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Interest rate hike comes as no surprise

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This week’s interest rate hike comes as no surprise.

This statement, not in the sense that I think we should have it, but simply that the matter is so “on the fence” that the decision could go either way in any of the MPC meetings. The SARB is faced with horrible decisions because GDP growth is pathetic and nothing exists on the horizon to change the situation. You get the feeling that the world economy is moribund as the USA growth story is so fragile and based on the billions of printed Dollars, whilst the China story has been coming for some time and now that it has hit, seems obvious and irreversible in the medium-term [make that 3-5 years]. The impact of both on South Africa is direct and inescapable – the USA is needed for global growth particularly amongst our leading trade partners and we critically need China to buy our primary commodities [frankly, so do Australia and many other so-called development economies, in Africa, Asia and South America]. The Rand is weak and we sit with the Rating agencies’ threat of junk bond status hovering like Damocles’ sword over our national head.

Talking about our “sword of Damocles”, according to Wikipedia:

“Damocles (literally: “fame of the people”) is a figure featured in a single moral anecdote commonly referred to as “the Sword of Damocles”, an allusion to the imminent and ever-present peril faced by those in positions of power. The Damocles of the anecdote was an obsequious courtier in the court of Dionysius II of Syracuse, a 4th-century BC tyrant of Syracuse, Sicily. According to the story, Damocles was pandering to Dionysus, his king, and exclaimed to him that he was truly fortunate as a great man of power and authority, surrounded by magnificence. Dionysius then offered to switch places with Damocles so that Damocles could taste that very fortune first-hand. Damocles quickly and eagerly accepted the king’s proposal. Damocles sat down in the king’s throne surrounded by every luxury, but Dionysius arranged that a huge sword should hang above the throne, held at the pommel only by a single hair of a horse’s tail. Damocles finally begged the king that he be allowed to depart because he no longer wanted to be so fortunate, realizing that with great fortune and power comes also great responsibility (and danger). “

The decision to raise the Repo rate is as tense. We are told that the USA has to raise rates at some stage so as to protect inflation in that country from raising its head as growth rates rise. In addition, there is justifiable concern that not signalling a rise of interest rates will over-stimulate the propensity of the American public to spend on credit. Many consider that the rise of the rate will occur later this month partly to curtail overspending for Christmas. For SA Inc, this means that money will be invested in the Dollar and our currency will weaken further. Roll on R15 to the US$ which will have its own impact on our inflation and require rate rises to temper it. Not pretty by any means. But remember to see the interest rate rise in relative and not absolute terms. When it started, our Repo rate was 5% and the 0.25% absolute increase was a 5% rise in interest cost. This rise, off a base of 6% was absolute 0.25% but only a 4.2% rise in interest cost. The Prime rate is still below 10%, psychologically in  single digit territory. To put it in monetary terms with which we may better identify, a R1m bond just became R164 per month more expensive with a total of R807 per month in total since the upward rate cycle began, which is 2% and 9% relative increase in interest costs, respectively. Necessary? If the USA rate rises, yes; if not, then no, too much too soon in a struggling economy.

However, don’t lose heart. The increases are really well controlled and pre-emptive. In the figure below you will note how interest increases have been cone-shaped in the past – steep and effective but with the risk of collateral damage. In the recent rate increases, much circumspection has gone into grasping the nettle early but not squeezing the life out of the economy.

South African Repurchase Rate

With this background, I was struck by a Moneyweb article by Patrick Cairns on 20 November 2015, titled, South Africa needs a “Modi moment”.

We have a great country, tortured yet beautiful. We have people with a will to stay here and continue to make it greater. We need leadership in every sector but are blessed with good examples in the property industry. Our estate agencies, originators, developers and property funds are world-class in many respects. So we in property are truly blessed. Homeloan Junction is proud of its place in the tapestry of the industry, small but well deserved.

Yours in Property

Why get pre-qualified?

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It used to be that buyers looking to purchase property could secure an actual pre-approval from banks or lenders for a homeloan, but with the advent of the recently revised National Credit Act (NCA) those days are gone. That said, it is still possible for a potential purchaser to get pre-qualified for a homeloan. However, buyers must understand this is a service, as opposed to a product, offered by bond originators to assist them in ascertaining if the buyer can realistically afford the homeloan they’re applying for. While it is not a guarantee of approval – the final decision rests with the bank – pre-qualification does have a valuable place in the home buying process.

