personal loan will be between 15 and 60 months but you can always pay it off early.

Investment Property Loans: Buy a house to let as an investment for your future. American billionaire Warren Buffet recommends investing other people’s money to gain the greatest return. You borrow the money to buy an investment property and the lessee pays back the loan in rent to you.

In twenty years, you have a valuable asset free and clear. You can sell the investment property or borrow against it. Use the funds to pay for university educations, weddings or early retirement.

Homeloan Junction is your point of contact for complete home loan services. Our experienced bond originator are sure to find the best rates and terms to fit your financial needs.

Work out if you can Afford your Dream Home

Calculate how much you can afford to spend on your new home with a bond repayment calculator. We have one on our website at Home Loan Junction that will give you the numbers you need to know before you shop for your dream home.

Your estate agent will be able to help you more effectively because you already have an idea of what price range you can (realistically) afford.  It makes little sense to look at homes you cannot afford to buy – that is just a waste of time for everyone, and can leave you heartbroken.

When you have found your new home, Home Loan Junction will help you find the best deal possible for your bond. As a leading South African bond originator, we work with multiple banks to tailor your home loan to your needs and wants.

How Much Can You Afford to Pay Monthly?

Follow these 6 easy steps to establish how much you can pay on your next home:

  1. The first step is to calculate the combined gross monthly income of everyone who will be an owner of the home. Using our handy affordability calculator. For instance, if a married couple is buying the home, and both are employed, then use both incomes.
  2. Your gross income is the combined amount both of you earn each month before any deductions. That amount goes in the gross monthly income box on the bond repayment calculator.
  3. The next box on the calculator is for net income. Combine all incomes after deductions. That is your combined net income.
  4. The bond repayment calculator asks you for your total monthly expenses. Include the total of your monthly payments for credit cards, car payments, store card loans, and anybody else to whom you owe money. Do not include your current housing payment, utilities or homeowners insurance. Total it all up and put that number in the box for total expenses.
  5. Now subtract your monthly expenses from your net income. That is your net surplus income. In other words that is how much money you have available for housing, utilities, food, and other necessary living expenses.
  6. Plug-in the number of years you want to repay the bond and the interest rate. The calculator will figure the monthly repayment amount you can afford and the maximum price range of homes you can afford to buy.

What Will You Pay?

If all goes according to plan, your estate agent will do a superb job of understanding exactly the amenities you want in a home. The house showed to you is your dream home and it falls within your price range.  Now what?

Once you reach a price agreement with the seller, five factors will decide your monthly payment and the total amount you will pay for your home. Use the bond repayment calculator to explore how much you will pay each month:

  1. Down Payment: Use the bond repayment calculator to see how much your payment will be if you make a larger down payment. Of course, the more down payment the smaller the monthly payment. However, maybe you would like to hold out some money so you can pay cash for landscaping or furniture. The decision is pure personal preference.
  2. Interest Rate. Change the interest rate and you change the payments. The better your credit and the bigger your down payment, the lower your interest rate is likely to be. Change the interest rate in the calculator and see how the payment changes. The amortisation calculator will show the amount of each payment that goes to reducing your loan and to interest.
  3. Bond Repayment Term: Spread your payments over 20 years and they will be larger. Spread them over 30 years and the monthly payments will be smaller.  Again, it is personal preference. However, you will pay far less for the home if you pay it off quickly because you will be paying less interest.
  4. Your Credit Rating: The better your credit rating the more flexibility you have in the other three factors.
  5. Your Lender: Homeloan Junction is familiar with South African lending practices. We know how to capitalise on the benefits offered by each bank. We match you with the best possible home financing terms available. The buyer does not have to run around trying to find the best terms.

Homeloan Junction focuses on one type of financing and that is home loans.  With our handy bond repayment calculator, you can know how much house you can afford, the monthly payment, and how long it will take to pay. Home buying will be less traumatic because you are now an informed shopper with a team of experts on your side. We suggest using our multi-faceted bond repayment calculator before you even start looking for a home.

RESPECT – THE ELIXER OF PROPERTY

There has been some amazing news of late. Sadly, we have become so accustomed to bad news that it washes over us in a kind of ostrich way. We duck and just hope the wind comes head-on so we don’t get swept of our feet.

So the good news!

RMB is about to build a property portfolio somewhat equal to its own portfolio of R82bn. What a vote of confidence in South Africa Incorporated [SAInc]and such good news for us all. When questioned as to the future of SAInc, the CEO, Herman Bosman said: We are South Africa optimists. Between the two companies we have around R150 billion invested in financial services in South Africa.” Quoting Moneyweb, Rand Merchant Bank Holdings (RMH) hopes its newly launched property business will eventually play a “meaningful role” next to FirstRand.

