Go Big or Go Home

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A bond repayment calculator makes light work of trying to work out what monthly repayments will be required when taking out a bond. It certainly beats frantically scribbling down numbers and firmly thumping your calculator while your blood pressure rises!

Everyone’s dream is to own their own home, but you need to make sure that you can afford the monthly repayments before you take on such a big financial commitment. Mortgage repayments can change from time to time if the interest rate is linked to the prime rate. A financial provider is sometimes agreeable to a fixed interest rate, if this is what you favour. Terms of a home loan are flexible and range from between 20 to 30 years. As this is an extensive time period, one should carefully calculate the affordability of the loan amount you settle for.

To help home owners get the feel of the responsibility attached to taking out a loan we have a bond repayment calculator on our website. This is a tool which bond originators supply to assist a prospective homeowner like you to calculate various mortgage repayments.

Bond Affordability Calculator

A bond repayment calculator will work out the size of the bond you qualify to apply for. By visiting our website you will be able to get an idea of what bond repayments you can afford each month. There are many factors that come into play and which can affect the bond you are offered. The general idea is that the higher your salary, the larger the bond you would qualify for.

However, a person earning a large-numbered salary but having many obligations (debts) could find that they qualify for a smaller mortgage than another applicant earning considerably less but with no serious commitments. This is called the DTI ratio (Debt-To-Income) and is used to calculate how much ‘extra money’ one has after monthly expenses are accounted for. Every person has unique circumstances and requirements and we will treat each application with these distinctive factors in mind.

Bond Repayment Calculator 

What portion of your salary should you spend on a bond each month? This is another situation which will rely purely on individual circumstances.

  • The traditional rule of thumb consideration is mortgage repayments should be no more than 30% of your pre-tax salary. Another conservative view is that it should be not be in excess of 25% of your take home salary.
  • Most banks prefer a deposit before granting a home loan as 100% loans are hard to qualify for.
  • The calculator will give you an idea of what your monthly repayments could be. A different interest rate will alter your monthly payment as will the time period in which you chose to pay it.
  • By paying back more than the stipulated amount, an exceptional difference in the eventual time and amount your home will cost you.
  • We suggest you to play around with numbers on our bond repayment calculator and have your questions ready for us to help you answer.

The Big Picture

Sound advice is to take into account the whole of your housing obligation and not only the mortgage. Your housing budget should include your bond repayment, municipal rates and taxes and home insurance. Do not be drawn into over-extending yourself as what seems affordable today could be very uncomfortable down the line. Children grow up, educational costs increase and perhaps supporting a parent will come into the equation, not to mention maintenance and repairs.

This is a long-term commitment and it is wise to consider all factors. Research residential areas before deciding on a home that is affordable.  Where is there expected growth? Will the location work for the family’s needs?

Place the purchase price, years you are planning to repay the bond in, current interest rate and your expected deposit amount into the bond repayment calculator to get the big picture on what the real monthly mortgage costs will be. Homeloan Junction has a separate calculator to help you ascertain your bond and transfer costs.

Loan – To – Value Ratio (LTV)

Giving financial assistance to home buyers is a risk for the lenders. They want to be sure that their money is repaid, with interest of course, and in the event of any unfortunate circumstances that they are not the ones to lose financially. Therefore the bond you are granted will also be linked to the property you wish to purchase: what it is valued at and what the asking price is. Being able to recover their money is an important consideration.

Smart Thinking

Being cautious does not mean doom and gloom and your dreams flying out the window. Perhaps a little trade-off is all that is needed: buy a smaller home that can accommodate renovations or alterations at a later stage. The cheapest house in the best neighbourhood is an alternative view as you cannot over capitalise and all improvements will add value to your home. Do you have to buy a small home in the newest trendy area? Think about the well-established areas with older homes that have huge rooms, established gardens but need just a little tweaking to make them your dream home.

Use our online bond repayment calculator to see where you stand, and contact us for expert consultation on applying for your homeloan. You can go big on your dreams and go home with the help of Homeloan Junction.

Your in Property

Vincent

THE BUDGET AND PROPERTY

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It’s that time of the year – National Budget 2016/17.

Let’s have a look at highlights and think about how that may affect the property market.

In providing the following overview, I wish to thank Moneyweb for excellent coverage of the Budget and its ensuing Press conference.

