2007 will be a good year to buy residential property in South Africa because the price rises of the past three years are very unlikely to be repeated '“ and the current price stabilisation is bound to offer great opportunities to property buyers.
Nevertheless, warns Bill Rawson, Chairman of Rawson Properties, buyers must avoid the all-too-common mistake of assuming that interest rates will not increase much more in the coming year.
'This year,' says Rawson, 'most economists are predicting that we will see a further rise in interest rates '“ and I would agree with that. However, if you are buying property it would be wise to ensure that you have the resources to cope with a rise of ± 2% (ie. a 14% or 14,5% mortgage rate). Although such a large rise will probably not occur before the end of 2007, it is not impossible. I have in my 35 years in property seen far too many buyers caught short through not being able to cope with higher than expected increases in interest rates'
If the property owner is already finding bond repayments high, or foresees a time when this scenario is probable, adds Rawson, he/she should take advantage of todays competitive financial arena where most banks, if pushed, will re-negotiate a lower mortgage rate or a longer repayment period '“ and if they do not, it may well pay to cancel the bond and move the bond elsewhere, despite the high costs of this exercise. 'Here again, the costs of transferring are in fact very definitely negotiable and should not be seen as cast in stone,' said Rawson.
Furthermore, following the USA and European trend of re-financing and consolidation of debt, it is usually possible to take out a second bond '“ and this is in most cases preferable to disposing of the property in a hurry, says Rawson.
Rawson pointed out, too, that 'One Account' arrangements from FNB and Absa now give the home buyer significant saving, because his/her current account and mortgage bond account is all in one and is actually used to finance the bond. 'We have repeatedly advised people to put their spare money into their bonds '“ under this arrangement it happens automatically, even though the level of their account fluctuates' This is very beneficial if used in a disciplined approach as the homeowner is saving on mortgage interest.
Another pitfall that could lead property owners into a difficult financial position, says Rawson, is poorly managed sectional title schemes in which unbudgeted expenditure becomes necessary (eg for maintenance) and makes extra levies essential, even though the members may not be able to afford them. This affects new property buyers into sectional title schemes, as well as existing property owners that might find their disposable income at risk by these unforeseen additional expenses.
'At Rawson Properties we find that only about 1% of sectional title buyers actually ask to see the Body Corporates financial accounts: Most fail to check in any way how they are managed and this is asking for trouble, because as Paddy Herbert of Propell, and I have recently pointed out, Body Corporates in South Africa are controlled by elected scheme members, who sometimes have no experience in property matters. This has led to some 20% of South African sectional title schemes requiring to be rescued from financial difficulty. A sectional title buyer, must therefore, do his homework before entrusting his money to any scheme'
Those who are renting and want to avoid large annual increases in rent, says Rawson, should try to sign longer leases in which the annual rental increases are kept roughly in line with the inflation rate - and should certainly not be above 12%. 'This will avoid that the tenants signing one-year agreements now will be caught-out by above average rental increase once the first years agreement has expired'
The ongoing construction and development projects still taking place countrywide could also have an effect on residential property transactions in 2007. 'Development is going ahead at a record pace throughout most of the CBD and CBD fringe areas,' Rawson says, 'if three or four years of noise disruption and slow traffic will not phase you, by all means go ahead and buy '“ but if you are disturbed by these, as for example many people are likely to be in the proximity of the new soccer stadiums or public transport infrastructure, think twice before signing' However, he adds, the up side of these developments should not be ignored. 'There could be a great potential for values to appreciate in such an area after the so-called redevelopment'
With the rise of untrained 'bakkie builders', specialising in alterations and renovations to existing properties it is also, says Rawson, essential these days to check the workmanship of the projects before signing them off. New houses and developments are protected to a certain degree by NHBRC, but buyers should check new properties carefully before taking transfer. 'We have recently seen some appalling workmanship - and the clients, are all too often willing to accept it without complaint'
