Real Estate Investor Magazine South Africa February 2016 | Page 49

could also mean that credit will be offered at a higher
cost in order for banks to be able to absorb the higher
risk.

Interest rate

Most home buyers will require finance from a bank to
purchase their property.
What this means is that these buyers will be affected by
any fluctuations in the prime lending rate.
Even if homeowners choose a fixed interest rate for
their bond, the rate given by the financial institution
will be based on the current prime interest rate.
The current interest rate of 8.5 percent has made
property investment a far more attractive option for
buyers who have the means to obtain finance.
An increase in the rate, which is expected to happen
sometime during this year, could negatively impact the
property market as many consumers are already dealing
with high levels of debt and the rising cost of living
expenses.

The removal of negative credit
information from credit bureau
databases, more buyers are now
eligible to enter the property
market, however, this could also
mean that credit will be offered at
a higher cost in order for banks to
be able to absorb the higher risk.
Banks’ appetite for risk

With the introduction of the CPA and the strict
lending practices adhered to by financial institutions,
bond approvals dropped from around 80 percent to
well below the 50 percent mark.
As banks have relaxed their approval criteria to some
degree, the rate of bond approvals has improved, but
this is still not at levels seen during the boom.
The banks’ appetite for risk and their willingness to
grant loans will impact the property market and the
number of transactions.
Currently South African credit legislation dictates
that a bond applicant’s monthly bond repayment
cannot be more than a third of their net income.
Although not guaranteed, most applicants will also
require some form of deposit for approval. Generally
the deposit requirements range from 10 to around 30
percent depending on mitigating circumstances.
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Economy

Economic factors such as the employment rate and
inflation figures will have their impact on the housing
market as they place pressure on the consumer.
Generally speaking, if the economy is suffering and
experiencing negative trends, so will the housing sector
as less consumers will be able to show the necessary
affordability levels.
Proof of this was seen in 2008, when the global economic
crisis hit and the property market experienced a sharp
decline.
The current economic environment continues to
see improvement and this has filtered through to the
property sector, with progressively higher sales volumes
seen on a yearly basis since the end of the recession.
“Understanding how each of these external factors
impact on the property market on both a global and
local level, will empower property buyers with the
knowledge to evaluate the changes they need to make
to reach their home ownership goals.”
Insight into the key factors behind the market will
assist potential homeowners make informed property
purchase decisions, adds Goslett.

RESOURCES

Property24
FEBRUARY 2016 SA Real Estate Investor

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