For sake of brevity, the highlights are:

  1. Budget deficit is reduced to 3.2% of GDP, down from 3.9% achieved in 2015/16 tax year.
  2. Government debt to rise by 11% to R2 trillion or 45.7% of GDP. Total debt will stabilise at 46% over the next two tax years.
  3. Increased Treasury oversight of State-owned enterprises (SOE’s) and the investigation of the sale of minority equity stakes to private investors.
  4. No increase in personal income tax (of 13.7 million registered taxpayers, fewer than 1 million individuals pay 64% of personal income tax revenue) or VAT.
  5. Tax relief of R5.5 billion to limit the impact of fiscal drag with the majority of the relief aimed at lower- and medium-income earners.
  6. Increase in the effective Capital Gains Tax rates for individuals (from 13.7% to 16.4%) and for companies (from 18.6% to 22.4%).
  7. The fuel levy will increase by 30c/litre.
  8. Government to implement a new sugar tax from March next year.
  9. Increase of transfer duties on property sales above R10 million.
  10. Sin taxes will rise. Duties on malt beer, fortified wine, sparkling wine, spirits, cigarettes, and cigars rise between 6.7% and 8.2%.

Government has committed to the following expenditure cuts:

  • Costs of travel, accommodation and conferences for public officials. The target is to save R1.6 billion over the next three years.
  • Vehicles for politicians (Cost of new vehicles limited R750 000).
  • Government to renegotiate leases of properties.
  • Procurement reforms to achieve savings of R25bn per year by 2018/19.

As regards the economy, Finance Minister Gordhan fell short of implying a recession would occur. From 2014/15 onwards the following were his GDP growth and CPI projections:

GDP growth:                            1.6%      0.9%      1.2%      1.9%      2.5%

Consumer price inflation (CPI):  5.6%      5.4%      6.6%      6.2%      5.9%.

These targets are crucial for another aspect of government finance, namely the Budget Deficit [how much government needs to borrow], % of Debt to GDP [self-explanatory] and the cost of repaying debt [very self-explanatory]. From 2015/6, the numbers are:

Budget deficit:                           -3,9%                   -3,2%                 -2,8%                 -2,4%

Debt as percentage of GDP:        44.3%                  45.7%                 46.2%                 46.2%

Debt service costs:                     R129.1bn             R147.7bn             R161.9bn             R178.6bn.

The final numbers are the quantity and cost of the Public Service this year and next year:

Total public wage bill for national and provincial departments:        R479bn                 R509bn

Number of employees for national and provincial departments:      1,316m                 1,321m.

Finance Minister Pravin Gordhan professionally presented a budget that was geared to improve South Africa’s financial position. On the positive side he achieved this by not raising personal income taxes or those of companies. In addition, he avoided raising VAT which was no doubt well received. His willingness to reduce the budget deficit, which fell from 3.9% to 3.2% this year and is expected to decline further to 2.4% over the next two years, is positive. The fact that he did this by decreasing the cost of government goes beyond the token savings of the last few years.

His difficulty was explaining how GDP growth will be enhanced [by the way, this is not only his job] and he certainly did not cut actual government expense. In addition, the recent decline of the Rand has caused our Foreign Currency debt [only some 10% of Total Debt, thank Goodness], to rise by R45bn. A strengthening of the Rand will decrease that so we need that enhancement badly at least to get us back to our pre-December position. GDP growth also needs to accelerate to positively impact on the above numbers.

Continuing to quote Moneyweb’s articles, Gordhan said: “We need to be frank about South Africa’s economic constraints. We have low growth which leads to reduced tax revenue, lower scope to increase expenditure and lower confidence levels,” he said during a media briefing.

He added that government cannot solely be responsible for growing the economy and that the private sector must come to the party. “Both government and business must do what they can to increase growth and to avoid a downgrade.”

Gordhan was critical of the dismal financial performance and low levels of efficiency of many State-owned enterprises (SOE’s), such as SAA and Eskom. Government has already provided support in the form of guarantees, which now total R467 billion or 11.5% of GDP. The technically insolvent SAA is at the top of the agenda and has received bailouts of R14.4 billion.

To analyse the above highlights, we firstly need to ask whether FM Gordhan has the political support to see this budget through. If not, we are in serious trouble and only the government has the ability to ensure this vital ingredient.

