Weekend Argus (Saturday Edition)
How to step on the property ladder
Experts give advice about taking the big leap of investing in bricks and mortar
IF YOU are renting, buying your first home may seem like an impossible dream. With so many expenses already competing for a bite of your monthly pie, how can you afford to save up for a 10% deposit on a property, let alone afford the monthly bond repayments, and rates and taxes?
Ashley James, co-founder of Property Fox, an online property company, says with knowhow, discipline and motivation, it is not impossible.
He says don’t be afraid to seek advice from a professional and weigh up all your options objectively. “If you need to apply for a bond or ask a loved one for a loan, do the maths, be realistic, and make sure your budget is sound.”
James and PropertyFox offer these tips:
Before you apply for a mortgage, understand what your income amounts to once you’ve subtracted all additional expenses like UIF, taxes, and monthly commitments like groceries, your vehicle, credit card, and entertainment. Once you’ve done your budget calculations, you will see if a home loan is viable.
Buying with a relative or partner is a way to make investing more affordable. Be sure to enter into it as a business arrangement – have a lawyer draft a contract, and make sure both party’s finances are in order before signing on the dotted line. If you’re buying the space to let it, ensure returns are agreed on upfront. Sort through all the financial aspects of the buy so you understand at what point it makes more sense to purchase than rent.
Look at everything from the house price and mortgage rates to interest rates, insurance, maintenance, transfer fees, capital appreciation fees, and so forth. You also need to have an idea of how long you’ll live in the house, and how much you could accumu- late investing the same sum of money elsewhere. Areas a little further from the centre of the city can be more affordable.
Fees are likely to cost about 10% of the price of the house (that’s on top of the deposit) so know what you are letting yourself in for.
JP van der Bergh, founder of the Propscan app says it can seem daunting if you’re buying for the first time, but agrees that if you do your research and “you get your financial ducks in a row, it needn’t be nearly as tedious a process as it seems”.
Van der Bergh advises:
Get a head start on the financial application – even before looking at property. “Obtaining pre-qualification for a mortgage not only provides prospective homebuyers with the peace of mind that their credit records are in good standing and that they’re considered viable credit risks, it also arms them with the knowledge of how much they can spend and the type of interest rate bond deal they can expect from a bank.”
Once you have the all-clear from the bank that your credit-worthiness is intact and you have an idea of your budget, the next important decision is the location of your new home.
“The ‘ where’ is a critical factor, because this not only impacts on your future lifestyle and return on investment, but also the approval of your bond application.
“It’s important that the property being purchased is in good standing and is situated in a suburb where prices are likely to show steady growth.” (See Box) Those looking to buy in the best location with the intention of demolishing an existing building or renovating an older property must do additional homework, warns Van der Bergh.
“Cape Town, for example, has very particular build- ing laws that vary greatly depending on the suburb, and what you can do to one property in one area you can’t necessarily do in a different part of the city.
“In Cape Town, the city’s Development Management Scheme (DMS) forms part of its 2015 Municipal Planning By-law and is a legal tool used to determine the use of rights of a property by giving it a particular zoning category.
“Every city and town has by- laws of this nature and might not be as convoluted as Cape Town’s, but must nevertheless be checked.
“Buyers should ask for a property building plan prior to starting the purchase process and, if possible, consult an architect about what they intend to do.
“Then they should have their attorney check whether the particular suburb’s bylaws permit the desired alterations.”
Sandy Geffen, executive director of Lew Geffen Sotheby’s International Realty in South Africa offers this advice:
Buyers shouldn’t forget to factor in the additional costs of purchasing and financing their new home, with transfer costs, bond and deed registration charges, legal fees and the financial institution’s initiation fees being the primary expenses that should be in the budget.
“First-time buyers can be in for a rude awakening if they aren’t aware of what’s required to complete the sale, and if they don’t do their homework and sums they could be faced with sourcing the equivalent of a king’s ransom in a very short space of time.
“Some are upfront, out-ofpocket costs that are non-refundable even if the deal does not go through, while others will only hit your wallet once the sale is concluded.
“It is essential these are all factored into your forward planning.
“As a rule of thumb, you should allow for 8% to 10% of the purchase price of the property for the additional costs over and above the deposit, which you must save for in advance.
“We’re in a tight economy and banks are wary of advancing large sums of credit, so they will look more favourably on bond applications if buyers have between 15% and 25% of the purchase price saved as a deposit.
“The days of banks freely granting 100% bonds without equal collateral are long gone, so think 10% as your general minimum.”