Throughout the 36 years in which he has directly or indirectly been involved in residential property he has noticed that many ordinary buyers and buy-to-let investors wait for an upturn to become clearly discernible before making their move – even when, if they really examined the facts, they would accept that investing right now would be wise.
“Much the same, of course, happens on the stock exchange – and in both cases, if investors leave it too late, they lose out on significant profits.”
Are there facts which van Alphen believes could make almost any property buy in South Africa a good one right now?
The first fact, he says, is that prices are still anything from 15% to 20% off their 2007 highs – but are now rising slowly, although not enough to beat inflation. According to the latest FNB review, he says, in real terms middle sized homes are rising in value by 1, 1% year-on-year. Large homes are rising in value by 0, 8% while small homes are still devaluing by ± 10%.
The second fact, says van Alphen, is that interest rates are at a 30 year low and are likely to stay close to that level for the foreseeable future as the world’s economic problems are by no means yet solved and seem set to continue for another 12 to 24 months.
Just how big the savings on a bond today are in comparison with those of 2008, when the prime interest rate was at 15, 5%, are, says van Alphen, seldom appreciated by the man-in-the-street. They can be shown, he says, by the relevant figures on a R800, 000 bond.
In 2008, such a bond taken out over a 20 year period at a 15, 5% rate (the going rate at that time) would have cost R9, 590 per month. That same bond today costs only R6, 943 per month.
“This,” says van Alphen,” is so ‘dirt cheap’ by normal South African standards that buyers should, in fact, be voluntarily increasing their monthly bond payments by at least 10% (R693pm) and at Rawson Finance we often urge people to do this. If they did so on the bond described they would cut their repayment period by nearly 20% and save R200, 302 in payments. Savings of a similar size can be achieved by any relatively small increases in monthly payments.”
Most good bond originators, says van Alphen, are now, like Rawson Finance, achieving a 65% acceptance rate at the banks. That, he says, indicates a slight easing in the banks’ attitude.
Like the Rawson Property Group’s Chairman, Bill Rawson, (for whom this has become something of a theme song), van Alphen urges those ‘seduced’ by what appears to be low rents (but which are, in fact, rising rapidly) into becoming permanent tenants, ‘to regain their home owning ambitions and buy where they can afford to do so’. Rawson Finance consultants, he says, are available to help potential buyers, calculate what size loan they will probably qualify for at the bank and advise them on territories in which this would enable them to buy more or less the sort of home they are looking for.