Like Redefine, RMB will not restrict itself to SAInc but will also be investing overseas. For instance, Redefine have done a mega-deal in Poland for 75% of real estate company, Echo Prime Properties, in March for R8 billion to boost its offshore exposure and will be reducing this exposure to approximately 50% in the future. Again quoted in Moneyweb, CEO, Andrew Konig says: “Poland offers us GDP growth that is more than what SA offers. And we believe we have invested in an environment where the tax rules are efficient”.

And thirdly [Wow, lots of Good News today], Moody has placed us on “negative watch”. If you ever wondered what Pravin Gordhan is doing in his day, be grateful that he and his Treasury team, with the support of business and government,  have convinced Moody Rating Agency to not downgrade Us a whole notch but rather to only move their watch-status from Stable to Negative. Negative, in this sense, is not negative but rather a wait-and-see to give us more time to implement elements of the National Development Plan and show the world that we can; not that we can’t. That we can settle down politically, that we can respect Chapter 9 institutions, that we can run a free and fair municipal election, that we can turn the tide of downward growth, that we can increase our employment, that we can reduce the cost of government, that we can continue to pay our debt, that we can keep the lights on and that we can feed our people despite the headwind of a debilitating drought. Indeed that we can continue to be the leading Constitutional democracy on the continent of Africa.

b2ap3_thumbnail_image004.pngEquity Market Response to Downgrade    b2ap3_thumbnail_image003.pngCurrency Response to Downgrade

b2ap3_thumbnail_image002.pngBond Market Response to Move to High Yield   b2ap3_thumbnail_image005.pngSA Repo Rate vs 5y Moving Average

So the bad news!

Watching President Zuma deliver his Presidency budget vote to a half-packed House of Parliament made me want to change the name to Par-Lament. What a sorry sight and what a sorry State of Affairs. It was the first time for a long time that President Zuma was able to finish a speech without interjection and walkouts. But all of the parliamentary privilege of challenge and questioning was missing from what should have been a debate not an address.  We do not intend to discuss the efficacy or otherwise of such abstinence of the Opposition parties. In fact, what I’m about to say in the rest of this blog, avoids many issues whilst it hopefully challenges us All personally to play our constructive part in SAInc.

Outside of the House, Mathew Theunissen added his sentiments to the race row that pervades our land. Other such incidents in the News went on the backburner for the week as Mathew apologized repeatedly for his late night misdemeanor. Tragic isn’t it that as millions of rands are corrupted and millions of people live in poverty in SAInc, we can be seized by race rows? Whilst they highlight the underlying inequity in our society, hopefully they also bring each one of us before the mirror to question our own ethics and stances to one another in the human race. One look at racism on Google and you are struck by how ubiquitous the problem is and how many countries are plagued by its scourge; but that is no excuse for SAInc.

These opening points bring me to the place where my heart is this Sunday morning.

We have the ability to read the negative and be part of its onslaught or read it, with introspection and wisdom together with the positive, and live like there is only upside. I’m going to write it again so you can read it again and THINK: “We have the ability to read the negative and be part of its onslaught or read it, with introspection and wisdom together with the positive, and live like there is only upside.”

An old preacher of mine used to say: “You cannot preach the measles if you’ve got the mumps”. Truth is, the house buyers of the future will be people of all colours and I can guarantee you that we have many areas in our country where 60-100% of the buyers are already people of every colour. Estate agents and professionals have already embraced the future of the Equity of People and their hard-earned Rands and are doing good business across all colours of people. Those with stereotypes entrenched over many years, have had them cracked and loosened and, finally done away with, by lovely people of all races, across all socioeconomic levels who only want the common good – a sound roof over their family’s head, a school for their children, and safety and employment for themselves and their immediate family. What could be less racist and more human for each of us to enjoy, than to recognize that this beautiful country of ours has place for Everybody in it? Will we meet horrible people? – of course! But they too will have their day as their pride is overtaken by the humility of good men and women of all races, religions and creeds who seek the beauty of this beloved country that shines through in the faces of all Her People.

So it is that I make an appeal to all of my readers. Get up tomorrow and look in the mirror. Acknowledge that we all have Rights and Responsibilities. We all have Influence for Good or for Bad. There are not Special People only Common People with Common Good in their Hearts and Souls. People who hold You in their Esteem as You hold Them in Yours. People who deserve a home and a bond and the confidence in the Future of SAInc to be able to afford it in the years to come. Acknowledge that there will be some horrible people amongst them but chose to judge them slowly for you may not have walked in their shoes – you may never know the journey that they have travailed to arrive at the door of your business. Accept them, Because they are Different. Do business with them because you Want to Help them Do and Be Better. Treat them with Dignity and with Respect – yours is not the need or right to change them but the privilege to help them with the biggest purchase they may have made to date in their lives. Take a bet with yourself that they will turn and smile before your dealings with them are over.

