I have a friend who uses the term: The Next Big Thing,  quite often. It intrigues me as a concept.

However, the Last Big Thing is what I’d like to discuss quite briefly today.

In our previous blog I surmised the possibility that rates, both here and in the USA would remain the same. They did. I wrote:

So we have Interest rates stable or well managed, Inflation hopefully will peak and decline a little and Employment will remain soft but stable. If that is true, then Affordability comes into play. You see, cost prices of houses are declining. Therefore loans-to-values will increase. Therefore there will be a few happier credit managers around the place prepared to take a better view of your customers’ mortgage application. Affordability will kick into play – all of the positive, easy-to-feel effects of a Consumer more capable of paying for houses whose prices have decreased. Now that’s good news.

I was correct on the rates so the question now remains whether affordability will improve over the medium-term. That we shall see.

But this matter of stable interest rates is certainly “the last big thing”. In the USA, it means that the Federal Reserve is concerned that should they raise the rates they may snuff out the growth they are enjoying. This is double-edged – on the one hand the cost of debt remains stable and historically low. But, on the other hand, it implies that the FED is concerned that growth is not vibrant and could be nipped in the bud.

As a result, the stock markets react quite negatively to the news. In fact, they rise when the oil price rises as historically, this has meant higher demand from industrialized nations. In the old economies, prior to Sub-Prime 2008-10, a rise in oil prices predicated a rise in interest rates as economies were growing and inflation needed to be tempered. These days, the oil price is driven more by Saudi Arabia deciding on production levels – at the moment these are creating an oversupply.

As regards rates, Quantitative Easing [QE] [read: printing money] is driving the interest rate discussion. In a recent article I read, in the USA $3trillion of QE has occurred and still the economy is sluggish. This is a quandary for the FED and hence the reticence to raise rates. Bear in mind that whilst we talk about America, there is hardly a leading nation that has not QE’d their way out of Sub-Prime. Some described Sub-Prime as a seismic shift at the time [as they have recently also described Brexit]. Fact is, it was, and the hangover still remains. One good thing for us is that the US$ is a little weak and so that helps us in our imported inflation, especially the cost of Oil.

So what does The Last Big Thing mean to us in South Africa?

  1. We can enjoy the respite of, at least, stable interest rates.
  2. We continue to enjoy relatively inexpensive fuel.
  3. Our inflation rate is under control.
  4. We allow ourselves a little headroom to accommodate our poor politics.
  5. We gain from commodity prices wherever these occur and enjoy coming off very low bases.
  6. It helps with further unemployment.

Downgrade risk aside, our real problem is the long-term effect of Zero growth. In my memory, I cannot remember when we have endured such a long period of <1% growth whether the higher rate of growth was organic to our economy or induced by the intervention of Financial Authorities. But in the meantime, volumes of homeloan sales are performing relatively well compared to last year whilst house price increases are slowing. My Affordability theory is therefore still possible. Not a bad place to be under the circumstances.

I guess, all said and done, it’s going to come down to our attitude, commitment and hard work. Homeloan Junction may understand the economic situation but refuses to comply with its rules. It reminds me, many years ago in Nedfin Bank we had a saying in recessionary times: “We have heard there’s a recession. We refuse to take part.” There isn’t a recession in South Africa but even if there was a sniff of it, Homeloan Junction refuses to take part.

Yours in Property

Work out if you can Afford your Dream Home

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

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

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

How Much Can You Afford to Pay Monthly?

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

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

What Will You Pay?

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

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

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

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


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

Consider this…….

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


Apart from that, little has happened in 2016?!

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

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

Messy indeed!

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

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

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

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

When a downgrade hits

Patrick Cairns

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

South Africans should therefore prepare themselves for what happens next.

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

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

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

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

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


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

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

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

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

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

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

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

What an amazing study and article!

Where does that leave us in the Property industry?

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

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

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

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

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

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

Yours in Property.

Homeloans and home ownership always remains interesting.

We return to buy-to-let.