On a positive note:

–          He presented professionally and was in command

–          We have no increases in income tax that could affect affordability

–          R5.5bn has been pumped into the Affordable and lower Middle market sectors through income tax cuts

–          The cost of buying houses has not changed but for those from R10m upwards

–          The fuel levy is not a major issue for affordability

–          CGT’s rise should not really impact anyone but the rich

–          If he is right, we are not facing recession which many of our well-informed global advisors seem to expect

–          The Rand has generally strengthened in recent days, despite the drop because of Brazil’s downgrading two below junk bond status

–          And, on the lighter side we will drink less, smoke less and consume less sugar!

It was interesting to note his Inflation forecast. It was way below the number of 6.8% average I quoted for 2016. Should he prove correct, this will alleviate the need to raise interest rates much further. We could probably expect then only another 0.5% being a total of 1% for this year. This reduced increase could be offset by the R5.5bn tax relief provided in the lower income market.

There is much to be grateful for in this Budget when considering the property market.

However, South Africa remains in dire straits and those who poo-poo a Rating downgrade have no idea how much value it will destroy. Every person in this country will feel the pain economically. Minister Gordhan has probably done his best within the constraints of political will, to present the rating Agencies with a reason to not downgrade us. Time will tell.

Yours in Property.

Jack

4 Brilliant Old School Property Tips

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You’re thinking of selling your property, but how will you get the best price? The value of your property is only worth what a buyer is prepared to pay for it at any given time. If a prospective buyer wishes to raise a home loan to purchase your property, the assessors of the financial provider will need to find sufficient value in your property to merit financial assistance. Will they find this value in your property?

Tune In To the Market

Speak to the professionals and obtain an unbiased and professional opinion on the estimated value of your property. Estate agents will possibly be happy to grant this visit and give their evaluation of your property freely.

However, you might have to pay for the professional advice of others you might engage, such as an engineer, if you are unsure of certain existing or proposed new building structures. You will need to ensure that your property is cleared in terms of the certificates of compliance: electrical and termite soundness.

In accordance with the CPA (Consumer Protection Act), all information must be disclosed to a prospective buyer. It would be wise to maintain and repair while living in your home and not to not allow it to deteriorate over time, which could ultimately prove costly.

Good Old-Fashioned Tips for Adding Value before Selling

  • Professional Opinion
    Paying for a consultation with a professional could be well worth the upfront cost and add value when a buyer applies for a home loan. Persons with a trained eye and experience will quickly realise which changes will make an enormous impact. The removal of a wall can create an impression of space and give an updated open-plan appearance to a home, which could translate into a quicker sale at a better price.

    It is advisable to have serious alterations performed by professional workmen. The quality of the repairs will be evident in the time saved and value added to your home.

  • Bathrooms
    Bathrooms and kitchens are the rooms that date a home and are especially important in a selling market. An olive green bath, toilet and basin in a setting of busy brownish coloured tiles, is enough to trigger a bout of depression.

    Entering a bathroom with pristine white porcelain set against neutral light stone-coloured tiles and effectively lighting, immediately creates images of relaxing in a bubble bath, sipping a glass of wine and listening to Andrea Bocelli…

  • Kitchens
    The amount of time spent in the kitchen cannot be denied. Crowded, sad-looking work areas, insufficient light and undersized storage spaces will kill off any Master Chef aspirations in anyone.

    Repaint the cupboard carcass but think about replacing the doors. If the doors are wooden perhaps sanding them with a fresh coat of varnish will restore the original glow. Textured paint finishes were the trend a while ago; but today consider having a white, or neutral coloured, coat of paint professionally applied to the cupboard doors.  The state of the counter tops should also be taken into account.

    It might be prudent to allow certain appliances that have custom-built spaces, such as a really large double-door fridge, to remain as an added incentive to the buyer. Besides, it would probably be difficult to accommodate it in your new home.

  • Cleanliness Is Next To Godliness
    This is a proverb which should take you back to your old school days when you had to learn lists of sayings, and it is brilliant advice when selling a property. Nothing comes close to discouraging a buyer as does dirt, clutter and bad odour.

    Firstly, pack away the clutter. Yes, you have been meaning to get to it, but now is the time to do it. Sell it; give it away or if you are unsure: pack it up, hire a storage garage and put all “clutter”, including excess furniture, out of sight. The importance of visual space cannot be over emphasised. Your home will be lighter, brighter and appealing without subjecting buyers to visual overload.

    Why does your home smell old and musty? Is there damp to be dealt with; do the carpets need to be removed or is it too crowded with furniture, books and belongings? If the task appears daunting, hire an interior decorator or professional cleaners for help.

