2015 Property Market Trends

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Economics, or The Study of Graphs or e-Comics, if you prefer.

For some, as confusing as a dassie’s run, as unpredictable as the weather forecast and as boring as watching washing rotate. But for those of us who love e-Comics and follow the trends, always fascinating. Beware though, ignore it at your peril especially if you are taking on debt. On the other hand, don’t allow it to be the source of your motivation or else, your effort will undulate like an interest rate graph.

Be informed, be motivated.

So let’s unpack where we believe we stand at the moment and for the next year or two in simple language. Allow, as I broad-brush the issues, for some “averaging” that may not align with your favourite economist’s views.

Affordability: This aspect is really vital when considering buying a house. For the last 2 years, house prices have been rising. House prices alone contribute to affordability issues for buyers: not enough deposit and not enough disposable income to pay for the required bond. Interest rates have also risen and simply raise the bond’s payment per month. And finally, the National Credit Regulator [NCR] has been vigilant as regards affordability calculations that Lenders allow for their clients so it is increasingly more difficult to get a bond in the first place. Lets just take these three factors together and compare what can be afforded:

R40000 per month equated to R12000 [30%] per month and a bond of R1357910 at Prime of 8.75% over 20 years. [situation 2 years ago]

R40000 per month equated to R12000 [30%] per month and a bond of R1310234 at Prime of 9.25% over 20 years. [with 0.5% rate rise]

R40000 per month equated to R10000 [25%] per month and a bond of R1091861 at Prime of 9.25% over 20 years. [with tightened affordability]

These are rough figures but the net effect on the bond is R266000 less can be borrowed assuming you did not receive an increase. You probably did, but with it came increased “everything” that squeezed your affordability in any case.

Not sure what you can afford, Have a look at our online Affordability Calculator

House prices: Depending on who you read and the segment, house prices have been rising at a real rate of about 2% so make that about 8% per annum. Given that the same house is therefore getting more expensive, let’s see what impact the increases have on our affordable bond size, based on the above examples:

R40000 per month equated to R12000 [30%] per month and a bond of R1357910 at Prime of 8.75% over 20 years. At R10000/m2 and no deposit required, you could buy a house of 136m2.

If we just raise the price of the house by 8% per annum for 2 years, then your house area reduces to 115m2 which is much smaller. Put another way, at a 30% affordability factor, you would need to earn R46915 per month in order to afford the 136m2 house.

If we factor in the increased affordability criteria of 25% and the raised interest rate, your house size reduces to 109m2 and your salary per month needs to increase to R58393.

Once again, rough figures that show the effect on affordable house size and required salary as house prices rise at 8% per annum.

Confidence: We have written about this factor before but it bears repeating. The courage that it takes to sign for a 20-30 year bond with a bank cannot just be measured in numbers. The confidence that a buyer has in their ability to repay the bond and watch their house value grow year by year is critical to the Buy decision. We consider, our job’s security, the state of the economy and politics, the timing of children, the holidays, marriages and so on. We remain cautious and only go ahead when we are confident that we can afford our house in the foreseeable future. Nothing beats having confidence when we are buying and selling houses. Similarly, the area we live in needs to give us a sense of confidence that it will retain its value and not decline as a suburb. If there is a general sense that this is the case, prices will rise and, if not, then prices will drop. The movement will be driven by confidence in the area.

So in reading property economics articles, see what’s happening to interest rates, house prices and the general level of salaries. Then step back and think about the level of confidence in the country or a particular area. The intersection of these factors is what drives property economics and you can be guided quite clearly by their trends.

So what about now? Well, house prices have been rising generally and steadily since interest rates declined a few years ago and we came out of the shock of the sub-prime crisis in 2010/11. Now it seems that interest rates are going to rise off the back of the USA’s decisions. The amount varies between 0.5% and 1% from now to the end of next year. My view is on the lower side as our Reserve Bank tries to rein in inflation, retain the strength of the Rand whilst helping jobs growth. I also don’t think the USA will do anything too dramatic both in amount and per period. The net result for our property is that price rises will reduce their trend and sales will remain lacklustre for a about 2 years. Then we can look again.

In our last blog, Homeloan Hunction went from this story into motivation. If it all sounds too un-impressing, go back to the previous blog and Look Up and mix with Motivators.

