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Trends: Big dash to buy with cash

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Buyers with mountains of money are avoiding credit rate increases and the struggles associated with being granted bonds by putting currency offers on the table when purchasing property.

Financially savvy people will always advise others to avoid running up debt on credit accounts – except, of course, for homes and cars.

But this appears to be changing as a growing number of property buyers in Joburg are using cash to buy property, thereby avoiding credit rate increases and struggles associated with bonds in tough economic conditions.

“The trend of paying cash has increased as banks become more restrictive in lending practices,” says Denoon Sampson of conveyancing attorneys Denoon Sampson Ndlovu.

“Also, there has been an increase in foreigners who generally purchase for cash only. Central Africans are drawn to Sandton and surrounds as they see it as the ‘New York of Africa’.

As with other parts of the country, this means of property purchasing is popular in the more affluent suburbs.

Buyers obtain cash through profits from business transactions, commissions and offshore resources, Sampson says, adding that the average property prices met in cash generally exceed R5 million.

Research released by Standard Bank at the end of May showed Gauteng had the most overall property transactions last year with 42% of total, says Lew Geffen, chairperson of Lew Geffen Sotheby’s International Realty.

The province also saw the highest number of cash transactions at 34%, followed by the Western Cape with 31%.

“According to Standard Bank, the benign South African economy is impinging on purchasing activity. In absolute terms, both mortgage and cash transactions are falling. Mortgages, however, are falling faster than cash transactions, reflecting the impact of adverse labour market conditions and the tightening of credit conditions. 

Fewer constraints apply to cash buyers,” Geffen says.

People from overseas are using cash to buy property in South Africa. File picture: Kacper Pempel/Reuters

“Cash buyers are usually in a better bargaining position and sellers may be more amenable to offering a discount when trying to expedite a transaction. This is also more likely when a property has been on the market for a long time. Cash buyers likely have more time to look for bargains, which may include distressed sales.”

The agency’s area specialist in Atholl, Illovo and Inanda, Justine Roux, says 60% of sales during the past year were cash, and predominantly took place in the upper ends of the markets.

She says most cash buyers were established professionals in the higher LSM, and couples who owned properties individually and then purchased jointly. High percentages of bond purchases in Joburg are seen predominantly in affluent areas such as Sandton and Lonehill, says Dina Soukop, CEO of Soukop Property Group.

However, she warns: “While it doesn’t make much difference to the seller whether it’s a cash or bond sale, it is important that it is a protected cash sale. There are cases where the cash purchaser doesn’t put down a deposit, and then when the lawyer asks for the payment, they can’t come up with the money.”

Sampson, who says while there is always “much excitement” when a cash offer-to-purchase is completed, the full purchase price is never paid on the same day a contract is signed.

“The seller is left with a blind faith expectation the purchaser will eventually pay the money before the property is lodged at the Deeds Office. Purchasers often manage to pay the deposit and then fail to meet the balance of the purchase price. The analogy is similar to the old world practice of handing over a post-dated cheque, which is then dishonoured.

“A seller will always have more certainty if the offer-to-purchase is subject to the granting of a mortgage loan. If a bond is granted they can rest assured the money is available and has been allocated.”

Sampson explains: “Many purchasers do not seem to understand the moment the seller accepts an offer, the purchaser is bound by all of the terms and conditions. “Of particular significance is if he cannot raise the balance of the purchase price, he will forfeit his deposit.

“We have noticed a strange practice among some purchasers believing after the deal is done, they still have opportunity to choose whether or not to proceed with the deal. For example, when one requests the balance of the purchase price, the typical retort is ‘Wait, I have not yet decided whether I want to commit to the deal’, or ‘I am still waiting for my valuer and consultants to tell me the price is right’.”

He says many purchasers will buy a property without having the purchase price readily available.

“Typically, if they are promised a large business deal or a large commission and before that money is actually paid over to them, they may have already purchased the property – and then the cash does not materialise. He advises purchasers not to submit offers without first having access to the money.

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