    You will be given advice on how to put your space and furniture to effective use. Professional cleaners will not only pack away excess goods but will bring in a cleaning team and soon have your home fresh and sparkling.

  • De- Personalise Your Home
    The truth of the matter is that others are not as interested in your special mementos, family photographs and Aunt Susan’s grotesque ‘silver’ vase you keep so as not to offend her. Your prospective buyers will want to imagine themselves in the home, adding their own personal touches, valuables and belongings.

An opinion is formed within the first few seconds of contact. This is true, especially when viewing a property. A beautiful approach and entrance to a property will win anyone over leaving them anxious to discover more. A tidy, well laid out and cared for garden is an asset to work on. A well-presented clean home with a wow entrance and approach will be a sure winner in acquiring a home loan for the property you have fallen in love with.

Estate Agents you can help Your Buyer Qualify for a Home Loan by asking them to get prequalified. Get in Touch with Homeloan Junction for more details about our homeloan options.

Yours In Property

Vincent

 

Are you living dangerously?

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A home loan is the means that allows most people to buy a home.  Your home is your sanctuary: the place where you can relax and be yourself; the place where you can entertain and enjoy your spare time and most importantly, a safe space to raise a family.  However, have you made sure it is really safe?

In South Africa we all know that the crime rate is very high.  In 2015 the crime statistics released by the South African Police Service indicate that there were 20 281 “robberies at residential premises” and there were 253 716 “burglaries at residential premises”. The difference in definition between robbery and burglary is that burglary is the illegal entry into a premise with the intention of committing a crime (mostly theft), and robbery is theft that is accomplished with force or the threat of force (such the use of a weapon or violence).  A sobering thought.

None of us wish to end up a statistic.  We also do not want to live our lives in perpetual fear.  So what can do to make sure you don’t become a victim of crime in your home? Your home loan secured the house for you; now you need to secure your home.

Home Security Tips:

1. See it to Believe it!

The first thing you can do is look at the physical security of your home.  In times gone by you could build a deep moat inhabited by crocodiles.Today it is more customary to build a wall or fence around your perimeter.  Whilst many people choose a wall for aesthetic purposes, bear in mind that there is much more visibility with a fence and it makes it more difficult for an intruder to gain entrance to your property without being seen.

Burglar bars, security gates, electric fencing, razor wire.  These are all examples of devices that can be used to physically protect your home and its occupants.  You can often structure your home loan in such a way that you have access to money to finance these options.

2. Sound the Alarm!

Another obvious way of securing your property is using an alarm system.   This could be a sophisticated alarm with beams in your garden, motion detectors in the house, panic buttons, sirens, and a radio signal to an armed response company. It could also be a simple, makeshift, early-warning system.

3. Bring the Village back to the Suburbs

Most of us do not know our neighbours. High walls or fences separate our properties.  In the suburbs many live an insular existence, retreating into their homes behind gates and locked doors.   Have you considered how different it could be if you knew your neighbours?  What if your neighbour was keeping an eye on your house because they knew you were away?  How would it be if you could message your neighbour that there is a suspicious looking character loitering in the street?

Modern technology can be a facilitator for creating community and safe spaces. A Whatsapp group including all the people in a street or neighborhood can be a powerful tool to connect people and share information.  A Facebook group can assist people in getting to know each other, and create a community that feels connected and looks out for the welfare of others.

Now that you have the home loan and you have the house…

International statistics show that the majority of thefts in the home occur within the first twelve months of moving into a property. This is even truer in South Africa.  You are new to the area, and to your home, and you are not yet aware of the vulnerabilities of your neighbourhood and your house.  This makes you a prime target.

The best advice I have heard in this regard is “act like a skelm”.  Approach your home as if you were a thief that wanted to exploit the vulnerabilities your home presents.  Most burglaries are opportunistic – the weakness presents itself and is too good to pass up – and if you “case” your own property you can see what changes you need to make.

Your home loan has assisted you in getting your dream house.  Don’t let it become a nightmare.  You can secure your home by making simple changes and being more aware of your surroundings.  Connecting to your community, or being the catalyst that creates a community, is a worthwhile and valuable endeavor.

Yours in Property

Vincent

INTEREST RATE REVIEWS AND THEIR IMPACT ON OUR HOMES

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A very interesting week last week. Two interest rate reviews, one up and the other, sideways.