3 Steps to master staying Motivated in our Economy

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In this blog I was going to write about the economy. But I have decided to talk about a few aspects of motivation.

One thing about the economy and the circus in parliament, is that we always need to be motivated. We who awake to a new month every month, must somehow understand what’s going on and then lift ourselves above the negative and move on. I like John Loos, FNB’s Property Economist. I have known him for many years as a good writer, extremely well researched and with a sense of humour. He wrote this month in the FNB Property Barometer:

“Some minor increase in economic growth in 2015 is not expected to provide any meaningful boost for residential demand growth in a slowly rising interest rate environment. While nominal house price growth may be slightly stronger in 2016, compared to 2015, this would be due to higher CPI and wage inflation next year and not necessarily due to market strengthening.

Rather, one should look at our real house price growth forecast, where house prices are adjusted for CPI inflation, to see our forecasts of weakening residential demand growth through 2015 and 2016 being reflected. Here, we expect a turn from positive average real house price growth for 2015 to negative real price growth in 2016.

Let’s make no mistake, the indicators still point to mediocrity at best.”

In turn, Barclay’s forecast of interest rates is that they will rise in September but as early as July 2015, from 9.25% to 10.50% by the end of next year.

What all of this is saying to you and I is that 2015 lacks lustre but is pretty good under the circumstances. 2016 will appear slightly better as GDP rises but inflation and rising interest rates will probably push things a little lower – hence the words: “mediocrity at best”.

But the great thing is that we have a task to wake up to. Some would say you don’t choose Property, Property chooses you. If that seems true in your life, then here’s some thoughts to take with you.

3 Steps to Master staying Motivated in our Economy:

  1. Look Up. Psychologists and Neuroscientists will all tell you that Looking Down is sure to take you down. The only time you look down is to gain perspective. Lift yourself out of the current pressure, step back from negativity, take a helicopter view and assess what is preventing you from success and motivation and then Look Up. The period you look down and around you is to understand what’s going on, what the causes are or may be, what you are allowing to control your life and how you may begin to arrest control again. Looking down is for perspective – is Eskom really that bad? Is South Africa really going to the dogs? – and then armed with the new truth, you begin the actions and the self-talk that take you back to positivity and motivation. That implies you Look Up. So what happens when you do? Well, faith begins to flow in your veins. If you are spiritual, you will know exactly what I mean. If you are less so, you will begin to “confirm” what is good and can still be counted a blessing in your life and in your country. You see, it is the action of taking the reality and then deciding the path through it, that is motivating. It is Action that casts our Fear, it is Desire that replaces Fear. You cannot deny how you feel but you can decide to not allow your feelings, often expressed as Fear or Negativity, to control your actions. Feelings are not inane, they have life and energy – one lecturer in my Executive Coaching diploma said “feelings are as good data as sales graphs.” The only question is how do you order your “feelings”, how do you take grip of them and allow their energy and “tingle on your skin” to drive you to success. Look Up is not so much a mighty action to Permanent Motivation but rather a day-by-day attitude to make the best and be the best you can be. Like a good golfer or tennis player, you look at those around you only to gain insight, to learn, to propel yourself and your game to new heights.
  2. Make Choices. There is a wonderful saying: “You make the choice and then the Choice Makes You.” How true! How many times do we look back and wish our choice had been different? But on the other hand, how many times do we look back and see the power and the sense of direction in our choices? Encourage yourself with those events that have been as a result of your choice and have turned out well. The lovely thing about Choice is that the one you make today is the one that sets the new direction. I struggle to say that your future is solely in your hands and you can create your future – I leave much room for the will of God. But it is undeniable that when a good choice has been made, it has changed the course of my life for good. Choices of who to marry, which company to work in or leave, what to study, what business to pursue, have all affected our lives and made them what they are. If the choices we have made in the past are so powerful to have brought us to this point, then why are the choices we decide on today not just as powerful? And things we must remember: Big choices are often disguised as small – what you eat is who you are, exercise is beneficial and taking some “me time” strengthens you – tiny things that when consistently applied, can change the way you think and who you become over time. Secondly, making a choice is Taking a Risk. I like to talk about the law of Unintended Consequences. Just like Murphy’s Law [if something can go wrong, it will], unintended consequences will occur – after all, you are just human and you cannot see everything that can happen. Making a choice often involves risk-taking. The challenge is not to stop making choices, the challenge is to manage the risk. Do that as part of your decisioning, do that as you transition from one state to another, and then be prepared to do that as your choice unfolds through action and execution. Risk is not risk because it does not exist for the fearless entrepreneur [yes that’s you every month, my successful homeloan consultant and estate agent!], risk is not avoidable, it is only to be managed.
  3. Choose Your Company. It is the people we mix with and spend time with that define who we become, what we believe, what we consider as important and how we progress. That cynic, the person who with sarcasm makes some people laugh, the demotivators who complain all day and live here anyway, the guy who is unfocused and complains about the state of the market – all of them have more of an impact on us than we choose to believe. I listened to JP Landman last week as he spoke about removing the “noise” so as to see what is really happening. On Kyknet, he had previously described himself as a “Rational Optimist” – he sees the reality and then sees the hope for a brighter future. Needless to say, it was refreshing for me. Sometimes seeing politicians turn the gravitas of parliament into the colourfulness of a circus, sometimes sitting in load-shedding is not “romantic”, sometimes, well, I’m not as optimistic as I should be.. but then I am in the company of a man who provides tangible proof that “things are not that bad” and my spirits lift. When you’re feeling the stress of the market, when cash flow looks bleak, when relationships falter, when flu strikes, when illness besets you – look at the company you’re keeping. Do those people motivate and encourage you? Do they make you laugh until your belly wobbles? Do they inform you, guide you, express an honest opinion, avoid advice and let you think things through yourself? Find these people, mix with them and see the difference. And, by the way, BE ONE FOR OTHERS.

