Real Estate Investor Magazine South Africa April/ May 2020 | Page 48

INVESTOR INTELLIGENCE
Will SA go from
renting to buying?
GRANT SMEE
With costs and complications that come with purchasing property,
many people still opt for renting, rather than buying. This is because
while renting all you worry about is the comfort of your stay and
the easy flow of your business depending on the industry you’re in,
whether you are in residential or the commercial real estate industry.
T
o stimulate the residential property market, Finance
Minister Tito Mboweni announced in his budget speech
for the year 2020 that properties sold for R1 million or less
will no longer be subject to transfer duties. In 2019 the finance
ministerial office announced that this exemption would be on
properties costing R900 000 or less.
Founder of EPIC South Africa and Only Realty Managing
Director, Grant Smee cautions that while this mandate will only
save buyers R3000, it does open the residential housing market
up to a larger part of the market and brings much-needed
positivity to the sector.
“For clearity, this saving does not apply to the transfer costs
of the property but rather to 3% of the R100 000 transfer
duties (between R900 001 and R1 million). Under the current
economic conditions however, no savings can be taken for
granted,” He said.
Smee notes that the change in transfer duties threshold
shows commitment from government to the housing sector
but believes that reductions in personal income tax will be of
greater benefit to consumers.
“Tax savings per income bracket could play a part in
stimulating spendings in the long-run, but at this stage this
remains to be seen”.
Why are the first-time buyers so sought after?
“Ooba recently indicated that the average selling price of
a home in South Africa is R1 million. One thing to keep in
mind though is that first-time buyers are generally looking at
properties of R600 000 – R700 000,” Smee says.
Simple sums suggest that most property owners are over
the age of 30 and that many of them are looking for properties
in sought-after or up and coming areas.
“Picking up property in prime areas at reduced rates has
never been more attainable. When factoring in the savings
associated with transfer duties, relief in terms of personal
income and reduced interest rates, we open the property
sector up to a broader market and could see a shift from
rentvesting,” says Smee.
Smee notes that a rise in rentvestors has had a notable effect
on the property sector. “This is an international trend which
has largely penetrated the local market. Instead of buying the
property they want, people rent a home and then invest their
leftover money elsewhere”.
Tips to go from renting to buying
The flexibility of a rental may seem attractive buying in today’s
economy could yield greater returns in the long run.
“The best way to assess the long-term investment value of
renting vs buying is to compare the total amount you spend on
owning a home with the cost of renting over the same period,”
Smee explains.
46
APRIL/MAY 2020 SA Real Estate Investor Magazine
1
Get a pre-approval
Often we see prospective buyers shopping outside
their price range. They might have played around with
basic bond calculators online, but they don’t know what their
affordability truly is. Smee encourages prospective buyers to
get in touch with a bond originator or the banks to get pre-
approval before house hunting.
“This service is free. Understand what you can afford
and let this guide your decision-making process in terms of
negotiating, location, size and price,” Smee explains.
2
Are deposits needed?
While receiving a 100% bond is not unheard of, buyers
should build up a buffer. “Regardless of whether you
receive a full bond or not, there are generally additional
costs that first-time buyers tend to miss. Knowing what bond
amount, you qualify for and its monthly repayments will also
give you a better idea of what to save and budget for each
month,” he says.
3
Join forces
“The banks want to give bonds, particularly to first-time
buyers. While your affordability may be lacking on your
own, consider joining forces with a partner and formalising a
structured agreement around repayments and various other
legalities,” says Smee.
4
Low-cost, low maintenance lock-up-and-go’s
“We generally encourage first-time buyers to think
smart. The more expensive the home, the higher your
ongoing expenses will be” says Smee.
A low-maintenance lock-up-and-go home is easy to
maintain and these are generally easier to rent out.
5
Investigate other options
“For those struggling to go the traditional route, rent-to-
own has become an attractive option. While this isn’t a
new concept, many people still don’t know that its available
to them,” explains Smee. Rent-to-own helps potential buyers
who need more time to save up for a deposit or to build up a
credit history.
Another unconventional option is that of share block
schemes. “Rather than buying an apartment, you buy shares
in the company that owns the apartment block. This of course
comes with its own set of pro’s and con’s, and doing your
homework is critical” says Smee.
6
Build up a healthy track record
“A criterion for lending is a healthy credit history. So
often, first time buyers have no debt to their name. While
some may think this is a good thing, building up a good track
record in terms of repayments to the bank and 3rd parties will
help secure a home loan”. Before applying for a loan, Smee
suggests contacting a financial advisor to ensure that you are
in a good position to receive a loan. “For those rejected, it can
prove difficult to receive a low interest rate bond in future”.
SA Real Estate Investor Magazine APRIL/MAY 2020
47