Buying now... Yay or Nay?

Should one listen to the uninformed investors when they say that it is not a good time to be in property?

I say no!

I can go into a lot of detail here and explain the performance of property over the last 20 years versus the last 10 versus the last 5 years. But I'll explain it in the simplest way I know.

They always say a picture is worth a thousand words, but I think this one can be worth millions... of rands, that is!

This is an excerpt from the ABSA 2nd quarter Housing Review.

I have circled the figures that make me so excited.

This report shows the growth of certain property types, compared year-on-year.

This specific segment is the small size of the mid-ranged properties. 80 sq.m - 140 sq.m

If you notice that properties in Jhb Central & South have still managed to maintain a 37.7% growth Year-on-Year in this "absolutely terrible" market of ours. And greater JHB still maintained a 22.3% growth. Much better than any other investment.

And the one thing that people don't always realise is that it is now a renter's market. Asking prices for rent have shot up by as much as 20% in certain areas, purely because of short-supply and over-demand.

And guess what happens when interest rates start to come down at the end of 2009 / beginning of 2010? Does rent come down? I don't think so. This means that your rent will be closer to covering your bond repayments, thus saving or even making you some cash.

Most people in the know are saying it will still be 12 - 18 months before the market starts looking better, I think, the market was never bad for the well-informed investor. All we had to do was change our focus for a while. Buy low, sell high, and rent them out in-between.

What home ownership really costs

The gap between asking prices and selling prices is continuing to widen.

However, while this creates more value-for-money opportunities in the residential property market, it does not necessarily mean you can afford to buy your dream home simply because the cost of home ownership might be a lot more than you think.

So just where does the money go?

Deon Lessing, marketing director at Betterbond, says that many people who rent a property often think that they can easily buy their own homes and pay the money that goes towards rent as their monthly bond.

"But what prospective buyers need to understand is that the true cost of home ownership involves a lot more than just a monthly bond payment," he says.

"Underestimating the true costs of owning and maintaining a house and the land on which it sits is one mistake first-time buyers often make."

Interest rate increases aside, there are numerous expenses homeowners need to take into consideration. These include:

- Homeowners insurance: This is one of the conditions required for a home loan to be granted. Homeowners insurance cover (HOC), covers property owners from damage to the actual building and all the fixtures and fittings therein. Cover includes damage caused by fires, lightning, explosions, storms, earthquakes, water, hail and even accidental damage to sinks, toilet bowls, or other sanitary ware.

- Rates and taxes/levies: Free-standing homes are subject to rates and taxes levied by the municipality which covers rubbish collection, lights and water, while sectional title units or complexes charge each unit a levy to cover these costs. Remember that levies often include water but exclude electricity.

- Household contents insurance: This covers all your personal belongings which are contained inside your home, and while this is optional, with the high levels of crime, most households in South Africa opt to keep their personal belongings covered.

- Security: Fitting the necessary burglar-proofing or paying a monthly fee to a security company for an alarm system linked to armed response is considered a necessity, even if your home is located within a secure complex.

- Maintenance costs: Since you will own the home, you will have to undertake all the repair work and maintenance on your own. There is no landlord to support you on this. Home maintenance costs vary depending on the size of your home, but R1,000 is generally a good average amount to set aside each month.

Remember that if you don't keep up with the maintenance, the costs could grow exponentially. A house in less than perfect condition will sell more slowly and for less money than a house that's been impeccably maintained. Don't forget maintenance like the garden, swimming pool, painting, carpet repair and replacement and other expenses you're sure to come across through the ownership cycle.

What about your TV licence or DSTV subscription, your telephone line or home internet connection, never mind groceries and other mundane monthly expenses that are so easily forgotten? The costs of homeownership will vary depending on the size, condition and location of your home, however while each of the abovementioned items on its own is not unaffordable, all these little expenses can really add up.

"When calculating your total cost of home ownership, you should add up to 40% to your base bond payment and that is the amount that you will eventually have to pay. The best way to be ready for the cost of owning and maintaining your home is to plan for it," Lessing concludes.

- This article was featured on Property24.com -