In essence, look at the Good and the Bad through the eyes of Patience and Kindness. Withhold Judgement until you have taken the time to be Mindful – Present in an Open and Accepting way. There is nothing like Powerful Interpersonal Skills at a time like this in our nation. We stand on the brink of Rating downgrades but we will not re-rate ourselves as People of South Africa Incorporated. No force on earth, political, social, economic, or global, should be allowed to detract from us being Men and Women of Truth and Confidence and Reconciliation in our spheres of Influence and Persuasion.

I commit myself to this Way of Being. Homeloan Junction commits itself to treating all People with Dignity and Respect. Our great property industry, full of men and women of Good Repute, would demand nothing less of us as members of it and citizens of SAInc.

Yours in Property

Jack Trevena

THE PREGNANT PROPERTY PAUSE

The saying “pregnant pause” normally relates to speechmaking or coaching. But the recent months have been pregnant as everything but the stock market has taken a pause.

Consider this…….

  • In four months the global markets have lost 10% of their value except for China which almost halved very early in the year.
  • Commodities like iron and copper lost half their value and this was reflected in Kumba and the like.
  • Then, as if nothing happened, everything retraced their steps and we reverted to close just under 53000 on the JSE late Friday 22 April 2016.
  • The Rand peaked at R16 to the US$ and is now trading in the R14’s.
  • Inflation is growing rapidly as price increases take hold.
  • The drought has been bad and we are importing Maize.
  • Fuel breached $30 and then proceeded to breach $45 – a 50% increase in two months.
  • Our political arena has been blasted by bad news and gone into a pregnant pause.
  • The Manifestos of the parties are being presented to crowds who are to be convinced who to vote for in August.
  • Syria has a fragile ceasefire in place.

 

Apart from that, little has happened in 2016?!

Latest news from ooba is that house price increases are slowing with the average purchase price increasing by 6.2% compared with Q12015. Given an inflation rate of 7%, this means real price growth is negative. We knew this would happen if Inflation jumped steeply but negative real growth was not expected until Nenegate in December and the Rand’s sudden fall. Affordability criteria have stiffened and larger deposits are required to bring Buyers in line with higher prices coupled with higher interest.

Uncertainty is never pleasant and its effects can be felt like tremors throughout the country. It would also be foolhardy to expect that we have now settled down to business as usual. This brings me to a large dose of good news.

Messy indeed!

But here’s a thing, there have been two interesting pieces of information on the downgrade that many await anxiously.

RMB surveyed 432 people to assess their views of a downgrade. 84% thought that a downgrade would occur. Ninety four percent felt that the downgrade would have a negative impact on their business. The good news is the corollary of this finding – if the majority of people expect a downgrade then the market would adapt, or better still, the market would have adapted to the expectation of a downgrade. Therefore, the market has possibly already adapted to the downgrade and so little impact would be felt.

My view on this was that the market could not have “downgraded itself” or else the strengthening of the Rand, for instance, would not have occurred in the past few weeks. It seems that something bigger is at play relative to the SA economy, such as commodity prices rising, a weakening of the US$ exhibited by the stagnant interest rate stance of the Federal Reserve, and a declining JSE.

Then arrives an article in Moneyweb Today, When a Downgrade Hits dated 24 April 2016, that seems to provide a far deeper insight into the possible harm of a downgrade. However, this study of real countries that have endured such an event, shows a much more positive view of this eventuality. I cannot improve on Patrick Cairns article so I have copied it verbatim and present it with gratitude to Moneyweb Today  and Patrick.

When a downgrade hits

Patrick Cairns

While there is some disagreement around when South Africa’s sovereign debt rating will be cut below investment grade, the market consensus is that it won’t be avoided. In either June or December Standard & Poor’s is likely to be the first agency to announce a downgrade. Minister Pravin Gordhan and the team around him will continue to work valiantly to avoid this, and they may well succeed in at least improving sentiment. However the honest assessment is that it is probably already too late, and they don’t have the tools on their own to do everything that is necessary to prevent the move.

South Africans should therefore prepare themselves for what happens next.

Many pundits have suggested that the immediate impact of a credit downgrade would be a flight of capital, a spike in bond yields, rapid currency depreciation and a fall in equity markets. However, the head of fixed income at Prudential, David Knee, says that an historical analysis of other emerging markets that have suffered a downgrade from investment to sub-investment grade actually reflects something different. “Markets are very good at anticipating what’s going to happen, and they price that in,” Knee explains. “They tend to perform poorly in the run up to a downgrade, but actually in the 12 months after that these assets generally perform better.” He studied a group of emerging markets that had all been downgraded from investment to sub-investment grade, and looked at how their bond yields, currencies and equity markets performed in the 12 months before and after the move. These countries included South Korea, Brazil, Russia, Greece and Uruguay.