But before we think about the effect of this on our home and homeloan businesses, here’s a quote from Ayn Rand to encourage you:

“In the name of the best within you, do not sacrifice this world to those who are its worst. In the name of the values that keep you alive, do not let your vision of man be distorted by the ugly, the cowardly, the mindless in those who have never achieved his title. Do not lose your knowledge that man’s proper estate is an upright posture, an intransigent mind and a step that travels unlimited roads. Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach. Check your road and the nature of your battle. The world you desired can be won, it exists, it is real, it is possible, it’s yours.”
– Ayn Rand

On 28 January, the Monetary Policy Committee of The South African Reserve Bank [SARB] announced an increase of 0.50% in the Repo rate, which will result in the Banks’ Prime lending rate increasing to 10.25% with effect from 29 January 2016. This was the first interest rate review mentioned above.

A few comments:

  • I heard a leading economist interviewed this week and he would not be drawn into quantum of the interest rate hike in 2016, whether 1 or 2%, but he did make the point that it would be well considered and managed.

  • I did stick my neck out in the last blog and say 2 % this year as I feel the Rand and inflation will have the final say on how much.
  • As regards the Rand, it was wonderful to see it pull back; from the mid-R16 range, to about R16.26 to close around R16.18 on Friday. So the market was factoring in a significant rate hike on Thursday and got it.
  • We are between a rock and a hard place with the interest rate. From a growth perspective, we cannot afford rising rates. Both indebted business [Employment] and consumers [Affordability] will find the going tough. Harming either constituency will harm the country. Sadly, though, with the Rand slide by about R3 from R14 to R16 (and as high as R17) to the US$, Inflation will rise. The 6 tons of Maize being imported does nothing to improve the situation. Last year, Inflation averaged 4.6% and in 2016, is expected to average 6.8%. The SARB target range is 3-6%.
  • Remember, absolute versus relative maths. “Only 2.2%” does not seem like much Inflation, but it is 48% [2.2/4.6*100] more Inflation than in 2015. In turn, the 0.5% rise in rates is not “just half a percent”, but forms part of a 1.75% rate rise off the lowest base, 8.5% on 20 July 2012,  since 15 November 1973 [See the Chart attached] when it was 8%. Therefore in relative terms, the cost of interest has risen since July 2012 by 21% in three and a half years. That’s a lot more interest being paid.
  • The process is being well managed and is simply unavoidable. The SARB has done the responsible thing and protected the Rand exchange rate which has been in a mess even before El Nene given Emerging Markets battling a very strong US$. By the way, a stable exchange rate to all major currencies is one of the core functions that a Reserve/Central Bank executes. In addition, if our Finance Minister has any chance of staving off a Non-investment grade rating by the Rating Agencies, he is going to need a strong, independent SARB doing what is right for Inflation. Also, by the way, his fight with SARS is also very important as they need to collect the revenues in order to keep Government stable. In the absence of efficiency in SARS, taxes will go up much more in February.

So, to sum it up, the rate rise was good for SA Inc, Inflation and the Rand/$ exchange but bad for Debt users. Overall, probably unavoidable after December 2015. I sincerely hope my 2% rise (1.5% remaining) proves very wrong for us. Watch the Rand, Inflation, the Drought and Oil.

With less detail, the US FED decision to retain the US interest rate where it is was is also them saying they do not want to dampen the US economy. That is really good news as:

  • The stock markets accepted that as meaning the US economy remains strong enough for about 2% growth in GDP. Hence the global markets rallied somewhat.
  • That fact makes up for China and provides them some headroom to work through their issues.

So, overall, a good week for rates in a fragile environment.

So what about us, you ask?

FNB put the house price rise for 2015 at an average of approximately 6.4%. that would give a real price rise of almost 2% after Inflation. ABSA, in their January 2016 synopsis expects an approximate 5% rise in 2016 and this will result, as we can expect from the rise in Inflation, in approximately -1.8% decline in real house prices this year. They quote a number of factors but the one that would concern me the most is weak Consumer Confidence. But please remember, the reversal in the real house price growth rate is because of the large increase in inflation and not necessarily because less homes are being sold.

That means that house prices will continue to rise so the question then is:

–        What volume will be sold?

–        How much of that will I, as the estate agent/principal, sell?