Motivation is not a feeling, motivation is an action. Homeloan Junction says to all of those that share a common view, Look Up, Make Choices and Choose Your Company – it may just be the antidote that changes the course of your life.

Yours in Property.

How to increase your homes value without over-capitalising

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Houses don’t come cheap.

We buy them, pay non-tax deductible interest [in the USA, residential mortgage interest is tax deductible; all part of the American dream around property ownership], maintain them and then add accessories, as I like to call them. This is the reason why Robert Kyosaki, of Rich Dad, Poor Dad fame, says houses are a liability and not an asset. Contrary to accounting, he calls any property that doesn’t give you an income, a liability, not an asset. In another section of his book, he talks about buying a Porsche – he buys a factory and then allows the net rental return buy the Porsche. Very good advice indeed!

Maintenance, first. You may be one of those people who don’t maintain your house to “save money”. Be careful, selling the house that “needs some tlc” is very expensive. Maintenance retains the value of your house in a suburb because first impressions count and because people buying your house are probably buying the best they can afford and they don’t necessarily have the money to fix a gutter or repaint just after they move in. The only way to do that is to cut the price and use the saving to fix your house. Take it from me, a lack of maintenance costs you dearly in the end. And by the way, Mow the Lawn Guys…..

But let’s talk about accessories. For example, paving, lean-to’s for a caravan, a pool, a jacuzzi, a replacement of a thatch roof with Harveytiles etc. How should we go about improving our home so as to add value?

A couple of things to consider generally:

  • Don’t over-capitalise. In an area the average price of a house may be R1m. Your 500m2 extension with a Jacuzzi on the upstairs bathroom may sound like a good idea and even be affordable BUT, you won’t get your money back when you sell, let alone, make a return on investment.
  • Think about the neighbours. Your Jacuzzi in the middle of the front lawn may be cool for you but a buyer would look at it and wonder about privacy. Remember to accessorise for the general person and not your own boisterous nature. By the way, those walls you want to paint black and those tiles you want to put in in black and white checks, just think about the buyer who will one day walk through your house – will the black be appealing to them? Will the tiles be outdated?
  • Value for money. An interesting topic really because it is your family home after all. [The same debate often applies to the return on investment for a holiday home at the coast; years of family memories but, often, at a cost.] Why not just do what you want and worry about the return on investment later? Of a truth, it’s your call – all we’re saying today is consider the alternatives and the potential return on investment.

Quality. I have friends who have tried to renovate at the least cost. Three builders later and several compromises along the way, they are not happy. Hopefully, a future buyer will be but suddenly, the jury is out and time will tell.