Avoid Disappointment

Getting pre-qualified for a homeloan is free and can help you determine the price range you can afford to explore before you even go looking at potential properties. This helps you avoid wasting time and effort looking at properties you have no hope of securing a homeloan for, as well as the inevitable disappointment if you’ve set your heart on a home out of your price range. On a positive note, pre-qualification is an excellent guide for establishing realistic expectations as far as your purchasing power goes.

It’s Quick and Easy

The process of getting pre-qualified for a homeloan is quick and relatively simple. Under the revised NCA, it typically takes into account your disposable income, either individual or joint depending on your marital status, and your credit score. The latter is with your consent, naturally, but considering the bank or lender is going to take your credit score into account when you do make formal application for a homeloan, you may as well know now exactly where you stand in this respect. The other bonus of establishing your credit score at this point is that if there are any issues in this regard, issues that could potentially hinder your homeloan application, you can take steps to resolve these issues sooner rather than later. Pre-qualification can also give you an indication of whether you need to save for a deposit or not.

Paperwork

To complete the pre-qualification process, you will require the following paperwork: your identity document; your most recent payslip; and your last three month’s bank statements. Your disposable income is calculated by deducting tax, UIF and any company pension payments from your gross income. This leaves your net income and once your total monthly household and utility expenses and any credit, vehicle or other loan repayments are deducted from this amount, what remains is your disposable income. Most banks and lenders will calculate the maximum monthly instalment as 30% of your gross income.

Hassle-free

Another advantage to using a bond originator to get pre-qualified for a homeloan is that the bond originator will determine your chances of firstly securing a homeloan, secondly establishing the amount you’ll qualify for on your current income.

What happens after you get pre-qualified for a homeloan?

Once the pre-qualification process is complete, you will receive a certification stating the homeloan amount you are deemed capable of affording. Note that while this certification is only valid for a limited period it is still a valuable first step onto the property ladder and gives you the leverage to confidently negotiate with a seller and put in an offer to purchase. Getting pre-qualified for a homeloan indicates to the estate agent and seller alike that you are serious about the home buying process. Furthermore, it can improve the likelihood of your formal bond application being approved. And even speed up the application process, particularly as you’ll have dealt with most of the obvious hurdles by completing the pre-qualification process.

Pre-qualification is an excellent tool to aid the potential purchaser in navigating the home buying process. It empowers you to enter the real estate market with your eyes wide open. If you are planning to buy property, take the hassle and uncertainty out of the process by getting pre-qualified for a homeloan. For assistance, contact Homeloan Junction.

To Buy or not to Buy? How to make the choice right for you…

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I have been trawling the property information keeping myself up to speed with developments. There is a gloom in the economy, but fortunately the property sales and mortgage business is not in the doldrums. Affordable housing has looked good for years and developments continue in many areas of the country. It has probably been the manner in which the SARB has guardedly raised rates that has keep the property market on an even keel. Let’s hope it stays that way; boom and bust is disruptive and we cannot afford disruption in a national asset being Residential Housing.

The question often comes up, especially from First-time Homebuyers, is this the right time to buy? In other words, To Buy or not to Buy? – that is the question.

The answer is always the same for me: Do you think the cost of building is going to go down? If the answer is Yes, then wait. If the answer is No, then buy. Let’s explore this issue in a bit more depth.

Inflation, on a global scale, has been kept in check very nicely. Some of the major countries, Japan noteably, have reduced interest rates to historic levels on the back of close-to-zero inflation. Costs of production have been driven down by the Asian countries and currencies have been relatively stable for many years. In the past year or two that has no longer been the case and currency fluctuations and even devaluations, have become the norm. As we’ve mentioned before, thank goodness for the low oil price.  So the inflation story sounds quite benign until it comes to building costs. News24, on 20 February 2015 reported, Building costs have continued to increase by more than the average consumer price inflation rate over the past 15 years, according to Jacques du Toit, property analyst of Absa Home Loans. The latest Absa residential building review compiled by Du Toit shows the average building cost of new housing constructed came to R5 828/m² in 2014, which was 12% higher than the cost of R5 205/m² in 2013. The building costs are affected by a number of factors such as building material costs, labour costs, transport costs, equipment costs, land prices, rezoning costs, developer and contractor holding costs and profit margins.

That insight answers the first question and clearly, building costs are not reducing and frankly, seldom have. I guess the question then is, what should I be buying?

