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Easier to step on real estate ladder

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First-time home buyers are taking advantage of the weak economy and over-supply in the property market

The weak economic conditions that have been plaguing property owners and sellers in recent months have been providing opportunities for first-time home buyers.

Slow house-price growth and over-supply of properties on the market are a dream for any buyer, especially those with limited budgets who are looking to take their first step on the property ladder.

While overall purchasing activity remains “muted”, says Mpho Ramatong, housing schemes channel head at FNB home finance division, the proportion of first-time buyers has “trended up” in recent months, reaching an estimated 22.7% in the first
quarter of this year.

This is an improvement on the 17.6% estimate from the same period last year, according to estate agents’ survey results. The bank’s approval rate has also increased in recent months, Ramatong says, adding that the average home loan amount is R550 000. The average age of the first-time buyers is 30.
“The majority of first-time home buyers will purchase a freehold ownership (51%).” Sectional title properties are bought by 31% of first-time buyers and 19% buy in estates.

Using Lightstone data, Nondumiso Ncapai, product head at Absa Home Loans, says more than 50% of mortgage applications are from first-time home buyers.

“This is the first step on to the property ladder and the start of the
property ownership journey. There are between 4 500 and 5 000 first-time buyer registrations a month in the Deeds Office.”
The home loan registration volume from this sector of buyers has grown by 9% year-on-year, and Absa Home Loan’s national average age of the first-time buyer is 34.  
Not only are banks eager to lend to first-time buyers, but Marius Tinny-Crook, Western Cape sales manager for bond originator ooba, says they have also become more competitive by offering more accessible and affordable loans, and decreasing the average deposit requirements.
“A deposit has been a huge barrier to entry for many first-time home buyers. With a lower, and in some instances 0% deposit required, this opens the way for many aspiring homeowners to purchase their own home without saving for months or years for a hefty deposit.”
Statistics from bond originator BetterBond show 45% to 50% of total home loan applications a month are from first-time buyers. Chief executive Rudi Botha says the company is getting approvals for 75% of these applications.

The average age of their applicants is 37 and the average home loan amount first-time buyers are seeking is R892 000.

First-time buyers are generally couples, young professionals in their first jobs, and small families, says Herschel Jawitz, chief executive of Jawitz Properties. 
They generally buy at entry level prices, even in the better suburbs.

First properties are usually more affordable compared to family houses, so it makes sense to start small, says Seeff Property Group chairman Samuel Seeff.

“Once your needs expand, you can sell and by then would hopefully have built enough equity to make a profit as a deposit in your family house.”

He says apartments tend to be the best sellers for young buyers, and townhouses, mixed-use complexes and estates houses are in demand among young family buyers. 

 What you should consider before you start your hunt for a home
LIFESTYLE Young home buyers tend to look for properties situated in areas that offer conveniences such as bars and cafes within walking distance. Picture: Supplied

House hunting may seem like a relatively simple
process that can even be done online, but long before aspiring homeowners jump in their cars and start to view houses on the market, Just Property chief executive Paul Stevens says you need to consider a number of factors.
These include:
  • The areas or neighbourhoods best suited to your lifestyles.
  • The type of property you are looking for.
  • Affordability of additional home ownership costs.
  • How long you plan to live in the home.
  • The features that are necessities versus those that are nice.
  • Whether you are willing to renovate.

Stevens says the golden rule is to buy in the best area you can afford, even if this means not buying the best house there.

This is better than buying the best house in the worst area.

“Property is a long term investment and to ensure its future value, location remains key.”

When it comes to investing in property, Seeff’s Samuel Seeff says the decision is informed by your needs and budget, the latter being the decider in terms of what you can afford and where you can invest.

“First-time buyers usually have a good idea of where they want to buy, but these days it is also all about their lifestyle needs.

“Younger buyers tend to look in areas that offer excellent conveniences such as cafes and bars within walking distance. The rise in traffic congestion means anything central or close to a good transport network is in high demand.”

Affordability is a “big issue”, Seeff says, and buyers need to earn enough to cover the monthly bond amount by a factor of at least three times. You may also want to make upgrades that need to be budgeted for.
He says: “Buy the best you can afford, but keep it within your means. In real estate, we say buy the worst house on the best street because over the years your capital appreciation will be built up by all the other properties in the area.”
Knight Frank’s GT Stander says a first-time buyer should try look for the worst property in the best area as there is “always potential” for capital growth by purchasing the property under market value.
“It could potentially be renovated over time to extract more value, which could then generate a higher yield monthly if letting, or a better selling price in the future.”
While “location, location, location” has always been the property mantra, Herschel Jawitz, chief executive of Jawitz Properties, advises first-time buyers to just get into the market, even if the area is not your first choice. However, following the adage of “buy the worst house in the best area” does pose challenges.
“It’s not often a first-time buyer can get into the best area ,and the challenge with the worst house is the upgrades and maintenance required may prove to be unaffordable. Areas surrounding the best areas often offer better value, but my advice is get into the market because you can finance a large portion of your property with a mortgage.