So let’s talk about how to accessorise sensibly.

Firstly, do your homework. There is not an estate agent in your suburb who would not pop in and give you some thoughts on what you’re proposing to do and their considered impact on the value of your home. They see 3-5 homes a day in the area and know exactly what sells and doesn’t; so why not ask them? Then, check out that pool company or the paver or the building contractor. Goedkoop kan duurkoop wees [Cheap can be expensive]. If you don’t have the money now, save more but get what you want and what adds value to your home. There are many places where you can get references – previous customers [ask for one where there was a complaint and find out how it was solved], the internet, Hello Peter! and the like. Drive around your suburb and ask people using a contractor if they would recommend. In short again, do your homework.

Secondly, it’s the little “extra” in extraordinary that makes it that. For instance, the surround of your pool should be coping tiles or a lovely wooden deck. The location of your pool should flow from a room with a view. Plunging in the pool on a hot summer’s evening is cool, but creating a WOW! effect for a buyer can just take a little more thought. Imagine if you could have all those memories and get a better price for your house – often it’s possible.  On the other hand, a Koi pond on the one end with a fountain could be really nice but two things need to be considered – fountains require maintenance and Koi are not everyone’s cup of tea. Why do them if you could lose the Koi pond and place your pool inlet a little higher to have a bubbler sound effect?

Thirdly, consider affordability. Pools are expensive to borrow on a bond. And they need care and maintenance every week thereafter. Rather save cash and do it.

Finally, choose your accessory. Pools take more people than a jacuzzi and frankly, you can cosy up on the champagne seat if you want to! Tiling a thatch roof can save thousands of Rands in maintenance and insurance. Painting your house cool, clean colours makes a great first impression as does re-doing your garden for effect. We all have budget constraints and so choosing the accessories that we focus on over the years can be beautiful, practical, money-saving and give you a good return on your hard-earned cash.

As with so many of these blogs, the thoughts expressed are my own. Some of them are born of experience and mistakes. All of them are given with care for our readers by Homeloan Junction. If you are thinking of making some improvements to your home, talk to us, we would be happy to help. If you have already taken these points into consideration and want to make some changes, have a look at our Further Loan options.

The role of an Estate Agent in a Property Transaction

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In previous blogs we took a look at Conveyancing and some views on the positive association between originators and banks. We have also posited some tips regarding investment properties for those who would like to invest in property.

In this blog, I would like to share some of my experiences with estate agents.

We have all heard horror stories of “my estate agent!”. They are “this and that” and “why couldn’t they…”. To be honest, I have never had that experience in the sale of a number of properties with different estate agents and companies. I have many good friends who are estate agents and serve on a board of directors with outstanding men and women of high skill and integrity.

In short and upfront in this article, if you don’t like your estate agent [personality clashes and misunderstandings do occur] then call the Principal of the estate agency and change the person to someone with whom you would like to work. But, also understand some of things.

An estate agent does not work for you but for the Seller. They receive a mandate, virtually always in writing and sole- or joint-, to sell a particular property for the seller. They are to have the seller’s best interest at heart and present to the seller best offers that come from their marketing efforts. They are not at liberty to alter amounts or clauses without the written approval of the seller. Therefore nothing you say or write, is accepted until presented to the seller for signature approval or counter-offer by the seller. The estate agent is duty bound to achieve the best terms of price and conditions for the seller.

Does all of this mean that the estate agent is never for the buyer? No, not at all; they are professionals quite capable of seeing both sides of a sale. However, do not assume that the estate agent is working for you, the buyer, when presenting the offer. Be careful to be explicit in what you communicate and when conditions are written into a contract, understand the implication for you. Do not hesitate to obtain legal advice if you feel it is that serious that you need professional assistance. Trust is always essential in these relationships so work with someone you feel you can trust and then be wise in your dealings.

With this background, when buying a property

  • Be very clear on what you can afford, what deposit you have and what bond you can apply for. ( have a look at our affordability calculator if you are unsure about this)
  • Be very clear on what your minimum requirements are and, then, what you would like to have. For instance, understand the need for a study versus a family room and which one you would prefer if a house you can afford does not have both. And then, always leave room for debate and changes of mind – buying a home is stressful fun!

Once you have these matters clearly in your mind, approach a reputable estate agent in the area you wish to buy and brief him or her on your affordability and requirements.

