Getting a toehold in the property market as soon as possible is a smart move – even for young single people taking their first steps on a career path.
That’s the word from Rudi Botha, CEO of BetterBond, SA’s biggest bond originator, who says young adults who hold off on buying their first property until they have settled in to a new job or until they get married are losing out on an opportunity to start building real wealth.
“It is true that as a young person you may be a prime candidate for company transfers, especially if you are single and newly-qualified. You may also be worried about getting ‘stuck’ with a property that your future partner won’t like or is too small for a family.
“But a residential property is not just a place to live. It is also an asset that appreciates in value, unlike cars, clothes, furniture and other things that young people tend to buy, and a great savings mechanism at the same time.”
According to the latest FNB House Price Index, he notes, property prices in SA are currently 90,8% higher, in real (after inflation) terms than they were in 2001. “In simple terms, this means that the property buyer who bought a R1m property with a R100 000 deposit (investment) in 2001 would have made a return of almost 1000% on that initial investment, and the younger you are when you buy, the more chance you have of achieving such long-term returns.
“In addition, buyers who put spare cash into their bond account will not only get a better effective rate of interest (tax free) than they would on money deposited to a bank savings account, but also stand to cut many thousands of rand off the total cost of their home by paying it off early.
“If you had a bond of R1m, for example, and were able to pay an additional R600 a month off the outstanding balance of your bondat an interest rate of 10%, you would reduce the loan term from 20 years to 16 years and 10 months, and save more than R245 000 worth of interest.
“And as long as a home is increasing in value and the bond is decreasing, the owner is building up equity in the property, which can be used as security for other investments, emergency funding or a deposit for another property if they decide to sell and move on. This sort of wealth creation obviously doesn’t happen when you rent.”
Now is also a good time to buy, says Botha, because prices are very negotiable and the banks are keen to lend to home buyers. “But young buyers do still need to be careful not to over-extend themselves financially. Enlisting the help of a reputable bond originator like BetterBond to obtain bond pre-qualification is the best way to find out how much they can comfortably afford to spend, and they should also work out how much it will take to run and maintain a property before they sign a sales agreement.”