Mar­ket cycli­cal, so if you snooze you lose

Business Day - Home Front - - HOMEFRONT -

RE­WARDS Al­though it is rel­a­tively dif­fi­cult to ob­tain fi­nance at the mo­ment, prospec­tive home own­ers should not be dis­suaded from try­ing to buy a prop­erty be­cause the cur­rent buy­ers’ mar­ket will not last for­ever. “The prop­erty mar­ket has al­ways been cycli­cal, pro­vid­ing the op­por­tu­nity for those who have the courage and fore­sight to buy when it is in a down phase to reap big­ger re­wards than those who wait to buy un­til the mar­ket is on the up­swing,” says Har­courts Africa CEO Richard Gray. On the other hand, those who wait un­til an up­turn is un­der way risk los­ing out be­cause it will be­come more costly to buy and even more dif­fi­cult to qual­ify for a home loan. “To take a sim­ple ex­am­ple, if you’re in­ter­ested in buy­ing a home that costs R500 000 now you will prob­a­bly need a 10% de­posit of R50 000 and about R22 000 for costs. Your monthly re­pay­ment on a loan of R450 000 will be about R4 100 a month (at an in­ter­est rate of 9%). But if prices were to rise just 3% in the next 12 months that same home would be priced at R515 000. You would need a de­posit of R51 500 and about R24 000 for costs. And even as­sum­ing that in­ter­est rates had not also risen in the year, which seems un­likely, your monthly re­pay­ment would in­crease to R4 200.” What is more, he says, the higher the pro­jected monthly re­pay­ment, the harder it be­comes to qual­ify for a home loan in terms of the af­ford­abil­ity ra­tios used by banks.

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