You can see from this that your clarity, what I would call your Buyer’s mandate to the estate agent, is very important. You are not buying a couch here, this is probably your biggest investment apart from your pension, that you will ever make. On the other hand, you cannot expect a professional estate agent to bumble around with you on what you can afford or what you want.

An estate agent is trained and qualified theoretically and practically to:

  • Contract with seller who wish to sell their home. They receive a mandate from these sellers for many things, obviously, including the desired sale price. They probably also understand the negotiability of a price by the seller.
  • Understand the values of properties in an area and the comparisons between the prices of different houses. They may, for instance, advise a seller to paint and repair their house in order to assure a requested sale price knowing that houses in the area that have fetched a price have done so on the back of being clean and well-maintained.
  • Undertake a market analysis for the seller on which a future buyer can depend. For instance, what are the average selling prices over the last 6 months, what are the lowest and highest prices etc?
  • Administer the sale and purchase of the property for the seller and buyer in their best interests.
  • Negotiate the transaction between the seller and the buyer.

As regards latent defects, remember the estate agent is not supposed to know about them. After all, they would not be “latent” if any reasonable person could see them. What the estate agent must do is ask the seller if they know of any latent defects and, once revealed, must declare these to the buyer. Of course, you as the buyer may request a home inspection report [there is a good chance of these becoming regulated like an electrical compliance certificate] as one of your conditions of purchase. The same goes for roads and infrastructure where your local municipality could help you understand routes and the likelihood of occurring.

There is a role that is often not discussed and that is inter-personal relationships. Estate agents need to be fair and confident but always display sensitivity to the parties. Think of it this way, an elderly couple is selling their family home to retire and a young couple is buying their first home. The seller is reticent, nervous, sad, pondering the future and has brought their children along to advise and help them whilst the buyer is young, energetic, internet-savvy, aspirational, unexperienced and stretching their budget. The estate agent has the wonderful job of bringing these two parties together from mandate to transfer and making the experience of both memorable and enjoyable. Just think of the interpersonal skills that an estate agent needs to reflect in this scenario. And most of them are really good at what they do – I have never had a bad experience.

There are many twists and turns in property transactions. This blog is not a manual,  but rather just a heads-up for us to gain insight into the various role players and the relationships between them. Homeloan Junction hopes it informs you a little more and helps make your experience a good one.

Banks vs bond originators – Which offers a better deal on your home loan? ( Part 1)

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The Press has recently had another look at Originators vs Banks and the articles have become well-publicised. The MONEYWEB Today article is copied below for your convenience.

Looking at it and the articles received courtesy of ooba Marketing, I am excited again to write about the phenomenon called Origination. I will spill over into two articles.

I have an uncle who quotes: “Life without history is no life at all,” so let’s go back a little…

In 1999, origination began with an offer by Standard Bank to MortgageSA to pay a commission for completed bond applications. This event spurred the Property Association to become involved in the industry. In those days it was called Bond Broking but the word, Origination, was eventually adopted from the American term.

The Americans had a different means of origination which has never taken hold here and probably never will. In their case, Fanny Mae and Fanny Mac, their great executors of The American Dream, were established as the conduits of the Nation’s savings into home ownership.

We have much to thank the Americans for when it came to South Africans being brought up to believe that home ownership was an important step in “growing up”. “You need to buy a house”, your mother would tell you. In order to garner home loan applications that could be discounted into the companies, both Mae and Mac set up Originators and Servicers [two terms still used in the Securitization industry today].

The originators did what we do – called on the estate agents, completed the application and submitted it to the Servicer sometimes via the credit score of the company, or the Servicer did the credit approval. The Servicers captured the application and administered it for statements, arrears, upgrades and all payment calculations.  The point is that Mae and Mac both had similar models and outsourced their homeloan acquisition and servicing to Originators and Servicers. In this model lay the seeds of the disgusting practice of black-box finance that eventually lead to the Sub-prime crisis that brought much of the World’s economy to its knees in 2008-2010.

What the originators and servicers did was reason that it was silly to administer home loans one at a time when you could package them as a portfolio of risk and then just sell them in billions of Dollars at a time to banks, and Mae and Mac. The premise was simple, “you can’t lose on property” so who cares about affordability, you just repossess the house and get your money back.