My sense is that less houses will be sold this year and the affordable homes will continue to dominate sales. My reasoning is simply that affordability will be affected by higher interest rates and Inflation will eat away little by little at our disposable income. I expect some tax increases but I’m not sure if the Finance Minister will target the rich or make them across the board. I don’t think VAT will rise as it is just too sensitive – we’ll see.

The last question remains yours to answer. When all the pundits have had their say and I have written mine, you must decide if you are going to list less, show less and sell less. That answer remains with you and your energy and enthusiasm. Believe all you read and internalise it, and anyone could predict your outcome – sales will slide.

Read it, think it through and find the way around obstacles with optimism and determination, not letting  the hero in your soul perish, and you will enjoy success. Check your road and the nature of your battle. The world you desire can be won.

Homeloan Junction has made that decision and will be there to support you in yours.

Yours in Property.

Jack

What is Bridging Finance?

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Does this scenario sound familiar? Mark is planning to move to Pretoria with his family. The plan is to buy a new house from the proceeds of the sale of his current house. However, he will not be able to buy his new house before the purchase and transfer of the old residence is completed.

Fortunately, he doesn’t have to lose the new house. He may take a bridging finance option which will allow him to access equity from his current residence and use it as a down payment on his new residence. Does this sound like an option for you?

You’ve Sold … Now What?

Congratulations, you’ve sold your house! Now, all you can think of is moving on and getting into a new place. The only problem is that a seller of property is only paid the net proceeds from the sale on registration of transfer.  This can seriously hamper your style, especially if you’re in a hurry to get your family settled in a new home. Nobody likes disruption, and a house move is right up there with the major contributors to stress. Living in limbo is even worse! How can you secure that new home?

Registration of transfer is a lengthy process that can take up to three months or even longer. Fortunately, there are registered credit providers who offer sellers like you access to their funds within 24 hours in the form of bridging finance.

Let’s take a closer look at bridging finance.

Interim Financial Solution

Bridging finance is a short-term loan, usually for a period of two weeks to about three years. It is interim financing before a permanent loan or the next stage of financing is settled. Once the permanent loan is acquired, some of the money is used to settle the bridging loan before proceeding with the other financial obligations.

The Ins and Outs of Bridging Finance

Bridging finance is more expensive that other forms of financing. The extra interest levied on the loan takes care of the risk involved in dispensing the loan. The fee paid for processing the loan is also higher than that of conventional loans. There might be other costs that are amortized over a shorter period such as equity participation for the lender. When applying for a bridging loan, the lender may ask for collateral from several sources and a lower loan to value ratio in order to cover the extra cost. Nevertheless, the process of applying for the loan can be quite simple.

Bridging finance is very common in the commercial sector where the borrowers would like to have the finance to close on an opportunity. What about property deals? Many buyers take a bridging loan to buy a well-priced property, quickly. Others take such loans to prevent a foreclosure that could be in the offing.

What About Rates And Taxes?

Remember, there might be other costs which need to be paid for in advance, such as rates and levies. In order for a property sale to be registered with the deeds office, the local council needs to issue a Rates and Taxes Clearance Certificate. Any arrears on your rates and taxes account need to be settled immediately – what if you are not in a position to do this? Like Mark, you’ll need an advance to settle this bill, get the Rates and Taxes Clearance Certificate, conclude the sale of your existing property … and only then secure your new home.

Don’t let a small thing like settling your account with your local municipality stand in the way of moving on to a fresh start in a dream home. The bridging finance loan is paid back once such a property is sold or refinanced with another type of financing. A bridging loan may be all that you need to secure the residential or commercial property of your dreams.

One thing to bear in mind when you’re looking for a bridging loan: it pays to go with a registered credit provider to get competitive rates and fees.

Does it sound like you could use bridging finance to relieve your financial stress? Get in Touch

Yours in Property

Vincent

THE STATE OF THE MARKET AND THE GLOBAL ECONOMY: WILL YOU RISE OR FALL?

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My apologies for this blog so late in January 2016. To be honest, I have been thrown by the state of the market and the global economy. Little positive has come out of all the news and the negativity has taken on Grim Reaper proportions. Every article seems to be focussed on the negative and bad news aplenty has been there to write about. El Nino and El Nene, the collapse of the oil price, the pressure test of the Oil industry and oil-producing countries, threats of social unrest as the drought intensifies and the oil-based economies suffer, Donald Trump and Hiliary, and the Rand on its way to R20/$. Each and all contributed to a flood of depressing information.

