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Wednesday, August 17, 2022

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Property investment is a safe bet, especially in times of crisis

Even if money is tight at times, your property is a valuable asset worth sacrificing for. Picture: Mart Production/Pexels

Even if money is tight at times, your property is a valuable asset worth sacrificing for. Picture: Mart Production/Pexels

Published Jun 9, 2022


South Africans are struggling to keep up with inflation, fuel, and food price increases – not to mention the ongoing interest rate hikes.

For this reason, many people are hesitant about buying a home as they not only worry about being able to meet their bond repayments, but also because they are unsure about what their future holds.

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Property has, however, always been a resilient asset class as people require housing security, and its value over the long term tends to go up.

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Therefore, in times of crisis, people naturally want to own physical assets such as property, gold, and cash as opposed to being invested in equities, says David Sedgwick, managing director of Horizon Capital.

“This crisis, like all the ones before, will pass and when it does, one will still own their physical property which is a real asset.”

During the global crisis of 2008, he says commercial property prices fell by a far higher level than residential property – 30% compared to 2%, which showed that residential property prices retained their value better than commercial property.

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The resilience in the residential property market is also driven by the fact that being forced to sell one’s home, especially at a big loss, is always the last resort, Sedgwick adds.

“Before this, people will cut back on all discretionary expenses, trade down their car, stop contributions to their pensions, rent out a spare room, borrow money from family if possible, negotiate new bond payment terms and get a second job if need be.”

Echoing this, Tony Clarke of the Rawson Property Group says property is one of the most stable investments to have during a major economic crisis.

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“The biggest thing for new homeowners to remember is that even if money is tight at times, your property is a valuable asset that is worth sacrificing for.

“Discipline is key from the get go, so try to stay positive and take control over your finances. Cut back on luxury items and take a careful look over all your monthly debit orders and expenses. Review each area and think about which items are necessities, and which are costing more than they’re worth.”

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Citing ooba data, Andrew Golding, chief executive of the Pam Golding Property group says the impact of the recent 0.5% interest rate hike is not expected to be significant, especially as this is still the lowest level of prime interest rate in more than two decades – prime was 8.5% between July 2012 and Dec 2013.

“According to ooba, the average approval rate for 100% bonds inched higher from 81.3% in March to 82.8% last month, the highest rate for the year to date, with the approval rate for first-time buyers at 79.9%. This indicates that financial institutions still demonstrate a strong and competitive appetite for lending.

“Bearing in mind that the desire among our country’s sizeable young generation of savvy, aspirational citizens is to own their own homes, and that activity in the marketplace is also fuelled by people relocating for a variety of lifestyle and other reasons, we are optimistic that the residential property market will continue to retain its resilience, as evidenced over the years despite numerous economic and other challenges.

Carl Coetzee, chief executive of BetterBond echoes this, saying that the property market is still in far better shape than it was in 2008 when the property bubble burst and house prices plunged.

“Of course, the increase will mean a change in monthly repayments, and we encourage homeowners to factor this into their budget calculations. But we are still in a far better position than we were in 2008 when the property market collapsed and inflation was at 11.5%.”

Furthermore, he says the recent increase in interest rates has not dampened the banks’ appetite to lend, says Coetzee.

“BetterBond has seen an almost 10% increase in the ratio of formally granted bonds for April, year-on-year, which is significant coming off the high base set last year.

And with some banks offering loans of up to 105% for qualifying applicants, there are options for aspirant homeowners.

The current trend among property buyers, says Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, is the strong favouring of the coastal lifestyle over the urban hustle and bustle. Demand for suburbs that offer a higher quality of lifestyle is likely to remain high for the foreseeable future.

“The pandemic saw buyers spread further afield to find homes that offer a higher quality of lifestyle. This trend seems to be holding strong for as long as the option to work remotely continues to exist.”

Barbara Larney of RE/MAX Town and Country reports that, in Hermanus, Franschhoek, and Paarl, the buying ‘panic’ of fleeing to the countryside during the pandemic is now over.

“That being said, I doubt things will go back to how they were before. Young families have been taking full advantage of this lifestyle shift by abandoning the locations they were tied to only because of their jobs. Buyers are showing an increased interest in less crowded settings and are striving to achieve better work-life balance. Smaller towns are likely to grow faster in some instances to accommodate this demand.”

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