Think about the following:

Affordability
Don’t buy what you cannot afford. The bank will help you with this and strictly test your income and expenditure in terms of well-known affordability guidelines laid down by the National Credit Regulator. Do an affordability calculation to see what you can afford to buy.

Improve or Buy
Buying and selling homes is an expensive affair. As a rule of thumb, knock off 20% – 30% of the price of your new home for costs. Transfer and estate agent commission could already be about 12% and then bond settlement and registration costs and furnishings add to the tally. Improving instead of buying could prove much cheaper and convenient.

What to buy
If you’re going to buy, buy wisely. For normal family living, close to shops and schools, proximity to work, sport and social events makes eminent sense. Remember, what you like or don’t like as a normal consumer probably counts for many others’ opinions as well. It may be cheaper next to the highway but probably all the buyers agree that you can’t hear yourself talk in the garden. Then, if you can afford it, take some advice from my late Uncle – there are two strips of land that are scarce, along the coastline and along the top of a mountain range. Houses in these two places carry and hold a premium in the long run. I am also a proponent of secure estates and, in particular, golf estates. Secure estates for the obvious reason of enhanced security but golf estates, in addition, give you lifestyle for the family. And remember, few additional golf estates are being developed – they are just too expensive and water is becoming a serious problem – thus adding to the scarcity value.

Future plans 
Don’t put yourself through the trauma of moving twice! If you have your eye on emigration, a job in another town or a particular suburb or estate, don’t buy now. Wait until you can settle and then sell and settle in the new environment. By the way, building can be a real pain and you would be a rare person to not have a “builders story” after completing your house. The same can be said for renovation but it is normally on a smaller scale.

Investment or not 
Robert Kyosaki [of Rich Dad Poor Dad fame] is quite right when he says that an asset that does not produce income and requires maintenance and services, is actually a liability. In fact he goes so far as to say, buy and rent a factory and let the factory buy the house from nett rent. But most of us don’t live there and we get great pleasure from owning a property and knowing it is the domain of our family. For this reason, the comments about What to Buy become really important. You would at least look to capital appreciation to offset the costs when you sell the property so choose the Location well. This section particularly applies to “that little house at the sea”. Truth is that we could do well, in most cases, to rent or use a guest house for our holidays, rather than battle financially to pay off a second home.

If you think you can afford it, buy now. Be wise and look around. Consider all your options and do your best to think ahead a few years. But, I would posit, do not delay too long if you can afford to buy now.

And always remember Homeloan Junction is there for you. Dealing with us is free. Yes, you read right – free. And we’ll back that mortgage service up with sound advice and expert knowledge.

 Yours in Property.

Five good reasons to go with a real estate agent

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While a real estate agent can’t cut through the red tape with regards to securing a homeloan, they can most certainly facilitate the home buying process so that it is as smooth and painless as possible. They have the skills, the resources and the experience to help make the process so much easier. This is particularly important for first time home buyers and for those purchasers who are dependent on the sale of their current house in order to afford a move up the property ladder.

1. Choices, Choices, Choices

As an expert in the real estate market, a real estate agent can assist you, the buyer, in finding a property that best suits your ideal location, size and needs at the most favourable terms. A good real estate agent will go to the effort of establishing the price range you can comfortably afford and not take you to view properties you can’t afford.

A real estate agent will usually work in a specific residential area and will therefore be familiar with logistics such as the positioning of a prospective home in relation to schools, shopping facilities, access routes and other amenities like medical facilities, bus routes and so on. And as an objective party, the agent can easily spot the strengths and weaknesses of a property. They will be able to highlight aspects of a prospective home that may still satisfy your expectations and needs even if said property does not quite meet all your given requirements.

2. The Duty’s in the Details

When you use a real estate agent to help you buy a property, the agent is legally and ethically duty bound to serve your best interests. This extends to not misrepresenting a prospective property. Your real estate agent is obliged to make you aware of any and all information in relation to the property including disclosing any defects the property may have. This said, should you have any doubts, it might be worth calling in an expert structural advisor as certifying your prospective home’s construction falls out of the purview of your agent. Full disclosure also covers any potential zoning issues your agent is aware of such as plans to build a three-storey apartment block on a neighbouring property as this could dramatically, and negatively, impact on the future value of your new home.