The table below shows the changes to ten year bond yields in these countries immediately before and after they were downgraded. The chart is indexed to the downgrade point.

The general trend is clearly that yields expand leading up to a downgrade, but generally recover afterwards. “In Russia, for example, ten year bond yields were 6% lower a year before the downgrade, and subsequently in the 12 months afterwards they rallied 4%,” Knee points out.

He noted that the exceptions are Greece, where yields continued to rise, and Uruguay, where yields spiked so high that they wouldn’t have fit onto this chart. These were however countries that suffered a series of downgrades over a short period of time. “In a world where you get even a half-baked policy response, asset prices improve,” Knee says. “And we would say that there is a reasonably good chance that South African assets post the downgrade will perform okay.”

The chart below showing the real effective exchange rates of the currencies of these countries tells a similar story.

 

“There have been some examples where currencies have done poorly, but overall the average currency on a real effective exchange rate basis has increased relative to where it was at the time of the downgrade,” Knee says. “South Korea’s currency actually went up by 40%.” South Korea set the standard for how to deal with a downgrade, having managed to regain investment grade status in one year. “That shows that if you can get your policy response right, things can move very well for you,” says Knee. “But even some of those countries where the policy response hasn’t been fabulous, like Brazil, their currency has actually rallied in real terms.”

Given that the Rand has already depreciated by 50% since 2011, Knee believes that there is already a lot of bad news priced into it.

The effect of a downgrade on equity markets in these countries has been more mixed, but as the chart below shows, big losses are rare.

“If you look at the average, equity markets approaching the move to sub-investment grade tend to have modest bear markets and then track sideways for the 12 months afterwards,” Knee says. “There certainly isn’t a catastrophic decline.”

This suggests that a downgrade will probably not be profoundly negative for financial markets in the short term. What will really matter is the longer term policy response and how South Africa goes about getting back to investment grade status.

“There are significant concerns that are very valid about being downgraded, particularly because if you want to get yourself back on track it takes a long period of time and its incredibly painful from a macroeconomic perspective,” Knee says. “But in terms of the financial markets, the interest rate markets have done a lot of the heavy lifting already and the currency too. “With equities I think it depends an enormous amount on what happens to the US dollar and commodity prices,” he adds. “The South African market in our view does look slightly expensive on a real yield view so the market is vulnerable to bit of a re-pricing to get it back to fair value, but it is certainly not a train smash.”

Almost without exception, countries that are downgraded to sub-investment grade go into recession. It also takes them many years to earn back their credit rating [Minister Gordhan put this at 5 years when questioned on the time]. This is the real challenge that South Africa faces, the policy response will be critical. “There is a very tough road to tread and none of the policy decisions are going to come easily,” says Knee. “National Treasury and the Reserve Bank are world class institutions, but they’re not really in a position to lift potential growth for South Africa, which is what needs to happen. That needs to come from other government departments and other initiatives.”

What an amazing study and article!

Where does that leave us in the Property industry?

  1. If the Rand declines, interest rates will increase in order to quell inflation.
  2. If rates rise, affordability will decline and existing bondholders will sweat a little more.
  3. My view that rates will rise this year by 2% stands. We are currently at 1.25% increase and I cannot see that the SARB detracts from its path. In fact, I sense that the SARB is showing the Rating Agencies that it is independent and that it is willing to take tough decisions when they are well considered in the Monetary Policy Committee – in that sense, I believe they are part of the solution in the short term, even though SA is bleeding for growth and employment.
  4.  House prices will continue to decline and affordability stress will continue to rise.

But, we will have a market in property no doubt. And sales will remain in place, slower than now, but ever-present. Affordable housing will continue fairly unabated because government will continue to be a net employer though it may shed a few thousand jobs over time [remember, Minister Gordhan must cut government expenditure and part of that could be job freezes in non-essential posts]. It seems that fuel prices are the outlier and we should watch that trend carefully. Remember too, that only 10% of our debt is foreign and the balance is Rand-denominated. That means cost of funding may rise but the funds’ capital that is denominated in Rands, will not rise if the Rand weakens.

Anything can happen and may, But my sense is that Minister Pravin Gordhan and his team are the “men for the job”. If anyone was going to avoid a downgrade it would be him and if anyone is going to execute a recovery [like South Korea], he will. We have to remain hopeful that the rest of government and our politics, in general, remain on a steady and even upward, path of care and concern for our country. Anything less could harm all our peoples irretrievably.

There is nothing like a positive attitude at times like these. It seems cheesy, but we need to ask ourselves whether we are part of the solution or part of the problem. It is so easy to fall into the trap of negativity but it is men and women who have confidence and even faith, that lift the spirits of each other even under trying circumstances. In fact, now that I think of it, read Man’s Search for Meaning by Victor Frankl if you have any doubt.