But that said, some sanguine voices have arisen and a semblance of encouraging, well-backed information has begun to emerge. So let’s have a look at a few of the pillars that underpin some good news and find our way into February and beyond. Cliché or not, Henry Ford sounds clear: If you think you can or you think you can’t, you’re right.

Low Oil Prices: I often think Thank Goodness for the lowest oil prices in a decade. For the consumer of oil, that has been a saving grace. Imagine having to buy Oil at R16.50 per Dollar? I guess the price at the pump would be R14+. Macroeconomically, the oil price also contributes positively to Inflation which, as we see later, must be on the rise.

The problem that is being referred to by many writers, however, is the impact of low oil prices on the oil-producing countries. Of the BRICS countries with whom we have close co-operation, Russia and Brazil both have significant economies built on oil. Then there are the Asian countries like Saudi Arabia and closer to home, Nigeria and Angola. If a country endures dramatic, sustained drops in the price of its richest export, what happens to its people? Of course, the worst is feared especially at levels below $30. Today (25 January) it is up to $32.18 from last week’s sub-$30 prices. That could prove to be good news even for own Sasol.

USA interest rates rise: The USA interest rate rise signals the FED’s satisfaction with the US economy. 2% GDP growth is not fantastic but coupled with a 5% Unemployment rate, is cause for a small move. This is the first rate rise in 8 years and sent the currency markets into a flurry. Thanks to our Reserve Bank, we had already begun the process of raising interest rates. This did help cushion the decline of the Rand. The FED has signalled more increases but I suspect these will be 6 monthly and of the order of 0.1 to 0.15% – right now nobody wants to allow the US economy to stumble.

Inflation: The world has experienced extremely low inflation as the interest rates and China have functioned in tandem. Inexpensive production out of China to global markets and very low interest rates have kept Inflation at lows for record periods. But, post the sub-Prime crisis, the printing of money became commonplace and it was just a matter of time before inflationary pressures would reappear. Rather than focus on the rest of the world, South Africa will be hard hit by this issue. A weak Rand, set to weaken much further, and the drought with its Maize imports will hit Inflation hard. A particular make of 4X4 has risen from R713000 in 2012, to R890000 in 2015 to R980000 in 2016. That’s 13.5% per annum or twice the upper range of the SARB’s target. Far more relevant is the current requirement of Maize to be imported at a cost of R20bn; once we’ve paid for it, our producers need to make a profit on sale. The Poor amongst us will bear the brunt of the drought.

My sense is that our Inflation will rise significantly this and next year and exceed the target range of 3-6% even this year.

Interest Rates: In all of this, our interest rate was generally projected to rise by 1.5% from about mid-2015 to end-2016. My sense is that we could see a rise of another 2% this year in order to protect the Rand/$ exchange rate and in an attempt to curtail Inflation. This will result in a  corresponding rise in mortgage rates.

What is really positive is that Pravin Gordhan said last week at a Press conference that he would do everything in his power to prevent the Rating Agencies re-rating South Africa to non-investment grade (Junk bond) status. By the way, Brazil and Russia are already there and Saudi Arabia is, like us, on the brink so we are not the only ones in this pickle. The question will be if he has the resources in the budget to do so and a tax hike seems to be on the cards as part of his attempt. Sadly, a downwards rating will weaken the Rand and increase Inflation and interest rates.

China at 6+%: The way many people have been writing, you would think China is in recession. This is not true and that country is currently growing at about 6.8% per annum. Their stock market seems to warn of an underlying crisis but it has 50 million [you read right: Fifty million] personal investors and their layman’s view could be “run to avoid the stampede”. Assuming this is not the problem, the Chinese stock exchange should settle at a new, albeit, lower equilibrium, and stop spooking the other world markets.

Goldman Sachs report: Prime Minister Modi in India is credited with the revival in that country. India is growing at 7.2%  and has introduced business friendly policies that have brought about a marked improvement in growth and employment. China’s 6.8% is then ahead of Indonesia at 4.5% and Turkey at 3%. Overall, Goldman’s report puts 2016 global growth at 3.5% (2015: 3,2%), confirming the World bank view of 2016 growth between 3 and 4%.

It would seem therefore that many economies are progressing well even though stock markets worldwide have found themselves in a fear-and-greed state. The consequence of this is volatility and we will need to get used to it for the next quarter or two assuming the oil price retains some stability above $30 and China settles down enough for a recovery in commodity prices. Hold thumbs!