3. Help with your Homeloan Application

When you have made the ‘big’ decision, a good real estate agent can advise you on making a reasonable and market-related offer on your ‘dream’ home. If you’re in agreement, your agent will complete the obligatory ‘offer to purchase’ form on your behalf. Your estate agent can also assist with the homeloan application process; they all have long standing relationships with Bond Originators like Homeloan Junction.

4. Negotiating the Paperwork

The home buying process is complex and there is a great deal of paperwork involved. Once your offer to purchase has been accepted and your homeloan is secured, your real estate agent will guide you through the remaining purchasing hurdles and help you cross the finish line. Your Estate Agent will be with you until the sale is successfully closed and your new property is officially registered with the Title Deeds office.

5. Communication Counts

When you have a real estate agent helping you with the home buying process, you not only benefit from their expertise and knowledge; you get someone in your corner who will keep you informed through every step of the home buying process and be there for you in the event of problems with any aspect of the process. This goes a long way to alleviate the stress and risk involved in making such a critical financial commitment. Practising clear and open communication prevents misunderstandings and messy disputes down the line and is in the best interest of the agent whose reputation is at stake if he/she is marked as disreputable. After all, the agent doesn’t want what should be an exciting and positive experience for you to be tainted by buyer’s remorse.

Yours In Property

Vincent

How to pay off your home loan faster

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Does the thought of twenty or thirty years of home loan repayments put you off buying a home? Even your dream home can start to look less dreamy when you’re faced with what looks like a life sentence of hefty monthly repayments. But what if there was a way to reduce this period … and reduce the total amount?

Buying a home is one the biggest financial investments most of us will make, yet how many of us are aware that small additional payments on your home loan can have a major impact on the final amount you will end up paying for your home? The biggest burden facing homeowners with a bond is the interest they will pay over a 20 or 30 year period.

Say you take a R1 million home loan over 20 years, no deposit and at the current prime lending rate of 9.5%;  you will end up paying R2 237 115 for your home. That’s enough to give anyone grey hair! But, before you lose heart, there are a number of steps you can take to pay your bond off faster … and significantly reduce that final figure!

Take a look at these 5 clever ways to bring down your home loan repayments:

Pay your salary into your Bond

I know it might sound strange, but as long as you have an access account enabled on your bond you can actually pay your salary into your home loan every month and then simply transfer out money needed for debit orders and day to day spending when you need it.

Here are the advantages of doing this:

– Benefit from lower interest rates applicable to the outstanding amount on your home loan
– Inadvertently use your home loan account as a savings account and pay off your home loan faster

Make Additional Payments

Fast track the repayment of your home loan by putting any surplus cash, like your bonus cheque or SARS refund, you have into your bond. Yes, this does require discipline and a measure of sacrifice but the long-term gain on your home loan is well worth it. Take for example, an additional R1200 paid towards your R1 million home loan every month, over and above the monthly instalment (R9 321 in this case) owed, and you’re looking at saving R374 344 in interest … and cutting your repayment period down to 14.75 years.

 Put Down a Deposit

If you are still in the planning phase of purchasing a home, consider putting down a deposit rather than taking a 100% bond. The bigger the deposit you’re able to put down, the smaller your home loan and the less interest you will pay. On a R1 million home, a deposit of R120 000 will reduce the interest you owe on the outstanding capital to R1 088 661. That is a straight up saving of R268 454 before you’ve even considered taking any of the additional actions discussed above. Calculate how much a deposit can save you, by viewing our Bond Repayment Calculator.

Ignore Rate Fluctuations

While you have no choice but to make increased monthly instalments should the prime lending rate increase, heaven forbid, it is a wise choice to keep your instalments steady in the event the rate decreases as this gives you an automatic gain on your bond. You’re already committed to paying a certain instalment so sticking to this amount should the rate drop gives you an added advantage in paying off your home loan that much faster.

Explore Your Home Loan Options

It doesn’t hurt to explore your options in order to secure an even better rate on your bond. Talk to a bond originator like Homeloan Junction. If you have a good repayment track record and credit history, who knows, they may just be able to negotiate a reduced interest rate. Even a 0.5% reduction can represent a significant saving; that is R77 773 saved on a R1 million bond over 20 years with no deposit down. Should you decide to switch home loan providers, be sure that the cancellation and penalty fees you’ll inevitably be charged will not outweigh your prospective savings.