Pregnant Property Pause? You bet! Watch this space……

Go well and see you again @ the Junction. Homeloan Junction, of course.

Yours in Property.

Where to Buy an Apartment

Looking to make an investment in a property? Homeloan Junction can assist you with a buy-to-let home loan. We are available online and our website has calculators and information to help you make a decision.

There could be a number of reasons to be thinking along these lines:

  • the kids will soon need accommodation while attending Varsity – so buy now and rent it out while they get on with passing matric;

  • perhaps granny needs to move into an apartment but needs time to get around to accepting the fact – buy now and rent it out until she gets used to the idea;

  • maybe looking to provide extra rental income each month for when you retire is the way to go.  By using a buy-to-let home loan and allowing the rental to pay for the apartment you will eventually have a steady income when the mortgage is paid off.

What’s A Buy-to-Let Home Loan?

It is exactly what it says it is! It is a home loan to enable you to purchase a property with the intention of leasing it out, and not to live in it at that time. It is a long-term investment with eventual benefits. It can provide additional income for retirement or be used to finance your children’s further education by having an asset against which to raise finance.

What?  Where? When?

1. What: As seen elsewhere in the world, the property market has seen ups and downs but as a long- term investment, property is a sound choice. Good returns have been experienced by the rental market in South Africa. Smaller homes in the middle to lower price range are soughtafter as rental properties. This pinpoints those who are not yet able to afford their own property. Sectional title, flats and apartments are exceptionally popular and always in demand – especially smaller apartments in the bigger cities.

2.Where: If you intend buying an apartment to eventually live in, or for the children when they attend University, the choice of where to buy is narrowed down. When purchasing an apartment to rent out, it would be best to consider an area with has a high requirement for rentals which will see it fully rented out. As mentioned, the bigger cities project the biggest demand and enjoy the higher rentals.

The northern areas of Johannesburg are the most popular neighbourhoods to look at when wanting to apply for a buy-to-let home loan to purchase an apartment. Areas to consider are Parkhurst, Parktown, Parkview, Hyde Park, Houghton, Melrose, Sandhurst, Saxonwold, Illovo, Inanda and Dunkeld. Students always require accommodation so other areas to consider are in reasonable proximity to the Universities.

Cape Town is always popular with tourists and its wonderful beaches, mountains, wine estates and upmarket residential areas are appealing. You can’t go wrong when buying in one of the following Cape Town neighbourhoods: Bantry Bay, Bakoven, Fresnaye, Green Point, Mouille Point, Camps Bay or Clifton. City Bowl is also a sought after area and growing in popularity. The cosmopolitan lifestyle enjoyed in Cape Town is a huge draw card to one of the most constant property markets.

3.When: The sooner the better! There is no time like the present. Remember, we said it is a long-term project and investment so best get started now.

Check List

Here’s a checklist of things to bear in mind when you buy that apartment:

Tax

It would be practical to consult with your accountant as to what the tax implications could be with the acquisition of a new property. They will advise you at which rate you will be taxed with the rental considered as additional income; what to expect in view of capital gains tax and if there are any tax deductions that could be applied.

Savings

The less you borrow as a buy-to-let home loan, the greater your eventual profit will be.

Comprehensive investigation into your investment is a must to ensure you make an informed decision based on sound advice. This is where your estate agent and bond originator can be invaluable. Do you require a deposit? What is the interest rate expected to be? Is the neighbourhood safe and settled? Knowing the average rental in the area will indicate what you could expect as a return.

Quality

Choose a property that is in relatively good condition as you do not need to pay for extensive repairs. Cosmetic improvements, such as repainting and garden improvements, is always a worthwhile exercise.

Terms

Weigh up the advantages of a loan over a shorter term with a higher monthly payment, opposed to a lesser amount over a longer period of time. Inquire if the loan can be repaid sooner than the agreed period, and if so, what penalties will be incurred.

Our home loan expert will be happy to guide you through your application for your buy-to let homeloan. This service is provided free of charge and will save you time and stress allowing you more time to dwell on becoming the proud new owner of an apartment. Get in Touch with us for more details

How Real Estate Agents Can Help You

Homeloan Junction is an established home loan origination company that has been in the property market since 2003. Our relationships are of the utmost significance to us and we focus on carefully nurturing them. Our invitation to join us extends to customers, banks and financial institutions, conveyancers and estate agents, all of whom we work closely with to ensure you receive outstanding service with long-term benefits.

Why Join Homeloan Junction?

You will begin your one-stop-business-journey to purchasing a new property when you join Homeloan Junction. Our experienced consultants keep themselves informed of the latest trends and developments in the property market which enables us to advise you according on your specific needs.