Live-work-play areas are attractive for younger buyers

AFFORDABLE Properties in new developments often provide good opportunities for first-time buyers. Picture: William Ehrendreich

The less young buyers have to commute, the better, says Seeff’s Samuel Seeff.

This means they often choose areas near to business nodes with mixed-use facilities such as a supermarket.

“Young families will look for easy access to childcare facilities and schools,” he says.

In Cape Town, Herschel Jawitz says Salt River and surrounds, Rondebosch and Durbanville offer “significantly better value” for first-time buyers than the Cape Town CBD and Atlantic seaboard.

Other areas recommended by Seeff agents include: 

Average price range: R450 000 to R1.6 million
Offers a coastal lifestyle, excellent facilities, good schools. Easy access to Somerset West, Stellenbosch, and Cape Town.

Parklands (Blouberg):
Average price range: R700 000 to R1.7m
Offers Close to Blouberg’s beaches, a quality lifestyle, excellent schools, affordable properties.

Brackenfell/Kuils River (Northern Suburbs):
Average price range: R800 000 to R1.6m
Offers access to highways, public transport, Somerset West and Stellenbosch. Excellent facilities and schools.

Sonstraal Heights, Durbanville: Average price range: R925 000 to R1.8m
Offers suburban feel, access to roads, schools, and Durbanville.
First-time buyers should also look at buying in Woodstock, Green Point, Sea Point, Gordon’s Bay and Pinelands, says Knight Frank’s GT Stander.

“These areas still offer good value and growth.” Just Property’s Paul Stevens says that developments often provide opportunities for first-time buyers, as transfer costs may be included in the price or transfer duty may be excluded, and this can mean “significant savings”.

“Solaris Views in Stellenbosch Central is one such development.” Stander says buyers should beware of over-capitalised properties because they want to see capital growth.

First-time buyer myths disputed
NOT TIED First-time buyers should not wait until they are married before considering buying property. Picture: Supplied

First-time buyers often have misconceptions. These, says Seeff’s Samuel Seeff, include:

  • That you should wait until you get married before you buy property: In fact, the sooner you get onto the ladder, the better, as it is a great way to build wealth, security and a strong foundation upon which to build a life.
  • That you should you buy a house if you plan a family: These days, security and convenience might well be a stronger consideration, especially if the parents are working. You do not want a big garden and lots of maintenance, so you can quite easily settle for the convenience of an apartment or townhouse in a security complex.
  • That you will get a 100% bond: This is not always the case. First do a prequalification so you know what you are likely to qualify for. This will avoid disappointment. 

Pre-approval crucial 

PAPERWORK Aspirant buyers must ensure all their documentation is in order. Picture: Mohamed Hasan

First-time buyers have to take the time to do their homework, emphasises Jill Lloyd, agent for Lew Geffen Sotheby’s International Realty in Cape Town’s southern suburbs.

“They should discuss the application and sale process and banks’ lending requirements, including the different types of bonds available, with a professional.”

Lloyd says it is also important to get the financial side sorted before searching for a home by getting pre-approval from a
lending institution.

Getting a head start on the application process also means the transaction can be more swiftly concluded, once buyers have found the home they want.

“Although the initial gathering of documentation and information can take time, once the bank has received a fully completed application, and confirmed the buyer meets the criteria, approval is quick and should take no more than five days, provided the bank is able to promptly gain access to the value the property. 

Consider these costs

Buyers looking to apply for their first home loan must understand what they can afford and their budget.

“As a rule of thumb, your monthly bond repayment should not exceed 30% of your gross monthly income. For example, if you earn R21 000 a month (before deductions), you should not be spending more than R6 300 on a bond repayment,” says Just Property’s Paul Stevens. 

Buyers must also be aware of all the costs involved in the purchase of property.
  • Property transfer costs
  • Bond registration costs
  • Bond initiation fee
  • Deposit (optional)
  • Municipal provision for rates and taxes
  • Homeowner’s Insurance
  • Home loan protection or life policy
  • Occupational rent, if applicable
  • Moving costs
  • Water and electricity deposits
  • Deposits for phone/web connections.

Ongoing home ownership costs are: 
  • Bond repayments
  • Utilities
  • Rates and taxes
  • Maintenance
  • Levies (for sectional title or HOA)
  • Household insurance (optional)
  • Security (optional).
    “You should allow for between 8% and 10% of the amount of the purchase price of the property to cover all the costs 

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