Owning a home is a huge achievement and milestone for many, but sometimes life becomes so financially challenging that one is forced to let go of the dream and the house.
Research done by information provider Lightstone shows that struggling South African homeowners are being forced to sell properties they bought only two years ago.
Lightstone says: “This suggests that many buyers took advantage of the low interest rates as the market provided relief during Covid, only to find they could not afford mortgage repayments as interest rates normalised.”
The prime interest rate hit a multi-decade low of seven percent in 2020 during the Covid-19 pandemic and remained below eight until May 2022.
Successive sizable rate hikes since then have pushed prime to 11.75 in May this year. On a R2.5 million bond, the amount is nearly R8 000 up.
Lightstone notes that the “exceptionally low interest rate environment from mid-2020 to the end of 2021 created an opportunity for new buyers to enter the market or for existing homeowners to buy up” – but it also created the possibility of too many buyers overstretching themselves.”
It says the volume of residential purchases by natural persons (not companies or trusts) halved from May 2022 to May 2023, and only 40 percent of buyers bonded their properties in May 2023 compared to 60 in 2022.
Lightstone says: “This tells us that there were fewer buyers in the market, and when they did buy, they were less likely to bond their purchases.”
So where there would have been 60 bonds for 100 sales in May 2022, by May this year, there were just 20 bonds for 50 sales.
Lightstone looked at how many buyers were selling properties within two years to measure the level of “distressed sales” and compared May 2022 with May 2023 – and found that 80 percent more of those who bought in the middle of the low-interest period, May 2021, were sellers by May 2023.
For those who can afford to buy property, here are some tips from Renier Kriek, managing director of Sentinel Homes.
Renier says: “Buying a property that offers good value for money is not as easy as looking at its price, and this is the first mindset shift that buyers must make: value must not be confused with price.
“And just because you were able to negotiate a reduction in the asking price does not make it a bargain because the price was probably inflated to begin with.”
Thing to ook out for:
The reason the home is for sale
Sellers who are experiencing life-changing circumstances such as divorce, have fallen behind on their mortgage payments or have tenants they are unable to evict will be more likely to accept a lower offer.
Often, but not always, motivated sellers’ properties end up on auction. To look for homes selling via auction, bargain hunters can visit dedicated online portals or find court notices for foreclosure or sheriff’s actions.
Fixer-uppers
The market tends to devalue properties by more than the cost it will require to fix them up, so Renier explains that a fixer-upper property with R200 000 worth of arrear maintenance will likely be on the market for R1 million.
Once you have done all the maintenance, the value of the property shoots up to R1.5m.
This means the value gained by the maintenance is often more than the cost of the maintenance itself.
Large plots
The average size of plots has been decreasing over time as the trend in urban areas is to densify – a move that is encouraged by municipalities. In a city like Cape Town, it is now possible to build up to three dwellings on a single residential one-zoned plot.
You must, however, always consider other issues such as rezoning and urban development rules, and may require consultation with a town-planning expert.
Renier advises: “If the size of the plot is larger than the average new development in the area, there is likely to be surplus value. That is, unless the property is marketed as a development opportunity, which likely signals that the price has already been inflated to account for the size aspect.”
Vacant properties
Generally, vacant houses and flats sell for less than the ones that are occupied, This is mainly because a small crack or a spot on a carpet is more visible than when properties are inhabited. If you are able to visualise the potential, it is a good buy.
Relative value
When entering the market, it is a good strategy to consider buying the smallest or cheapest property in a particular area as the barrier to entry for these properties is generally lower than for the rest of the area.
In these turbulent economic times, it’s important to make provision for unexpected costs and rising interest rates.
If you are cutting your finances to the bone to afford a house – then perhaps now is not the right time to be doing so.
dailyvoice@inl.co.za