Our business connections allow us to submit your loan application to 9 different banks. Our knowledge of their products will make certain that you receive the best deal possible under our guidance. We will assist with all the paper work and other details involved, saving you time, effort and the frustration of dealing with a number of different banks.

Perhaps you have not yet set your heart on a property but have been exploring the size of the bond you would qualify for to enable you to look to buy in the correct price bracket. Our online calculators will enable you to estimate the affordability, savings, bond and transfer fees of your future homeloan. We have much information to help you in making this significant decision. Please take time to browse our website.

Working With An Estate Agent

We work closely with estate agents and value their knowledge, experience and assistance in finding you, the home of your dreams. Here are 5 tips to getting the most from your Estate Agent:

Tip #1 Do You Come First?

Working with the right estate agent is important as buying a home is a sensitive and emotional experience. You need to feel comfortable with the agent and confident that they understand what your needs are. You will soon pick up if the agent you are working with identifies with your requirements and the type of home you wish to live in. If you are repeatedly shown unsuitable property, they don’t understand you. It usually pays to stick with one agent that you work well with until you find your purchase.

Tip #2 Do They Have A Good Track Record?

Make sure that you chose a reputable real estate company, and an agent, with track records that they are proud of. Don’t be afraid to ask about accreditation and test their knowledge of the area and prices by asking about property recently sold. They are normally linked to multi-listing which gives them a broad base from which to choose suitable homes to show you. They might even email you a number of properties to look at and receive your feedback on to better gauge your preferences and taste.

Tip #3 How Good Is Their Local Knowledge?

There are advantages to working with someone who specialises in an area and knows it well. They will have knowledge on the public transport, schools, shops and sporting facilities that most families will no doubt need. A worthy agent will be on good terms with other agents and realise the benefit this holds to those in the industry. They will also know about all the homes for sale, those about to be sold and what other agencies have on their books. In a case such as this, they will share the sale and happy to do so if the client finds their home.

Tip #4 Are They On Your Side?

Agents work on commission and in most cases represent the seller, which is understandable as they pay the estate agent’s fee. Be sure that the agent you chose to work with will also act for you by putting forward your questions, negotiating with the seller and disclosing any relevant information. An estate agent is required to act on your instruction but sometimes will impart alternative suggestions for you to consider. Real estate agencies have recourse to legal advice and they will advise you when they feel that you need a lawyer should things not run smoothly.

Tip #5 Do They Have Helpful Connections?

A good estate agent will be knowledgeable about municipal requirements if you wish to make alterations or carry our renovations. They will also know of qualified engineers, builders, contractors and workmen to refer you to which would be helpful if you are new to the area.

A Sweet Ending

Finding an estate agent who will take an interest in you and put in every effort to see a happy client at this stressful time in their lives is really the cherry on top when it comes to house hunting. To make sure that you don’t end up in a gingerbread house, let Homeloan Junction help you secure the best home loan and terms available. We have a 70% approval rate on all home loans we put forward.

Homeloan Junction’s head office is situated in Gauteng but we have branches and consultants in 7 provinces and in cities throughout the country. You could even join Homeloan Junction and enjoy a career as an independent homeloan originator under our training, guidance, using our products and network.

Homeloans and home ownership always remains interesting.

We return to buy-to-let.

Here are some solid thoughts for those of you privileged enough to afford a property investment.