As you can see, a little commitment and discipline can go a long way to alleviating the burden of your bond. And at the end of the day, paying off your bond faster and reducing the amount of interest you owe on your home loan translates to money in your pocket. This can be used towards your retirement, your children’s university fees, a world cruise or perhaps an investment property.

Yours in Property

Vincent

IT’S TIME TO BE A FOX ( Part 2)

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Our previous blog ” It’s time to be a fox” looked at the concept of hedgehogs and foxes. In this blog, we suggest some assertive behavior for the next period of our economic cycle.

But firstly, let’s reiterate. Hedgehogs

  • know one big thing
  • see the world through a filter of one big idea
  • stretch the idea and build data around it
  • are confident to predict and make many of them
  • drum on about the “tried and tested” formula
  • love complexity
  • are better in stable environments.

Foxes:

  • know many things
  • gather information from a wide spectrum of inspiration and sources
  • are self-critical and update their beliefs when faced with contrary information
  • are cautious about predictions
  • look for a new idea if something is not working
  • drive out with simplicity
  • are better in rapidly changing environments.

With that reminder, we are approaching rapids in our economy. That may sound like “one big idea” but it certainly is the consensus view of many writers at the moment. Just reading JP Landman’s article, Coming to a Standstill, dated 9 September 2015, he states that electricity and strikes initiated the SA growth problem, but these factors have been exacerbated by lack of confidence, a growing chasm between the public and private sectors, and a incoordination in key growth sectors. The SARB has also revised growth predictions and raised interest rates right into the headwind of a deteriorating economy in order to deal inflation. Not pretty at the moment, I’m afraid.

So what should you be, a fox or a hedgehog? We’ve been there before and survived, is a real hedgehog statement. You should’ve been around in 2008 to 2010, is another. Alles sal regkom, is a grand old hedgehog statement, loaded with stoicism and sense of duty. May I put to you that there is another way and explore the alternative.

The Foxy thing to do is to

  1. Review your business Good times layer in costs and make income assumptions. As for costs, scan every cost in your business and eradicate what even smells of complacency. As a radical move, you may wish to signal this effort to your people – stop the cake on Friday, change the coffee brand; just do something that makes everyone aware that times have changed.
  2. Review your activities – Golf on Wednesdays is really cool but stopping it will give you 6 good hours of extra work. And the message for your people will go without saying – news will get around. Start every day with a 2-Do List. Know what is optional and what must be achieved today, without exception. Follow-up on outstanding payments – years in business have taught me that “your best client [read, friend] will always pay you” probably means he is battling to pay. The other poor souls have already passed that point and you need to be the one creditor who collects. In property, chase up registrations and outstanding mandates. Remember management control is: Setting standards, Measurement, Evaluation, Correction or Reward and a Feedback Loop. Nothing short of that journey, is Control. Don’t delegate control if you’re accountable – by the time “your bank account tells you” it could be too late.
  3. Accept a Lower Standard of Living but not a Lowering of Standards: You can be poor but you don’t have to be dirty. Values drive behaviour and the values in your firm can leave space for facing the negative reality in the bad times, but not for excuses. You cannot create motivation but you certainly can channel it. Don’t allow your people to become de-motivated. There is a process of excellence in the business that needs to be maintained; maintain it. Customers certainly don’t need to know if you’re responsibly dealing with lowered economic growth. Stand up when answering the phone, convey positivity in your voice and your eyes, remain solutions-orientated and think possibility – there is nothing like sticking your chest out and tilting your chin upwards to make bad vibes go away. Remember your brain doesn’t know if you’re imagining or telling the truth when you decide to be positive in the face of circumstances. Imagination rules your world.
  4. Hunt for business: I have sat in airports recently reading the newspaper. I have even read the latest RW Johnson book and I am convinced that the day you believe it’s over, it is. Hunt for business. If you don’t someone else will. Jack Welsh had a famous saying: “Take control of your life, or somebody else will.” How true! No excuses, just down-to-earth action. No half-jobs, just hard work. If you want to read the paper and believe that China is your road to success, then go and work somewhere else. Remember this, people don’t leave you when they leave; they leave you in their heads a long time before that. You wish they would leave when they “opt-out” because that would save you money. The problem is they leave after months of “trying”, hours of toxic conversation with others, and a couple of unhappy customers. Watch for it in the daily activities and attitudes. Root it out asap. On the other hand, where genuine efforts are made by those great people who are with you for the long-run, encourage them and build them up. Remind them that “this too will pass” and that Action Conquers Fear.
  5. Find Inspiration: Running a business is tiring and battling cashflow, exhausting. Find a friend, a confidante, to whom you can turn. Pray, read, take “me time”, breathe deeply – 10 out, 10 in – to relax and replenish your soul. You can only give what you have, and be who you are. It is fair to say that your people “don’t need their leader with sweat on their brow.”
  6. Change BEFORE it hurts: It is always written about for one simple reason, people change WHEN it hurts. It is so difficult to simulate adversity in a successful company. It feels treasonous to even speak about the need to alter course when the island of delight is right on course. But, change you must. Bill Gates puts it this way:

