Count the costs before you buy-to-let
According to the US National Association of Realtors (NAR), investment and holiday home buying accounted for 24 percent of all home sales last year, as buyers sought to make the most of low interest rates and a surplus of discounted repossessed properties that could quickly be turned into rental units.
In South Africa, buyers have been more cautious, despite low rates. According to the First National Bank (FNB) Property Barometer, investment or buy-to-let buying currently accounts for less than 10 percent of total property buying.
However, the trend does appear to be picking up, and those who are new to this type of investment do need to be sure that they are familiar with all the costs involved, says Shaun Rademeyer, CEO of BetterBond Home loans. The main costs involved, as identified by the NAR are bond repayments. Investment properties are considered riskier because the home is not your primary residence, so be prepared to put down a bigger deposit and possibly also for a higher rate of interest on any home loans needed to finance such properties.
Rates and taxes, which can add significantly to the property cost, so you should contact the local municipality yourself to find out what they are before you buy.
Buy a house that fits your lifestyle
Given the fact that property should be viewed as a long-term investment, it is essential for potential buyers to choose the right home that works for them and importantly fits their lifestyle.
This is according to Adrian Goslett, CEO of RE/MAX of Southern Africa, who says while buyers should look at the property they purchase as an investment and consider factors that could affect the long-term appreciation of the property’s value, it is just as important that they simply 'love the house'. "Often buyers may look at the checklist of features that the home has on offer, but don’t necessarily consider the experience of living in the home and how living there may impact on their daily lives."
He says unless they are property investors purchasing the property as part of their portfolio, buying a property purely for its possible resale value can be a mistake.
"Essentially, if home buyers bought a house that they loved and wanted to live in, chances are the property will have a good resale value and other people would want to live there too.”
Credit amnesty and consumer liability
The recent announcement from Cabinet on the approval of a credit information amnesty has been a controversial topic in the South African financial arena.
Although many financial institutions objected to the amnesty, due to its negative effect on their capability to evaluate risk, as well as it sending the wrong message to an already over-indebted public, it appears that the amnesty will go ahead regardless of the surrounding controversy.
In short, the amnesty appears to approve the removal of paid-up adverse and judgment information from the credit bureaus as a once off and thereafter ongoing process. There will be another month for public consultation, following which there will be clarity on whether the amnesty will further apply to adverse and or judgement information for which debt is still outstanding.
Michelle Dickens, founder and managing director of registered credit bureau, TPN, warns consumers to take heed; the amnesty applies to deleting adverse and judgement information on the credit bureau. She says what the amnesty does not mean is that the obligation to settle any unpaid debt falls away. On the contrary, you will still be held 100 percent liable for any monies still owed, she explains.
Get pre-qualified for a home loan
The demand for home mortgage finance is growing stronger month by month but those involved in helping the public still find that they are up against a surprising amount of ignorance and misinformation among clients.
This is according to Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, who says some clients still approach bond originators or their banks expecting to get a loan at below prime rate, i.e. below 8.5 percent. This was possible when rates were at 12 to 15 percent but such loans are seldom approved today.
He says one has to appreciate that with the prime rate now so low, the bank’s ability to profit from bonds is reduced. He says it is illogical to expect them to agree to a sub-prime rate on today’s low rates.
Those who do achieve a loan at say 0.5 percent below prime almost invariably have impeccable credit ratings and are usually able to put down a 20 percent or larger deposit, he says.
Van Alphen says although the banks have been criticised for this, it is also perfectly reasonable for them to charge one or two percent above prime on affordable housing, the reason for this being that the risk associated with loans in this category has historically been higher than most.
Consumers beware collection agents
The National Debt Mediation Association (NDMA) is concerned that consumers are being bullied or misled by credit provider collection agents who deliver Section 129 notices or letters of demand.
Magauta Mphahlele from the NDMA says trends in the types of enquiries and disputes received by the NDMA show that some of the agents do not explain the consumer’s rights and obligations in terms of either Section 129 of the National Credit Act (NCA) or the collection process in terms of the Magistrates Court Act.
She says some even pressurise consumers to sign consent to judgments or to make unsustainable arrangements with the agent on behalf of the credit provider.
Section 129 letters are delivered to consumers when they are in default with their debt repayments and the credit provider is about to take legal action. In terms of Section 129 of the NCA the credit provider must notify the consumer that they are in default and that they intend to hand them over to commence legal proceedings. The notification must also advise consumers of their rights to approach a debt counsellor, an ADR agent, an Ombudsman or a Consumer Court.