  1. Remember to buy close to home. Think of it this way: Trouble equals distance squared. Ever tried to find a plumber to fix a geyser in another town. ever tried to sort out a non-paying tenant in Durban when you live in Johannesburg? One of the benefits of investing in property is that you can “touch and feel” the investment; be close enough to do so simply.
  2. Avoid maintenance as far as possible. That beautiful lawn, the sparkling pool, both can become nightmares in the careless attitude of a tenant. Similarly, look for a property where painting on the outside is kept to a minimum. There are many lovely complexes that are built with face bricks and only gutters, window frames and doors to be painted. Linked to this thought is the question of high rise buildings. A lift replacement in the retirement village in Hermanus has just cost R2.5m for only one floor and the Body Corporate has been saving for 3 years to do it. what you can see immediately is that it has come at the cost of painting and other maintenance. So try to avoid buildings with lifts in favour of stairs.
  3. Remember to retain a kitty for unexpected repairs. Stuff happens and your tenant will not appreciate a slow deterioration of carpets and fittings as you annually increase the rent. Prepare for some push-back and ongoing renovation. You also don’t want to lose on resale because your property is old and tatty.
  4. Secure your tenant contractually. I have just has reason to negotiate a Rental agreement. Rawsons have an excellent offering and the agent was highly experienced in his field – something it is always good to enquire about. However, Just Letting have Rentsecure for almost the same monthly fee. This policy enables your rent, less the 8% fee in total, to be guaranteed every month. If the tenant hasn’t paid, Rentsecure ensures the collection process until the tenant is up to date and will even initiate eviction processes if required. That’s cool to have when needed – collections and evictions can be expensive and time-consuming. Contract with your tenant without exception. a handshake is very difficult to manage legally if and when required. Furthermore, details around behaviour, alterations, pets etc are left in the air if you cannot prove what is considered acceptable. Finally, contracting collections and inspections by a reputable letting agent may look expensive but is well worth the while when required.
  5. Pay off the bond as quickly as possible and make sure it is an access facility. The purpose of having an investment property is to provide an asset to invest further. Just because the bond is being paid by the tenant is not a reason not to pay it off quicker as you are able. once you have the bond reduced or paid off, use it to invest again in whatever you choose. This does two things, a. It enables you to take risks using a non-primary property as collateral so in the event the business does not go well, you don’t lose your family home, and b. The ability to access your bond gives you the chance to take advantage of investment opportunities that arise in a number of markets, for some, even the stock market.
  6. Pick your spot wisely. Close to the Gautrain is popular and tenants will always be plentiful. On the other hand, close to schools and amenities will be popular for young families who often become good tenants. To the later point, a good tenant does not always pay the highest rental – I will often reduce a rental for a longer term or decrease a contracted increase percentage in appreciation of a tenant who looks after my property as their own and always pays on time. Often new property investors struggle with the thought of vacancies and to them I would say: There is always a tenant, there may not always be a high rental. Pretty cheesy if you have to earn a certain amount of rent to pay the bond but then maybe you should have waited and saved a bigger deposit before buying your investment property.
  7. Check out the returns: the following calculations are contentious but when I calculate my return on a property, I use the total cost as the base. See the following example:

Total cost: R645000

Rental per month net of services and levy: R6000

Return per annum: 11.2% [72000/645000*100]

By the way, this is a good return and you could expect less, say, 6-8% net. For this reason it is important to buy where you can expect a sustained capital growth.

Some would say that if I put down only a R100000 deposit and the bank financed the rest, then I could calculate my return as 72% [72000/100000] but I think this is nonsense particularly as the period of the bond increases and repayment occurs on the capital – you obviously use the net rent to do this so how can the return be so high. One thing is for sure in property investment – you don’t need to pay cash and can “gear” your investment with a smaller deposit relative to your bond size.

I’ve said it many times, an investment property or two prove a good long-term asset and give you financial choice when needed.

What’s Trending In SA Property?

The only constant thing about life is that it is never constant … and this is even true of property trends. Here in South Africa, we have experienced the opportunities that come with an economic boom, and stumbled on during a recession, so what now in 2016… and how do current trends affect your chances of securing a residential home loan?

The experts in the property world have varying opinions and expectations of what the market will be doing from here onwards. Their reasons for how the market has behaved in the recent past show as many discrepancies. So who to believe?  The Internet gives you plenty of access to information and opinion from well-informed estate agencies and property guru’s, but in the end you will have to choose to follow advice from those you trust.

A Little History 

It’s all been a bit of an economic roller coaster. The boom period preceding 2008 was wonderful for sellers, buyers and those in the property business. Equally delighted were the banks and financial houses as they were happy to grant residential home loans as South Africa’s interest rates were at an all time low. With the interest low, many people who previously could not afford the repayments of a residential home loan now qualified – although many viewed this easy credit as reckless lending.

A down trend followed with 2012 reflecting the start of a little relief, and an upward movement in the property market.  Fast forward to December 2015 and the economic disaster South Africans experienced overnight – so what to expect for this year?

What to Expect in 2016?

First-time home buyers seem to be driving the property market and the good news is that should this continue, we can hope to see a slow and small growth in the price of properties as the demand for properties remains. There is a twist to the good news, however, as this will be pertinent only to certain areas of the property market. The metro areas throughout South Africa have seen home prices rise – Santon, Umhlanga and Cape Town – and look to continue being popular.

The Atlantic Seaboard has always enjoyed rising property prices and the feeling is that their upward trend will continue – albeit slowly – as prices are still considered to be undervalued in this area. The fall in the value of the rand to the dollar is an attractive incentive for overseas purchasers.

One will not be criticised for being cautious, as the general opinion is that the residential home loan and property situation will have a very slow start in 2016. The shortage of property to sell will warrant that the prices of homes continue on a gentle upward climb.

Residential Home Loans – Why Go it Alone?

Although being careful, banking institutions are still looking to finance potential homeowners. This is evident in the larger value of the bonds being extended and a reduction amount of the deposit required. If you are a buyer and you are looking to purchase a home, being aware of popular trends makes sense. Most estate agents are willing to talk to you and walk you through all the pros and cons of making the decision of where and what to buy. Every potential homeowner has unique requirements and being able to discuss these with an experienced agent is always helpful.

