There are many factors that need to be considered, from choosing your future home and securing a bond to moving in. If you have identified your home and have made an offer to purchase, the next step required is to secure your finance. In most cases, this finance is sought through a bank or a bond originator.
A home loan is a form of credit between a bank and an individual and is therefore regulated by a set of rules set out by law. As with any kind of credit, your credit score will affect how much you can borrow, the interest rate a bank will charge on our loan and the terms of your loan.
We want to arm people with as much knowledge as possible about investing in property and so in this post we unpack some of the most common property-related questions.
How is a home loan or bond different to any other kind of loan?
If you are not fortunate to be able to purchase a property for cash, you will likely have to take a bond with a bank. A bond is the same as a loan and is governed by a strict set of rules for both the lender (the bank) and the borrower (you). Banks cannot grant a bond unless they know if you are able to afford it so they will do a financial fitness test to see if you qualify. It is not only banks who lend money. When it comes to getting a home loan there are other financial service providers who specialise in home loan or bonds only.
Any sort of credit or loan often charges interest– this is a percentage of the value of your loan which you have to pay back along with the loan as part of a monthly instalment. The interest on a loan is not decided by the lender; it is mandated by the central Reserve Bank of South Africa. The Reserve Bank will set the prime interest rate which is currently 9.750%.
What does this mean for purchasing property?
The good thing for first-time buyers in South Africa is that banks are eager to lend money to people to buy homes and will do their utmost to help you get the bond you want. It’s also wise to know that not all banks are equal- some may have terms that differ when it comes to servicing the debt and some may be prepared to lend you more money than others so it serves you to shop around. A bond originator is someone who will help you shop around for a bond and help you to complete all the paperwork.
A lender will also ask you whether you want a fixed interest rate (so the interest on your loan will stay the same it was at the time of agreement for the duration of the loan term) or if you want a linked interest rate, that means your interest rate on your loan will fluctuate as the prime interest rate does. This can be beneficial depending on many economic factors- sometimes if the interest rate in uncharacteristically high it may make sense to opt for a linked rate in case the interest rate drops (you’ll pay less on your loan) but if the interest rate is uncharacteristically low then this is the best time to take a loan on a home and opt for a fixed rate.
Pushing the boundaries and embracing new technologies, Gold Coast Estate was the first premium estate of Devmco Group’s to install South Africa’s first no-touch biometric system. With the creation and implementation of new technologies in an ever-changing world, Gold Coast Estate aims to constantly innovate to make life seamless and accessible.
This new system is part of a bigger picture which embraces technology to enhance life, which is happening worldwide and is set to become a way of life for many of us.
Currently, several ‘biometric’ technologies are in use- fingerprint scanning, facial recognition and retina scanning with many of these now seamlessly becoming part of our lives. Although we have, and are embracing this technology, it has the ability to one day makes passwords and pins obsolete. Think about it for a minute; how many of us would be comfortable to use a retina scanning system to draw cash, or authenticate a legal agreement using just a thumbprint instead of a handwritten signature? This is the future of non-physical authentication and of course, there are advantages and disadvantages.
Firstly, the days of trying to remember a million passwords will be over. Life becomes cardless, touch-free and without passwords and pins. You, the person, will become the means of authentication and with that comes less opportunity for fraudulent activity using your data. Without you, the human, there can be no transaction or authentication. At the moment, not all systems are fool proof; facial recognition can be fooled using photographs or a recording can be played in place of a real human voice. With any kind of biometric authentication, there is always a risk. Although it is very unlikely, there will come a day where data criminals will find a way to intercept our valuable biometric data, which means these systems will keep evolving and advancing. The next evolution of biometric authentication will have to include some sort of intelligence that recognises that there is a live human attached to the fingerprint, voice and so forth.
Although it’s a possibility that biometrics could replace and surpass all other forms of authentication it does not mean that they will. What may emerge is a sort of hybrid multi-step system which blend your unique biometric signature (be it voice, fingerprint, retina or facial scanning) along with a unique pin or password.
