Interest rates: Should you fix or not?
With the rate of inflation still “uncomfortably high”, according to reserve Bank Governor Gill Marcus, many homeowners and buyers are starting to worry that the current low interest rates can’t last, and wondering whether the time has come to fix their home loan rate.
Jan Davel, managing director of the RealNet estate agency group, says this is sometimes a good idea for people living on a fixed income or first-time buyers who want to be able to budget very accurately for the first few years of homeownership. He says anyone considering this option must bear in mind that the banks will charge a premium in order to fix their rate, usually for between two and five years.
This premium will vary depending on the length of time for which you want to fix your rate, but will probably be at least two percentage points higher than the variable rate you are paying now. “This means that you stand to pay a significant additional amount of interest on your home loan until the repo rate also rises at least two percentage points – and that you will effectively lose that money if the repo rate does not rise that much by the end of your fixed-rate term.”
State of SA's affordable homes market
With over 900 000 people seeking affordable and social housing annually and only around 25 000 new units becoming available each year, the market for affordable housing shows immense potential for investors, according to Nedbank’s Affordable Housing Finance division.
Manie Annandale, head of Nedbank Affordable Housing Development Finance says investments in affordable and social housing in South Africa are in line with this trend. Annandale notes that affordable and social housing present less of an investment risk than costlier housing due to the huge demand for suitable housing close to facilities in metro areas.
“With up to 70 percent of South Africa’s population expected to be living in urban areas by 2030, the demand for housing is surging and we see a growing middle class seeking to buy homes priced under R600 000,” he says. However, because developers are seldom able to produce housing priced at under R300 000 per unit and the Finance-Linked Individual Subsidy Programme (FLISP) only subsidises properties priced under R300 000, we see a shortage of affordable stock, explains Annandale.
Mediation and property disputes
In a number of property disputes, mediation rather than litigation has been shown to be capable of giving quicker, more equitable and less expensive solutions than would probably have been achieved by litigation.
This can be especially true in sectional title complexes, which have an inherent potential for disputes to arise among neighbours, possibly as a result of their living so closely together and having different personalities and concerns or for other reasons.
This is according to Grant Gunston, Senior Director of Gunstons Attorneys, who says in one case, a dispute arose because the original land surveyor made quite serious mistakes on the diagram. As sectional title levies are calculated on a pro rata basis of the square meterage of the units, the land surveyor’s mistake made some owners pay too much in levies and others pay too little.
He says when this was brought to the attention of the members, those who were underpaying dragged their feet about rectifying matters and this led to acrimony and the formation of two opposing camps among the members.
Property overpricing slows down sales
It has been said many times, properties that are priced right will sell despite a somewhat slow market, although in some instances, Lower priced properties are reportedly still selling better than higher priced ones.
With the continued low interest rate environment, those with easy access to home loan finance or cash in hand will buy at the right price.
According to Denis Quayle, owner of the four Harcourts Maynard Burgoyne real estate offices in Cape Town, many sellers at the upper end of the property market are still clinging to price expectations that are out of touch with market realities.
Quayle points out that the high cost of living is making it difficult for many buyers and even those in the higher income groups are very value conscious at the moment.
“Some sellers have a skewed idea of what their properties are worth in the current market and are slow to take advice from experienced estate agents on market-related asking prices,” he says.
Dealing with deceased estate property
Deceased estates can often be complicated to unravel and some can lead to legal problems cropping up.
This is according to Lanice Steward, managing director of Knight Frank Residential SA, who says problems don’t always arise because people are dishonest or have hidden anything, but often they are caused by ignorance or misinterpretation of the law.
The holding vehicle for a property can either facilitate or complicate the wrapping up of an estate, which in turn affects the inheritance process and those with their heirs’ interests in mind should perhaps remember this, says Steward.
She says if a property is part of an estate and is bought in a close corporation, trust, or a company, the beneficiaries will have to work closely with the other members of those bodies as well as the executor of the will.
In all of these bodies if a decision is to be made regarding the sale of the property, either one person is designated to sign documents via a resolution or all the members have to sign. This can take time and can cause delays in distributing assets.
Stable interest rates: Good or bad?
The Reserve Bank’s Monetary Policy Committee (MPC) last week left the repo rate unchanged, citing upside risks to inflation given the potential for further rand depreciation on future tapering in the United States Quantitative Easing (QE) programme, versus slowing domestic economic growth.
However, this comes as no surprise as Investec had pointed out earlier that week that Interests rates were set to remain unchanged. Furthermore, Investec had said it does not foresee an increase this year and 2014.
Following the announcement, Investec’s Annabel Bishop says they continue to believe interest rates will remain unchanged this year and next, with the risk that economic growth comes out weaker than forecast, and so demand led inflation pressures moderate further.
“When tapering of quantitative easing in the US begins, which we currently expect will be in March 2014, we believe the Rand will not weaken as dramatically as it did when the potential for future QE tapering was mentioned in the middle of this year as the speculative positions which had been built up in the absence of any signals of QE tapering have to a substantial degree been unwound.”
She says emerging market currency weakness is likely, but not to the extent as in mid-2013 as the market has to a substantial degree priced in a reduction in QE.
Tips for buying an old house
During times of short supply of well-priced property in the residential housing market, such as there is at the moment in many areas, prospective buyers are being forced to adapt their wish lists and that often requires property renovations.
People buy old, unrenovated homes for three reasons. Firstly, for period homes, as new owners will often want to restore the properties to their former glory. Otherwise, they’ll either buy a property for the erf’s location, knock all or most of the house down and rebuild a home that suits their taste, or lastly, they buy to renovate.
The former is easy, provided you check that the property isn’t protected under historical preservation legislation.
Buying to renovate, however, poses a much more complex challenge, and one that can prove to be disastrous if the buyer doesn’t pay due care and attention to what they’re buying.
Transformation in the property sector
The Property Sector Charter Council’s timeline of a 50 percent BEE estate agent contingent in all realty companies by 2015, is unattainable and will irreparably damage the industry in South Africa.
This is according to Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, who says the Council, which answers to the Department of Trade and Industry, cannot expect industry players to comply unless there are fundamental changes made to qualification processes for agents, which currently takes approximately a year – during which candidates earn little or no income.
Geffen, like Roy Leigh, CEO of the Real Estate Business Organisation (REBOSA), believes that industry transformation is essential. He says there’s no question that transformation must take place, but a 50 percent quota can’t be enforced in 2015 because the economy simply won’t allow for that number of additional agents to flood into the market.
He says they’ve already seen the number of agents shrink from around 75 000 before the 2008 recession to around 38 000 now, and they’re working hard to earn a living.
“The Council is trying to force us into a position of retrenching half of our experienced workforce for novice agents who have no experience whatsoever, or flooding the market with agents who are destined to fail because there simply isn’t that much stock to sell.”