An advantage to deciding on a property to purchase is to pre-qualify for a residential homeloan. Qualified estate agents and home loan originators work closely to ensure you receive exceptional service and advice. At Homeloan Junction, we will assist you with all the paperwork when you apply for home finance and our service comes at no cost to you.

You are under no obligation and we will make sure that you receive the best possible deal from the 9 different banks we approach on your behalf. Our experience and relationship with financial institutes will work to your advantage. This pre-qualification will allow you to gauge your credit rating and realise which price bracket the property you can afford falls into.

The Move is Towards…

Living close to CBD’s, sectional title developments, flats, apartments and complexes is the way things are moving. High density city areas are proving to be the most popular areas for buyers in the market today. Cutting costs on the size of your home, travel expenses and finding advantages in density living is the tendency today.

The tough economic forecast and the rising cost of living that South Africans face, coupled with higher interest rates and a shortage of sought after stock is the test for the 2016 property market.

STEADY AS SHE GOES

With compliments of Moneyweb, Today we refer in this bog post to this article ,dated 30 March 2016.

“Brace for Staid Growth” is not the most exciting headline I have read lately. But let’s face it, compared to some of them we have been reading this year, it borders on good news.

When I look at gross yields on property around 7%, they’re not exciting. Levies and rates, never mind maintenance and the odd bad tenant, deserve a better return – especially if your property is bonded and interest rates have risen.

As usual, John Loos of FNB has an interesting take on this issue. Average Price-Rental Ratio, used in the calculation of January’s CPI [inflation], is only 5.2%. this points to the low increase in rentals paid and is positioned relative to house prices which grew last year by 6.5%. So, roughly speaking, rentals are rising slower than the cost of housing and yields are therefore deteriorating. Even rent escalations of 8-10% need to be carefully considered as cash-strapped consumers/tenants battle to afford increases. As a rule of thumb, you can always get a tenant, but you can’t always get a rental – keep the good tenants; the cycle turns.

However, Ian Fyfe of Financial Mail fame, always used to say it’s really nice to be able to touch your assets when it comes to property. Compared with what Robert Kyosaki calls “derivatives” [what we would normally just call “shares”], where you have paper money, property can be seen, felt and admired. Allied to this thought is that your property may not have risen much in value over the past few years, but you never breathed anxiously after Nenegate to until about a month ago when the stock market collapsed from 53000 to around 47000 in huge, unexpected jumps down the Chinese mountain. You were steady, not staid, as she goes.

One of the other problems, in fairness, is that many properties have not grown in resale value over the past 5 to 8 years. A friend was telling me that properties sold in 2010 have grown from R600000 to R630000. That does not sound good and coupled with a 7% gross return on rentals, definitely isn’t exciting. One of the aspects that impacts on rentals is the level of building activity.

According to Jacques du Toit of ABSA, the share of total building as at January 2016 is:

Houses <80m2 is:         37.7%

Flats is:                        35.5%             

Houses > 80m2 is:        26.8%.

This means that 70+% of all properties built were in the “rentable stock”. It could be implied that stock levels may be supressing rentals. I must add though that the Building Confidence Index has only just managed to scrape through the 50% barrier and is nowhere near the heights of 2008. Caution still rules in the minds of developers. This may sway them from further developments.

Lightstone have an interesting take on these matters. House price rises peaked in 2015 at 5.8% and ended Q4 on 5.5%. however, they project house price increases in 2016 between 4.5% and 2.5%. They quote the following reasons for this state of affairs:

·       Looming recession in an economy certainly under strain

·       Less speculation and home improvements

·       Inflation & interest rate present a double whammy on household pockets

·       The luxury property market is leading us through the down turn.

Very interesting and quite gloomy considering some of the early-2016 thoughts from both FNB and ABSA. So, do you invest in residential property? My personal view is, yes. Have some in different areas and different demographics so that your share portfolio is diversified into some physical assets, together with cash and shares.

I see FNB in their Property Barometer of mid-March 2016, sense that the Repo rate will “settle” at about 11% in 2017. Interesting, that is a rise of 1.25% this year. Clearly, this is off my expected 2% and very positive if we can hold steady through the rating agencies’ re-rating in June and August 2016. In fact, it would be a great outcome before hopefully, the rates stabilise or begin to reduce slowly. Also very positive for us all was the speech by Governor Yelland of the Fed yesterday who pointed to the fragile US economy as a reason not to increase rates. This has pushed the Rand back through the R15.00 collar and as I write, it is trading at R14.95. Awesome news!!

So, 2016Q1 is completed. Tomorrow is April Fools’ Day. And all the fools are still here. Remain positive in the strained environment – there is no better way to wake up in the morning than with a positive attitude.

Yours in Property