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

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

Total cost: R645000

Rental per month net of services and levy: R6000

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

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

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

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


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

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

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

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

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

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

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

Houses <80m2 is:         37.7%

Flats is:                        35.5%             

Houses > 80m2 is:        26.8%.

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

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

·       Looming recession in an economy certainly under strain

·       Less speculation and home improvements

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

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

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

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

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

Yours in Property


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

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

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

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

A few comments:

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

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

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

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

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

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

So what about us, you ask?

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

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

–        What volume will be sold?

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

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

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

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

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

Yours in Property.


Buy-to-Let Home Loans

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

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

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

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

● a property can be used as a tax deduction;

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

Getting a Buy-to-Let Home Loan

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

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

Begin By Researching On Your Own

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

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

Study the Real Estate Market

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

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

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

How do Your Numbers Compare?

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

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

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

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

The Right Decision for You?

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

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

Yours in Property,


What will my monthly bond repayment be?

Budgeting in general can present major headaches for people but a bond repayment calculator, if used correctly, could help to ease the pain. Coming up with a realistic budget — whether for the purchase of a new home, or for the necessary control of household and monthly expenses or the entire expenditure plan for a whole country — can bring its fair share of headaches, even when you know it will be implemented in the most skilful and savvy way. So, don’t feel disheartened: you’re not alone if you’re facing the tiresome task of working out your budget.

If you’re planning on buying a house, you’ll need to know how much you can budget to spend on the loan each month. And you’ll need to know this before you go house hunting if you want to avoid disappointment. Imagine spending valuable time finding a dream home, only to discover that it is out of your price range! Luckily, Homeloan Junction offers you a simple, online tool to make this easier for you. Try their free bond repayment calculator to see if you can afford the house you love

How a Bond Repayment Calculator Works

When you are shopping for a new home, the last thing you want to discover is that the amount you thought you could afford is actually quite a bit different to the amount you can realistically afford each month. It’s best to find these things out before you go charging headlong into the process – and certainly well before you sign any Offers to Purchase.

Nowadays you can explore your options in the privacy of your own home, with the help of a bond repayment calculator. Having the benefit and independent use of an accurate bond repayment calculator in front of you, can help you create a more realistic assessment for the way forward. Remember, when you make your calculations, it is important to take into consideration that financial circumstances can change, so be sure not to stretch your budget too far.

Go ahead and test the bond repayment calculator tool on Homeloan Junction’s website. You’ll see that in less than one minute you will be able to quantify the amount of the bond you are eligible for … and the amount you can realistically afford.

Easy-To-Use Bond Repayment Calculator

You also have other calculation options over and above the bond repayment calculator available at your fingertips. With the useful calculators on the Homeloan Junction website, you can work out how much you will be able to afford to pay, you can project bond and transfer costs, and also work out how much you could save on interest with a bigger deposit. The website is well-optimized which means you’ll experience no problems with speed, and you’ll have the answers to your questions in a few minutes. Also, the calculators are simple to use.

Whether you are working out a budget that includes a new bond or re-evaluating the way forward with existing bond repayments, after spending a few minutes with these versatile tools you will soon see that they are quite easy to navigate and apply to your own, individual needs.

Save More and Pay Less

The most successful and accurate assessment of how much you can afford on a homeloan will come from thoroughly doing your homework. Don’t stop once you’ve assessed how much you can afford to pay as a monthly instalment, research as much as possible about the methodologies that can be applied to see you save more and pay off your bond in the shortest period possible. Banks in general are happy to see you stay with them for longer; after all you are generating streams of income for them. But will this really work for you?

A successful trick is to pay off your homeloan over a shorter period, but this entails a disciplined approach. Prioritize this expenditure and also seek new ways to add a bit extra to your repayment schedule. This is another reason to keep your budget realistic – give yourself the option to pay more into your mortgage each month, allowing you to save more and pay less.

Do you need assistance in determining your ideal homeloan amount? Even if you have used the useful bond repayment calculator to find out how much you can afford, you can also talk to one of the qualified and experienced consultants at Homeloan Junction to help you make accurate assessments.

Interest rate hike comes as no surprise

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?

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.


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.


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.