Problem is that when lots of houses come back at the same time, property prices collapse. Then the financiers, wooed [greed was alive and well] by market share and interest earnings, took away deposits and over-lent on properties. 30 year fixed rates at less than 3% were marketed so you were crazy not to borrow against your house. What mayhem followed! Our banks over-reacted though as the tsunami of negative sub-prime sentiment swept across the finance world and, in many ways, changed the landscape of mortgage finance completely. By the way, “sub-prime” does not mean “less than Prime interest rate”, but rather it is the term given to assets in a portfolio which are “less than their best” ie “below being “prime” assets in value”.

So why do I say “has never taken hold here and probably never will”? Our banks are multi-product institutions which are fully integrated from an administrative point of view. They do not need Servicers as their Operations departments are effective and efficient in multi-product administration and, legally, it would be very difficult and unacceptable, for our banks to sub-contract affordability which has now become law through the National Credit Act.

I remember once talking on World Report, a global BBC phone-in programmer, and being slated by an American guy who described SA as a nanny state because we have affordability guidelines and laws that govern how credit can be lent. Shame for him, as two things saved us in Sub-prime, one was that we have always been strict on affordability and the second, that we never conducted black-box securitisation in SA and were somewhat restricted from investing in such homeloan portfolios by our foreign exchange regulations. Thank Goodness!

Back to local history. In the 1960’s bank capital was scarce and the South African Reserve Bank held tight reigns on the banks and building societies. At that time, estate agents brought their completed bond applications to the Building Societies’ branch managers and then vied for the available capital of the day. I can even recall my Dad selling a house in Amanzimtoti and giving his buyer a “collateral” bond. This meant that the seller forfeited some of his sale price, 5 or 10%, to help the building society with capital to finance the bond for the buyer. This process revolutionised with the demise of the Building Societies Act and the modern Banks Act in 1973.

Banks could then more freely access capital and began to do their own homeloans – ABSA and Nedcor were born out of this huge change in legislation. It took Dr Theo Wasserman, CEO Trust Bank, to change the bond acquisition landscape for keeps. He decided to deploy smart looking “home loan consultants” to call on estate agents and canvas business. Their claim to fame was simple: “We come to you and take all the paperwork away.” No self-respecting estate agent would say no to that  and so the other banks followed suit and home loan sales forces were born. It truly was a brilliant move by Trust Bank which was, as you know, eventually absorbed into ABSA. The consultant salesforce model prospered right up to 2000 and were eventually paying between 0-0.3% for bonds for their respective banks.

Now that I have completed dated myself, let me conclude this first blog post saying that the love-hate relationship purported between the banks and the originators has been fantastic for the home loan industry in South Africa. More on that next week……….

Here is the link to the article on Moneyweb – Banks vs bond originators – Which offers a better deal on your home loan?

Want to know more about the services Bond Originators offer, Get in Touch

Nepal earthquake, a stark reminder of how crucial Home Owners Cover is

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I have had a Son and his two friends in Nepal for the last 2 weeks. He was two days out of Katmandu when the earthquake struck and two days shy of Everest Base Camp when the avalanche fell. Needless to say, it has been a long two weeks for my wife and I. The good news is that he and his friends are safe in Kat at the moment waiting for their flight out tomorrow.

But all this earthquake talk started my thinking about our insurance cover. Fortunately we don’t have many earthquakes of any size at all and just now and again have tremors to remind us of Mother Nature. We have however, had recent fires in Cape Town that destroyed some beautiful properties.

Fires were in fact the start of what we now know as Comprehensive Insurance, in the 19th Century. Today it includes our household contents and cars mainly. In particular though, is Home Owners Cover [HOC] which is at the heart of what we probably call natural disasters.

The good news is that if you have HOC, you are covered for what are called Fire and Allied Perils which includes damage caused by Fire, Wind, Water, Storm and, thankfully, Earthquake including its cousins, Mudslides and Avalanches. [On a side note, one wonders how many of those poor people in Nepal have HOC]. You can check your policy, but this cover is a general rule for all policies in South Africa as it emanates from the fires that were prevalent in wood-built cities of old.

