Cash is king, especially among high-income earners
PEOPLE who are financially savvy will always advise others to avoid running up debt with credit accounts – except, of course, for homes and cars.
But this, too, appears to be changing as a growing number of property buyers in the Western Cape are using cash to purchase property, thereby avoiding credit rate increases and struggles associated with bonds in tough economic conditions.
“In my experience, there seem to be more cash buyers about,” says Andrew Heiberg, director at law firm Cliffe Dekker Hofmeyr Inc’s Real Estate practice in Cape Town.
“Many non-resident purchasers prefer to pay cash for their investments. There are also many instances where purchasers are using the sale of other properties to finance new purchases. Generally, purchasers seem to be ‘cash flush’ and often liquidate other investments, such as shares or unit trusts, to finance their acquisitions.
“I think the National Credit Act has made it more difficult to get mortgage bond finance in certain instances, and this has also played a role.”
In the Western Cape in particular, Heiberg says the cash-buying trend seems to be more prevalent for purchases in new housing developments. There are also instances where parents are purchasing student-type accommodation for their children, he adds.
Research released by Standard Bank at the end of last month found that, in the province, there were more cash property purchases than bonded transactions, says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty.
“( Nationally) their data suggests the share of cash transactions increased significantly from around 20% in 2006/07 – before the global financial crisis – to around 40% in 2009; and then slipped to around 36% by the third quarter of 2011 before rising again. The report indicates that by the fourth quarter of last year, cash transactions had risen to 46% and the figure is currently at 56%.
“Obviously there will be proportion variances between cash and bond depending on the prosperity of the suburbs and towns in the province, but on Cape Town’s Atlantic Seaboard, for instance, more than 75% of Lew Geffen Sotheby’s International Realty’s buyers pay cash,” he says.
Propstats statistics also indicate the coastal areas are attracting more cash buyers, says Mike Greeff, CEO of Greeff Christie’s International Real Estate. The Atlantic Seaboard in particular is a cash-strong sector.
“The free-standing homes market in False Bay is also cash strong with 62% cash and 38% bond, followed by Hout Bay with 58% cash and 42% bond.”
With property prices so high Point area through to Sea Point and the City Bowl. Within this LSM we see very few applications being denied due to bad credit, with the average price of a two-bedroom apartment ranging from R4 million to R6m. In areas such as Blouberg and Gordon’s Bay, where properties are generally lower priced, one generally expects to see bonds.”
The sectional title market in the southern suburbs is also cash dominant with 60% of transactions being cash and 40% bonded, Greeff says, adding: “Many of these purchasers are investors who buy to rent out. A cash-strong sector remains immune to the ups and downs in the interest rate.”
Sub-regions on the Peninsula are defined by a mix of cash and financed transactions to “a varying degree” – the most bond dependent being the south-eastern suburbs, where 69% of purchases of freestanding properties are financed and only 31% are cash.
Agreeing the cash trend is also being seen in the southern suburbs, Cyndy Minnaar and Jo Thomas, Lew Geffen Sotheby’s International Realty area specialists in Newlands and Constantia, concur that cash buyers in these areas are “prolific”.
“We have certainly seen the number of cash buyers increasing over the past few years,” says Minnaar.
According to Propstats, of the 40 sales transactions that have taken place in Newlands since January 1, only nine were bonded.
FNB’s household and property sector strategist John Loos says there have always been a “significant amount of cash buyers, considering about 30% of sellers are downscaling due to life stage. This means they sell to buy, usually a smaller and more affordable place and have the cash from the sale”.
Loos says most cash buyers are found in the higher-income class, and especially in the more affluent areas. Although there is data to show cash sales also occur in lower-income areas, buyers here usually have not built up wealth.
“As you go up the income ladder, you will find more cash sales. It’s the norm.”