So, as we read about this mixed up world economy, there lies a decision for each of us – Rise or Fall. I understand that it’s “talking psychology” again but I think Henry Ford had a point. Why is it that some businesses will do well despite the headwind and others will crumple into a heap? Surely attitude, determination, a go-through spirit and sound leadership has a massive role to play. Look how India – complex beyond compare – can be turned around by a man and his vision translated into action by his government. Compare that to what we endure despite our blessed resources, sound financial system, great infrastructure and people; really, there is no excuse. On the other hand, we are not immune nor an exception – Australia is suffering the commodity price slump, Europe is struggling to come out of its economic woes, the whole of Southern Africa is in the grip of drought, and the USA and the UK are two of the most indebted countries on earth. But, instead of bemoaning our dear country, stand up and be the difference you want to and need to see.

Homeloan Junction will commit to putting its best foot forward. In doing so, thank you, in anticipation, for the support we will receive from you in 2016.

Yours in Property,

Jack

Buy-to-Let Home Loans

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Buy-to-let home loans are the smart way for South Africans to invest for their future. Buy an investment property while your children are young and when their college-time for comes around, you can borrow against the investment property to help finance their education. When the home loan is fully paid up, you will not only have a property but also additional income every month.

The way to make money on a house is to buy it and keep it for a long time.  It is a lucrative way to supplement your retirement income. Because:

● someone else’s money is helping to buy your investment property;

● when the loan is paid off, the property and the growth value is yours;

● a property can be used as a tax deduction;

● besides the maintenance, it is a relatively unencumbered investment with excellent growth over time.

Getting a Buy-to-Let Home Loan

A successful buy-to-let investment begins with thorough investigation into buy-to-let home loans. If you do your homework and seek the support and advice of an experienced estate agent or bond originator, you will likely do well.

The less it costs you to borrow the investment money the greater your profit will eventually be. The way your taxes are structured will play a role in your margin of profit. Consult with your tax accountant before making any final decisions.

Begin By Researching On Your Own

A buy-to-let home loan is an investment strategy that is growing in popularity with South Africans. If you think property sounds like a promising investment for you search for a buy-to-let home loan lender on the Internet. There are calculators you can use to find answers to preliminary questions.

Questions such as: how much you can afford to invest in a rental property; is a down payment required; what the interest rate will be; the term over which the loan will run; if the loan can be repaid over a shorter period without incurring penalties.

Study the Real Estate Market

There is certain criteria to look for in an ideal real estate investment property. If you look at small to medium sized single-family homes, use this checklist:

  1. The house should be in good condition. It is okay to refresh the paintwork and the landscaping but you do not want to spend money on expensive refurbishments to a rundown house.
  2. The wise choice of house is not the most expensive on the street. The least expensive would be preferable because you will realise increased value if the nearby properties are expensive.
  3. Check the selling history of the neighbourhood. Have prices gone up or down over the last ten years? You want to see a steady increase.
  4. Your investment property will be attractive to many tenants if it is near schools, parks, a shopping centre and public transport. A stable and safe neighbourhood is a priority.
  5. Check the average rental of homes in the area to help determine the possible monthly return on your investment.

It is advisable to view and research several different areas. A real estate agent would likely be helpful in your investigation and save you some time. This is especially true if you decide to invest in commercial property instead of residential. Comparisons will require extensive investigation.

How do Your Numbers Compare?

When you pre-qualify yourself for a buy-to-let home loan, you find out how much you can afford to borrow for an investment property. You will also discover how much the loan repayments will be every month. These will differ according to the interest rates and loan term.

You will need to juggle the advantages of larger repayments over a shorter period – resulting in an overall eventual saving – opposed to a lower affordable monthly repayment over a longer period.

Part of the equation will be whether you can expect to receive a rental to offset the monthly buy-to-let home loan payment.

This exercise will tell you whether an investment property is the right decision for you at this time.

The Right Decision for You?

In South Africa, the buy-to-let loan market is at an all-time high. Rent with capital growth has become a favoured choice for additional retirement income since the returns on traditional annuities and endowments have proved inadequate for retirees to live comfortably.  It is somehow reassuring to be able to drive by, look at and or even touch your investment.

Property is as valid as any other investment asset. Over the last few years property asset investments have outperformed many other assets investments. Banks are well prepared to help investors with the purchase of buy-to-let residential and commercial properties. Would this be an investment choice for you?

Yours in Property,

Vincent