Some policies may have conditions that you need to understand. For instance, a house in a known flood plain may be refused HOC cover for Water or the owners may have to pay an excess to their premium for such cover. Some policies may insist that the construction of a building is such that it is engineered to withstand a 5-plus earthquake. It’s not a bad idea to understand your policy wording to be very sure of what is included or specifically excluded.

The crux of this conversation has two angles:

–   Firstly,  get insured for HOC as you should be for contents and cars. Do not delay, the loss you could take in a fire is unbelievable and they do happen. When your bank has a bond over your house, this is a general rule. You probably are insured per course with the bank but may have your own insurance. In the latter case, the bank insists that you let them know that you are still insured once a year or they will reinstate your policy at your cost and include the payment in the bond payment. Bottomline, they have a right to insist, as the bond holder, that you are and remain insured.

–   Secondly, make sure your insurance is for the right amount. This amount is the replacement value of your home. Find out from estate agents what your home is worth in the market and ask them if that estimate is close to replacement value. Things change over time and replacement from older areas can be far more expensive than you imagine. Please don’t delay.

Some final thoughts. Often you’ll read that only 30% of cars in South Africa are insured; that’s staggering and not good news for anybody. In turn, house under-valuation is an ongoing problem for insurers. You should also be clear in a sectional title development that your Body Corporate is representing values correctly. Ask your chairperson of the BC to show you the latest policy and values for your unit. As regards Subsidence and Landslip cover this can be a nightmare. Simply, if your retaining wall falls over who pays – once again, be certain that there walls are valued and covered in your HOC. The same goes for sinkholes – make sure you understand your cover.

Our experience in Nepal has alerted us deeply to the things in life that are precious and worthwhile. Homeloan Junction cares about your home and your family way beyond getting your bond approved. That’s why we write these blogs with useful and hopefully, compelling information. Check out your policy and its cover; you may be very grateful you did.

Get in touch with us if you have any questions  on this, or anything relating to home ownership.

Yours in Property.

The South African housing market has been somewhat buoyant. The question is: Will it remain so

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Expectations are that the SARB will leave interest rates unchanged at the MPC meeting on 26th March. This expectation follows on the heel of Governor Yelland’s indication that the United States Federal Reserve will not be raising interest rates soon in that country as inflation is very low ( less than 1%), and meaningful job recovery is still sought in the US economy. This news will no doubt help retain our trend.

According to FNB, the final quarter of 2014 saw South Africa’s Household Sector continuing to lower its vulnerability to debt-service cost “shocks”.

While still highly indebted and highly at risk, in 4th quarter 2014 South Africa’s Household Sector continued to gradually lower its vulnerability to any unwanted interest rate hiking surprises or economic shocks, by further lowering its Debt-to-Disposable Income Ratio. According to the South African Reserve Bank, a further decline in the Household Debt-to-Disposable Income Ratio, from a previous quarter’s revised 78.1% to 77.6% in the 4th Quarter of 2014. This brings the cumulative decline in the ratio since the early-2008 peak to 11.2 percentage points, which is significant.

All of this means that the Household Sector is moderately better positioned to weather an interest rate hiking “storm” this time around compared with 2008/9, due to its overall level of indebtedness being considerably lower these days compared to that period.

Another angle to take in answering the question is to look at buyers who are acquiring Buy-to-Let investments. The 1st quarter 2015 FNB Estate Agent Survey pointed to no further increase in the significance of buy-to-let buying in the market compared with the previous quarter. By this FNB means that, as a percentage of total home buying, buy-to-let purchases are estimated by estate agents who responded to the survey to have remained unchanged on the previous quarter at 9%, the 3rd successive quarter of this estimated percentage.

FNB believes this percentage trend is a healthy one, reflecting that the property market is not running away with itself as it did prior to 2008’s sub-Prime crisis. The percentage remains mediocre in comparison to the estimated 25% back in the boom times of early-2004. Household Sector Real Disposable Income (simply, what we put in our pockets) growth remains constrained by sustained weak economic growth for the foreseeable future, while Government taxes, fuel levies and statutory costs, like electricity, continue to rise.

In addition, the rental market’s performance in recent years has remained lacklustre. At low interest rates, people would rather try to buy their own property. In the Western Cape though, the value for money by renting often exceeds what similar payments per month on a bond could buy. In other words, rental returns are low compared with Gauteng.