When your business is healthy, it is difficult to behave as if you are in a crisis. That is why one of the toughest parts of managing, especially in a high-tech business, is to recognise the need for change and make it while you still have a chance.

Lots more could be said on this subject. Truth is that this is not the only recession we have faced and we have come through. Whether or not there is fundamental difficulty in this one, remains to be seen. Chance is there is little you can do to change that. But for foxes, they take inspiration from many sources, they re-consider the tried-and-tested, they try-abandon-try until their possibility thinking becomes their reality and their “new normal” meets their definition of excellence despite changed circumstances. They encourage others. They trade in hope and they are merchants of good news, truthfully spoken. Their word is their bond and their people trust them.

Hedgehogs have a place as well. They may be the very calm in the storm your company needs right now. Their idea may be good despite not ever pretending to be the silver bullet. Like all people, make allowances for them to enrich your team.

Yours in Property.

It’s time to be a Fox

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Howzit China! will certainly be on our lips after the global markets slumped this week in response to the yuan decline and other economic news. Our real good news is that some experts are questioning our SARB decision to raise interest rates in the face of a deteriorating market for consumers.

So it is time to pick ourselves up, improve our game and focus our efforts. It’s time to be a Fox.

I first heard the concept from Clem Suntner when I read his book Hedgehogs and Foxes. The article below is copied from Business Day and was written by Michel Pireu on 18 August 2015. All credit to him therefor for the first part of this blog.

In 1953 the philosopher Isaiah Berlin divided thinkers into two categories – the hedgehog and the fox – borrowing from Greek philosopher Archilochus who said, “The fox knows many things, but the hedgehog knows one big thing.” Hedgehogs, argued Berlin, see the world through the prism of a single overriding idea, whereas foxes dart hither and thither, gathering inspiration from the widest variety of experiences and sources.

Recently, University of Pennsylvania psychology professor, Philip Tetlock conducted a multi-year study of the outcomes of expert political forecasts about international affairs. He studied the aggregate accuracy of 284 experts making 28000 forecasts looking for patterns in their success rates. Most findings were negative – conservatives did no better or worse than liberals; optimists no better or worse than pessimists. All were only slightly more accurate than chance, and worse than basic computer algorithms. Only one pattern emerged: how you think matters more than what you think.

“ The most important factor was not how much education or experience the experts had but how they thought, “ says Tetlock. “The better forecasters were like Berlin’s foxes: self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence, were doubtful of grand schemes, and were rather modest about their predictive ability. The less successful forecasters were like hedgehogs: they tended to have one big, beautiful idea that they loved to stretch, sometimes to breaking point.”

Beginning with the idea that foxes are better at predictions than hedgehogs. Tetlock looked at the underlying differences in cognitive approach and found clear differences. Foxes are cautious about making predictions. Hedgehogs are not, but are more likely to suffer from overconfidence and hindsight bias. Foxes are avid gatherers of ideas from many sources. Hedgehogs specialise and resent ideas that contradict their thinking.

If something isn’t working foxes will look for a new idea or model. Hedgehogs seldom vary their approach and are more likely to use new data to tweak existing theories. Foxes readily accept they’re wrong. Foxes accept complexity. Hedgehogs believe in an underlying simplicity in everything. Foxes are more concerned with the evidence than the theory; hedgehogs see data as “noise” that obscures underlying truth. Consequently, foxes are better equipped to survive in rapidly changing environments in which those who abandon bad ideas quickly hold the advantage. Hedgehogs are better off in static environments that reward persisting with tried formulas.

Little did I realise on the 18th that the global economy would take such a fast turn. In our next blog, we will look at the whether a fox or a hedgehog is needed for the next period of what has been a fairly good run in the property market. Look forward to “meeting you again, at the Junction”, that’s the Homeloan Junction, of course.

