How to get into the property market

Most banks in South Africa are making it more difficult for first time buyers who have a net income below one million rand from getting into the property market due to a variety of economic factors. However, the housing market has just about bottomed out. Because of higher interest rates, property affordability has been declining; this has had a slight influence on the decrease of property sales.

The Property Market Fallout

The numbers in the past few years have only been at approximately 35%. This has been especially tough because before 2007, the property market was booming and homes were more affordable to buy since interest rates were low. Unfortunately, this is no longer the case. The increase in interest rates is primarily contributed to lower property values; this means house sales are steadily decreasing.

Although potential home owners still want to view available properties, they are not making many offers. The overall attitude seems to be a "sit back and see" approach regarding interest rates, job security, the rand's strength, the expected recession, and crime rates.

Because of the fears of potential buyers, priorities have been shifted; location is not as important as good value. Previously, potential home buyers would first look at the location of a home before taking into consideration the home's value. Because of this, sellers are finding themselves in a competitive market. And until interest rates and fuel prices drop and the rand increases in strength, buyers are simply not comfortable entering the property market.

Getting into the Property Market

Ever since the stock market has taken a turn for the worst, causing investors to lose big, people prefer cash above any type of financing. So if you have a lot of cash to put towards a home, now is the time to get into the property market.

This is especially true since banks have implemented stringent credit criteria, which has made it tough for first time home buyers to obtain the home they want unless they have 5% to 10% of the home price to put towards the deposit as well as other fees associated with purchasing a home. So if the property you are interested in costs R500,000, expect to pay a deposit of R25,000 to R50,000.

Banks are using the National Credit Act as an excuse to be choosy about approving home loans; however, the truth is lenders do not want to take risks they can avoid. This means almost a quarter of the deals that are offered to a seller will be withdrawn because lenders are not approving as many bonds these days.

All offers in today's market are considered carefully because the offer's value is more important than the overall price. So if a buyer can give a large deposit coupled with a low bond, they have a good chance of buying the home of their choice.

If you are interested in selling, but are afraid of losing money during the sale due to the drop of home values, rest assured you will build up considerable equity in your new home when house prices begin to rise once again.