Nevertheless, a stable buy-to-let percentage of total home buying should imply a gradual rise in the volumes of buy-to-let purchases, because we have seen gradually rising overall transaction volumes in the residential market in recent years.

Looking at 1st time homebuyers, the 1st Quarter 2015 FNB Estate Agent Survey once again returned a strong estimate of 1st time buying levels expressed as a percentage of total home buying, although a little down off the peak percentage of a few quarters ago. FNB believes that the mild decline may just point to a slow decline in home affordability that has appeared recently. Obviously, this would deteriorate quicker if interest rates were to rise.

According to the sample of agents FNB surveyed, 1st time buyers were estimated to be 25% of total home buyers. This is slightly lower than the 28% high of the 2nd quarter of 2014, and the percentage has now been lower than last year’s high point for 3 consecutive quarters, causing the smoothed trend line to point slightly downward. As before, FNB believes that the mild decline may just point to a slow decline in home affordability.

FNB has two very interesting indicators. FNB’s Home Affordability measures include the Average House Price/Average Labour Remuneration Ratio, as well as the 100% Instalment on an Average Home Loan/Average Labour Remuneration Ratio. In simple terms, these two indicators measure how affordable it would be for the man-in-the-street to buy a house and make the payments on the bond. These indicators started to rise in 2014 after prior years of decline because of the net result of house price inflation exceeding wage growth, and of course the minor interest rate hikes last year.

It would appear, too, that an increasing portion of 1st time buyers are indeed concerned about house price increases and affordability challenges, according to FNB. “Buyer Panic” refers to a state of mind where aspirant 1st time residential market entrants begin to fear that if they don’t buy a home quickly, the price levels will rise to levels where property becomes unaffordable for them. This can cause “inappropriately high” levels of 1st time buyers over-extending themselves financially as they attempt to get a foot in the property market “before it is too late”. This, in turn, can cause market “price bubbles”. FNB considers the market still appears to be far from this point but buyer panic must always be a concern where it exists.

So back to the question, Will the South African home market remain somewhat buoyant? It would appear from the above that the market is better than recent years but not over-heated or unreasonable in any of the residential property sectors. So, we will probably retain current growth levels for the foreseeable future.

A closing comment. Interest rates may not be the key determinant of home buying. There is a large dose of “Confidence” that comes into play. Think of it this way, when you buy a house you want to know it’s for keeps and your work circumstances are stable and certain. Fear of job loss, and a sense of uncertainty about the future could keep you renting.

Welcome to the Homeloan Junction Blog

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Starting a blog on property is daunting for me. There are so many great people out there with the most amazing knowledge of the property industry. In fact, I welcome their input into the blog as we proceed.

There are lots of articles  about swimming pools, maintenance and the need for it so as to retain value.

But I wanted to start at a point and compliment the role players in this industry. Those men and women, from labourers to billionaire owners, who wake up every day with a passion to drive property. In essence, what you provide is the residence for business, people and families. None of us would be comfortable and clean in the absence of a roof over our head and a bed and shower to use. Little matters more than housing and food to an individual.

The cycle begins with Developers who take the risk to provide housing. From the multi-million to the Affordable unit. Great risk and not always great reward. It was tragic in the sub-Prime crisis that the Banks withdrew finance to these developers – the suppliers of “housing to the nation”. In hindsight with the dust settled, it seems that we lost sight for a few years on the national asset of housing and couldn’t really see the crisis clearly. As we talk more, we will see that the environment has changed and now affordable housing is going up at an exponential rate.

Then the Estate Agents and their Principals. What an amazing group of people – frustrating to some sellers but nonetheless, the reason why 98% of our houses and factories are sold with contractual efficiency. I think they’re great and the few that upset, well, so be it. the firms that I know are professional to the nth degree and deliver as specialists.

To the Banks, Conveyancers and the Deeds Office, you are the glue ensuring finance and strong title in a world class manner.

Look forward to hearing from you in due course.

Jack@ Homeloan Junction

Our Latest Branded Vehicle

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We’re very proud of our new Homeloan Junction branded Vehicle – Have you spotted us out and about in Cape Town?

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Join our Team – We will consult with you to build your business and increase your footprint in the market. – Contact us info@hljunction.co.za or view our benefits here – https://homeloanjunction.co.za/benefits

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