Yours in Property.

Take control of your monthly expenses today! [Free HLJ Budget Tool]

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Funny how things happen at the same time!

In this post we will give you our Homeloan Junction Budget Tool and refer to a Moneyweb Today article. The Moneyweb post arrived just as I put the finishing touches to the HLJ Budget Tool. Serendipitous, I would say!

So why the Tool?

Most of us don’t have a budget. We live from hand-to-mouth, month-to-month and while away our time and our money on necessities and fancies. The danger is that as this forms a habit pattern, we wonder where the money’s gone and why there’s so much month. Month after month, year after year, we live as if there is no tomorrow financially. Often, if we’re really honest with ourselves, we take on bad habits in the process – we eat, drink and smoke too much. After all, life is stressful, you know. Then, we may rack up some unexpected medical bills in the process as we get older. All part of life, you know.

6% of South Africans can retire comfortably. In case you wonder about the other 94%, they don’t retire comfortably by level of degree.

What we mean by that is that the next 6 % below the “comfortable 6%”, live a little less than “comfortable”. Starting to experience the world of retirement myself a little, I have family in their 80’s. Retired since age 58, 25 years later they’re finding prices very high. Thank Goodness, they have not squandered their money but things are tight – much tighter than when they retired.

What we learn from this is that retiring with income that rises, or is supplemented with assets that may be sold, is wise financial planning. So, the next 6% behind the second 6%, is probably already not ready to retire at all in South Africa; of a truth, the situation quickly becomes dire and a Government pension of about R1600 per month, rising at 6-7% per annum, does not satisfy even basic needs.

Everything in our beautiful, tortured country points to sadness as we ponder these thoughts. My wife read me an article the other day that said one of the greatest gifts you can give your children is to not be a burden to them in your retirement. Oh may that be a simple goal for you when you finish reading this blog!

Get the full Moneyweb article here – MONEYWEB-TODAY-ARTICLE.pdf

Using elementary Excel, I have created a Tool for you to budget. Customise it for your own circumstances and please note that the numbers are just examples, so put your own in.The Tool allows for your Gross Income. It then deducts your direct expenses like UIF, Income Tax etc to arrive at your Net Income Before Expenses.

Then it deducts two kinds of Expenses: Need To Have’s and Want To Have’s. Call them what you want and re-arrange the items as you wish [after all, we need a little retail therapy or entertainment some time J] but just be true to yourself. Question what you earn and what you spend honestly. Commission earners especially project their earnings – like true sales people, they often believe they are going to earn more and spend less than they really do over the long-run. Don’t fool yourself. And, if you really want to test your reality, then commit to an extra amount repaid monthly on your bond and see how good you are at sticking at it.

You can download your copy of this tool here –HLJ-Budget-Tool.xls 

The point is, every few hundred Rands you save in this exercise could literally put you into the top 6% at retirement. And, keep you there.

 Now to the final points……….

1. I am not a financial advisor, so speak to yours and begin to commit to a long-term savings plan. Retirement Annuities, Satrix, DBX’s etc are great vehicles to discipline your savings. And, by the way, remember some Life and Disability cover for those you love, if you don’t make it.

I have tried to teach all financial levels of people the simple fact of compounded interest. By the way, Albert Einstein called it his “most profound” learning. Two elements for now:

  • R100 invested for 10 years and 20 years at 8% is R18294.60 and R58902.04 respectively. The compounding is not a straight line as interest on interest continues to kick in the more you save.
  • The inverse of this, which the Insurance industry correctly calls “the cost of delay”, is that if you want R60000 , then the faster you start saving the less you have to save. R60000 costs you R101.86 over 20 years and R327.97 over 10 years, both at 8%.

2. I am a banker, so back to the tired old truth that your bond is a good place to save. Whatever interest you save is at your bond rate after tax.

For example, at a bond rate of 10%:

Bond: R80000
Years to go: 20
Repayment: R7720.17
Total Paid: R1852841.56
Interest spent: R1052841.56
Payment increase of 20%: R9264.21
Years to pay: 12.83 years
Total paid: R1426688.00

Original total payment less new total payment: R1852841.56-R1426688.00 = R426153.56

SAVING AFTER TAX: R426153.56

Homeloan Junction cares. This blog may seem trite and simplistic to some. To others, it may just be the spark of new financial life. If it touches one life today then the last two hours writing and calculating has been worth every minute.

Yours in Property

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.