The pros and cons of paying full cost upfront

The Atlantic Seaboard/ City Bowl areas boast some of the highest cash-buyer ratios in the country, with many wealthy buyers still confident to put their cash into these areas they view as a solid store of wealth, agrees Billy Rautenbach, sales director for Seeff on the Atlantic Seaboard, V&A Waterfront and City Bowl.

From November 2016 to October 2017, the group achieved total sales of more than R1.5 billion in these areas, and more than 70% were cash transactions.

Ensuring one is pre-qualified for a bond is crucial if buyers want to compete with cash buyers, says Mike Greeff, chief executive of Greeff Properties, as this lets them know what they can afford.

“Sellers are more likely to take you seriously if you furnish them with a pre-qualification certificate.”

Most cash buyers are “astute” and looking for homes in the range of under R2m to R5m, he says. In the full-title markets in the southern suburbs, south peninsula, Hout Bay, City Bowl and Bloubergstrand, this cash-buying “phenomenon” is being seen.

In the sectional title market, areas such as Wynberg Upper, Kenilworth Upper and Claremont are experiencing this trend.

“These are hotly contested areas and potential buyers and investors would be eager to swoop in and get a high return on investment.”

Agents agree that cash buyers are a fairly even mix of investment buyers and those wanting to live in the properties themselves. BUYERS with cash end up saving money by not paying interest on their home loans for 20 years, and their credit records do not come into question, says Greeff’s Mike Greeff.

“Disadvantages include having all your money tied up in one place, and that could mean little to no access to extra funds should all your capital be kept in one asset.

“Buying with cash also means you don’t receive a bank valuation. When taking out a bond, banks use valuators to assess a home and determine whether or not it is worth the advertised or asking amount. By buying cash you eliminate this process and face the risk of paying an overinflated amount for a property that may not be worth it.”

Among the positives of cash buying is the security it brings, says Seeff’s Tony Ketcher.

“You will have the security of a roof over your head fully paid for. Property is regarded as an excellent asset for security purposes, not that one should ever use your primary home as security unless you absolutely have to. You will also have 100% equity in your property and a rather substantial asset.

Whether to buy cash or with a bond differs according the age of buyers, says Denise Dogon of Dogon Group Properties.

“In the case of a young couple with high income-producing potential, they should take a bond and also invest in stocks or in a second property and build a diverse portfolio. This is as opposed to placing all their funds into one property and missing out on other investment opportunities.”

Homeowners reaching retirement age, on the other hand, should pay cash and have no bond as financial security becomes a priority later in life, Dogon advises.

PICTURE: TYSON PROPERTIES Helenslee in the V&A Waterfront has recently seen cash purchases of full asking prices, and bonded buys of more than asking prices.