COVID-19 – a good time for homebuyers in the real estate market

THE CHINESE use two brushstrokes to write the word ‘crisis’. One brushstroke stands for danger; the other for opportunity. In a crisis, be aware of the danger, but recognise the opportunity. This proverb summarises the approach that individuals should take in approaching the current real estate market, as there has never been a better time in the recent history of real estate (in Jamaica) that so many factors are in favour of the buyer. Now is a good time for persons in the market to purchase residential properties, so that they can take advantage of the opportunities that may arise, as a result of the COVID19 pandemic. At the end of the day, folks still want to get back on track with their goals in 2020, even in the midst of a crisis, and home ownership is one such goal you do not have to shelf.

Recently, the Government announced a reduction in NHT (National Housing Trust) rates – making it one of the lowest rates it has ever been. We also saw a lowering of stamp duty and transfer tax rates (last year); coupled with more affordable terms of financing, due to the highly competitive space right now. It is also anticipated that buyers will be able to get good deals on real estate, as there is likely to be an increase in the supply of more developments coming on the market.

With that said, here are the next steps that will help to get you on your journey to home ownership, whether you are buying your dream home, investment property or vacation home:

1. GET PREAPPROVED:

This will help everyone – the realtor and you as well – as this process will help you to know how much you are qualified for and to narrow your search so you are able to determine, do I look for a property in a particular area because of my budget? The prequalification process also prevents potential home buyers from missing out on great opportunities because of delays in the mortgage process, or worse yet, disappointment when you later realise that you do not qualify for the amount needed to finance the property of choice.

This process will involve you sharing relevant documentation about your financial circumstances: proof of income (job letter and/ or last three months’ pay slips); financial statements and tax returns for business owners/ entrepreneurs and non-resident applicants, along with national identification; tax registration number (TRN) and consent for your financial institution to request your credit history. The good news is, if individuals took advantage of the current relief packages in the form of moratoriums, when they are ready to purchase, this will not negatively impact their credit worthiness.

The pandemic should not dampen your home-acquisition prospects. However, potential purchasers should err on the side of caution. Be honest about what you can afford, as now is not the time to overreach with your budget as there are many uncertainties in the economic environment. Prequalification letters are usually valid from threesix months, provided there is no major change in your circumstances.

2. START ‘HOUSE HUNTING’:

Now armed with your preapproval letter, it is best to solicit the help of a trusted realtor to find a home that meets your preference and taste. In selecting a trusted realtor, you should find someone who you feel comfortable with, someone who aligns with your goals, and someone who will also look out for your interest. Using a realtor also gives potential buyers added advantage of having first-hand knowledge in most of the instances, about upcoming listings, and can share that with prospect. Additionally, especially for overseas purchasers, realtors can act as your boots on the ground, and these services are at no cost to the buyer, as the seller pays the realtor, in the Jamaican market.

In real estate, location is key. Of course, your selection of a location and the functionalities and features it offers will be dependent on the objective of you, the buyer and the intended use of the property.

3. PUT IN AN OFFER:

Having selected your property of choice, potential buyers can put in an offer to the vendors for consideration. This is not yet a transaction, however, because the offer is conditional, and is now subject to a sales agreement/ contract. Therefore, at this stage you want to use your negotiation skills to get the best deal from both the vendor/seller and your banker about offering special terms and conditions.

In purchasing a home, there are several associated fees, so buyers should budget anywhere from 10-12 per cent of the sale price in terms of (deposit), processing fees and taxes. This will cover your deposit and upfront costs such as: surveyor report, stamp duty, legal fees, valuation, bank processing fee, property insurance, closing costs – in the case of new developments which may be subject to escalation. The majority of these costs can be financed as part of your mortgage, subject to your debt serving ratio, or supplemented by an unsecured loan. Additionally, if you use your NHT benefit, you can access an additional five per cent of this loan amount, as a buffer to offset some of the costs that you may incur.

The average mortgage processing time is 30-120 days, after the submission of all documentation, and a preapproval letter usually makes the process faster and more efficient.

4. GET INSURED:

You want to protect one of the biggest investments you will make in life and so insurance is the way to go. As a new homeowner, you will need: property insurance to cover damages or replacement cost of the property; life insurance in the event of critical illness or death, so that your loved ones can benefit from the property without the associated debt and strata insurance, if you buy into an apartment.

Even as homeowners celebrate this milestone, they should maintain their emergency fund and manage their budget, so that they can easily cover new financial obligations and pursue their other dreams without feeling burdened by debt.