We are facing an unprecedented time in South Africa and people are looking for something to hang their hopes on. Just last week Moody’s downgraded South Africa to sub-investment level while Fitch’s downgraded 5 of SA’s top banks to BB+. What does this mean for the average South African caught in the disarray of the ongoing COVID-19 crisis?
There were a few silver linings post-Budget Speech such as no increase in personal taxation, a lowered interest rate along with low oil prices globally (and the cascading benefits of that) and just recently, a debt reprieve, from banks and lenders, for consumers.
These unprecedented times are forcing the hand of the Government and we hope, with that, concrete solutions coming to fruition whether that be much needed fiscal reform in the likes of the recently announced Vulindlela Unit (established to spearhead structural reform), a reduced public sector wage bill or further interest rate cuts. The current COVID-19 crisis has certainly taken the foot off the gas when it comes to the great debate around State-owned Entities; perhaps Government may be forced to close down or at least, sell off some of these ailing SOE’s.
The COVID crisis has certainly shown the Government, private and public sectors can act cohesively and decisively however the real fruits of this labour will only be seen in time to come. The other glimmer of hope is that the collective efforts may pave the way forward for a broad-based, inclusive, accessible and feasible national healthcare system.
Investors have been pleasantly surprised by SA’s swift and decisive action in a bid to avert a potentially overwhelming health crisis – some say we have beat our European counterparts, who are now in the midst of an overwhelming health battle, to the mark.
Our immediate future is one of safeguarding South Africa from following the same harrowing COVID trajectory seen elsewhere. This means greater efforts are needed in it rolling out mass mobile testing and much-needed medical PPE. That aside, our long-term future will most certainly be about propping up our deflated economy once this is over and the individual South African will be wondering where to put his money right now, how to grow his wealth or how to safeguard it. Share markets are far too volatile with the megaliths, like Steinhoff and SASOL, having crumbled. What’s more is a return is not guaranteed and share value is beholden to forces beyond our borders. Buying shares requires a liquid cash investment which is something many just don’t have right now.
“People who were looking to move money offshore are now rethinking their moves and with that, will be looking for other investment vehicles within South Africa. Many people don’t have the appetite for risk that comes with investing in the stock market- especially older folks of retirement age, in fact many are likely to be actively minimising their exposure here.” Shares Charles Thompson, Director of Devmco Group.
Property has proved to be a stable asset in recent times, as Thompson explains: “At the moment banks are offering some loan and credit amnesty to people and there looks to be another interest rate drop on the cards, so conditions are good for lending or getting a home loan. There has been a lot of activity in what is deemed the affordable market- that is properties valued up to R3 million.”
The age old wisdom of ‘location, location, location’ still rings true and should be the first factor to consider when investing in property, especially locations that offer that blended lifestyle which seems to attracting the market more and more as time goes by.
“Location always comes first when deciding where to invest- freehold home prices are pretty much stagnant too and more than ever people are looking to get into estates and with so much available, and more coming onstream across the price range, people will have ultimate choice; therefore location is key.”
Property that is well located will see good capital growth and a potentially good rental return as well. Property priced at R2.5 million, with a 10% deposit can earn capital gains of 8% per annum and a potential 5-7% overall on the value of the entire asset, Thompson expands further, “Off-plan property is a good idea as the initial capital investment is low and the potential for growth on the market value of asset is there, especially between deposit and when you take transfer. Once your property deposit is paid you can have as much as 2 years of capital appreciation on your purchase without having to put down the full bond value.”
With another interest rate cut a possibility, Thompson believes there will be a spike in property acquisition and is bullish about the local property market, “Right now there is no safer investment option than property ; stocks are too volatile, and the global economy is not helping the stock markets either. In KZN we know that seaside homes hold their value, but one cannot overlook things like security, service infrastructure, roads and facilities and the value of a blended lifestyle or live-work-play lifestyle; to buyers these are now non-negotiable.”