Never too young to buy prop­erty

George Herald - Private Property - - Property News -

Get­ting a toe­hold in the prop­erty mar­ket as soon as pos­si­ble is a smart move - even for young sin­gle peo­ple tak­ing their first steps on a ca­reer path.

That's the word from Rudi Botha, CEO of Bet­ter­bond, South Africa's big­gest bond orig­i­na­tor, who says young adults who hold off on buy­ing their first prop­erty un­til they have set­tled in to a new job or un­til they get mar­ried are los­ing out on an op­por­tu­nity to start build­ing real wealth.

"It is true that as a young per­son you may be a prime can­di­date for com­pany trans­fers, es­pe­cially if you are sin­gle and newly qual­i­fied. You may also be wor­ried about get­ting 'stuck' with a prop­erty that your fu­ture part­ner won't like or is too small for a fam­ily. But a res­i­den­tial prop­erty is not just a place to live. It is also an as­set that ap­pre­ci­ates in value - un­like cars, clothes, fur­ni­ture and other things that young peo­ple tend to buy - and a great sav­ings mech­a­nism at the same time."

Ac­cord­ing to the lat­est FNB House Price In­dex, he notes, prop­erty prices in SA are cur­rently 90,8% higher, in real (after in­fla­tion) terms than they were in 2001. "In sim­ple terms, this means that the prop­erty buyer who bought a R1-mil­lion prop­erty with a R100 000 de­posit (in­vest­ment) in 2001 would have made a re­turn of al­most

1 000% on that ini­tial in­vest­ment, and the younger you are when you buy, the more chance you have of achiev­ing such long-term re­turns," says Botha.

"In ad­di­tion, buy­ers who put spare cash into their bond ac­count will not only get a bet­ter ef­fec­tive rate of in­ter­est (tax free) than they would on money de­posited into a bank sav­ings ac­count, but also stand to cut many thou­sands of rand off the to­tal cost of their home by pay­ing it off early. If you had a bond of R1-mi­il­ion, for ex­am­ple, and were able to pay an ad­di­tional R600 a month off the out­stand­ing bal­ance of your bond at an in­ter­est rate of 10%, you would re­duce the loan term from 20 years to 16 years and 10 months, and save more than R245 000 worth of in­ter­est. And as long as a home is in­creas­ing in value and the bond is de­creas­ing, the owner is build­ing up eq­uity in the prop­erty, which can be used as se­cu­rity for other in­vest­ments, emer­gency fund­ing or a de­posit for an­other prop­erty if they de­cide to sell and move on. This sort of wealth cre­ation ob­vi­ously doesn't hap­pen when you rent."

Now is also a good time to buy, says Botha, be­cause prices are very ne­go­tiable and the banks are keen to lend to home buy­ers. "But young buy­ers do still need to be care­ful not to over-ex­tend them­selves fi­nan­cially. En­list­ing the help of a rep­utable bond orig­i­na­tor like Bet­ter­bond to ob­tain bond pre-qual­i­fi­ca­tion is the best way to find out how much they can com­fort­ably af­ford to spend, and they should also work out how much it will take to run and main­tain a prop­erty be­fore they sign a sales agree­ment." Is­sued by Bet­ter­bond

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