Cash is king, es­pe­cially among high-in­come earn­ers

Weekend Argus (Saturday Edition) - - PROPERTY - BONNY FOURIE

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.”

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