For most of 2019 phrases like “it’s a buyer’s market”, “take the plunge”, and “now is a good time to buy” have been bandied by estate agents encouraging buyers to take advantage of falling house prices and stable repo rates.
But how positive is the environment for buyers? And how many firsttime buyers have actually “taken the plunge”? Statistics from bond originator BetterBond, which accounts for 28% of all new mortgages registered in the Deeds Office, show that 52% of all home loan applications are received from first-time buyers.
This percentage has “been steady” for the past 12 months to the end of September 2019, says chief executive Carl Coetzee, even though the total number of applications in the period rose 7.73% compared to the previous 12 months.
“What this means in real numbers is that there are more first-time buyers in the market, but they make up the same percentage of the total number of buyers as they did a year ago.” A total of 48.72% of home loan approvals went to first-time buyers compared to 42.54% in the previous 12 months.
“This shows that while the percentage of first-time buyers has not risen, the percentage of first-time buyers who are qualifying for home loans has risen substantially over the past year.”
BetterBond statistics indicate that the average home purchase price for first-time buyers is now R982 000, compared to R915 000 a year ago, an increase of 7.3%. By comparison, the average purchase price among repeat buyers has risen only 2.2%. The average deposit paid by first-timers was R133 000 compared to R113 000 the previous year.
Coetzee says the average age of this group has also increased slightly from 35 to 36. First-time buyer statistics from Lightstone show that the biggest proportion of first-time buyers has been in the 31 to 35 age group for four out of the past five years. In 2015, most first-time buyers were aged 26 to 30.
The 36 to 40 age bracket accounts for the second highest number of first time buyers. Most first-time buyers are millennials. Other data from Lightstone shows that women first-time buyers continue to outnumber men.
Although low levels of house-price inflation is bad news for owners, it improves affordability for first-time buyers, especially in Cape Town, where spiralling price growth in previous years knocked them out of the market. In Q2 of 2019, house-price growth in Cape Town softened further to just 0.5% year-on-year, says FNB property economist Siphamandla Mkhwanazi.
This is compared to already low growth of only 1.8% in the previous quarter. In real terms, taking into account inflation, average house prices have been declining “for a year now”.
“Overall, this marks the slowest growth rate since the end of 2009 and comes as no surprise, given the generally weak economic fundamentals and house prices that have for some time far outpaced income growth in the region and thereby eroded affordability.”
In addition, FNB Estate Agents Survey data shows that sellers are dropping their prices further, reaching reductions of 12% in Q2 2019. Favourable pricing appears to have spiked demand from first-time buyers. “The agents’ estimate of first-time buyer transactions in Cape Town jumped to pre-boom norms, averaging 22% in the first six months of 2019.
This suggests there were 3.3 times more first-time buyers in the Cape Town market in H1 2019 than there were two years ago,” Mkhwanazi says. “While this may be a transitory spike, following about two years of price-induced exile, it brings the first-time buyer participation more in line with the country average.”
He says the FNB Consumer Confidence Index (CCI) shows sentiment in the Western Cape to be “relatively more optimistic” compared to the country average. “The CCI survey results for Q2 2019 showed consumers in the province as more upbeat about economic outcomes and their finances, as well as their rating now as appropriate to purchase big ticket items.”
Understanding the buying process and all the fees you are in for
SETTLING: The road to home ownership can be a lengthy one. Picture: Tom Rumble
The property buying process can be stressful, with many role players involved at various stages. First-time buyers should therefore know what to expect, says Hanno Bekker, founder and lead attorney at Bekker Attorneys.
He simplifies the process, and those involved in it, as follows:
Once the bond is approved, you will be contacted by the transferring and bond attorneys to sign the necessary documents for transfer to take place.
The seller will have to sign an affidavit, power of attorney and transfer duty receipt.
The purchaser will have to sign an affidavit, transfer duty receipt and the bond documentation.
The transferring attorneys will ask for the rates clearance from the municipality.
The bond attorney serves on the panel of the specific bank and is authorised to register the bond, while the transferring attorney registers the property in the name of the new purchaser, and applies for the transfer duty receipts and rates clearance.
Bekker says the transfer process can take three months or longer should there be nfrastructure problems. However, if the property is vacant, the buyer can usually take occupation and pay occupational rent if the deed of sale makes provision for it. The registration of the transfer and the payment of the bond amount are linked and will take place simultaneously in the Deeds Office.
Explaining why transfer fees are so “astronomical”, Bekker says different expenses need to be paid, and these include:
- Transfer duties to the South African Revenue Service for a property valued at more than R900000.
- Registrar fees to the deeds office.
- Rates clearance fees to the municipality.
- Conveyancer fees.
Unfortunately, Bekker says there is no specific amount that one can predict in advance for the transfer duties as the amounts differ every time and are based on the purchase price and value of the property. He says at times, transfer fees can be added to the approved bond amount.
“Arrangements should be made with the transferring and bond attorneys to assist you in not exceeding the provision that was made for these fees. “It’s up to the discretion of these attorneys whether or not they choose to assist you in this regard.” Bekker says buyers can apply for a personal loan to cover transfer fees.
Entry-level market is active, favoured by new blood
SPECIFIC NEEDS Millennials want modern homes in "walkable" areas and will often choose
quality over size. Picture: Chien Than
Entry-level property markets around the country are “definitely the most active” and buyers in these markets are mostly first-timers, says Gerhard Kotzé, managing director of the RealNet estate agency A significant number of repeat buyers are also scaling down to smaller homes.
“Areas favoured by first-time buyers are those where there is a good choice of sectional title apartments and townhouses, and especially new developments where they will probably not have to pay transfer duty.” Such areas, he says, include the northern suburbs of Cape Town, Centurion and the Tshwane suburbs of Faerie Glen and Moreleta Park.
First-time buying is also expected to pick up further in the wake of the new home loan products just launched by banks and which enable buyers not only to borrow 100% of the home price, but also an extra amount to cover transfer fees and bond registration costs.
“This will make home ownership much more accessible, especially to buyers in their 20s who find it extremely difficult to save a cash lump sum to use as a deposit or for transaction costs,” Kotzé says. He expects the average age of firsttime buyers to start dropping.
Although Berry Everitt, chief executive of the Chas Everitt International group, has not noticed “any real” percentage increase in the number of first-time buyers in the group’s main market segment, he expects the new mortgage products to have “some effect”. The average first-time buyer is “very much a millennial” and that translates into certain property preferences, Kotzé says.
These include:
◆ Homes in “walkable” areas and close to shops, restaurants, entertainment, sports venues and educational resources.
◆ A high degree of connectivity as they often work from home. Millennials make up a significant segment of the market, have very specific wants and are passionate about their beliefs, says Mike Greeff, chief executive of Greeff Christie’s International Real estate.
Real estate professionals must hone their communication and advertising skills to suit this market and know what properties appeal to them. “Like every other generational segment, price is very significant. Millennials don’t mind spending more on what they want.” In addition to offering convenience in terms of location, they are also looking for modern fixtures.
“They will almost always choose quality over size and are experience-driven in terms of their lifestyle choices. Low maintenance is the order of the day with most millennials viewing home maintenance as waste of the time,” Greeff says. Homes must be energy and water efficient and offer pre-installed connections for satellite television. Fibre optic internet lines will “definitely score points.
Plan to help: A new way to buy
INNOVATION The instalment sale concept could be of mutual benefit to sellers and young aspiring buyers. Picture: Markéta Machová
Fresh thinking is needed to enable most of the young people who are currently renting to become homeowners, says Chas Everitt’s Berry Everitt. This is because many potential buyers in this category are unable to qualify for home loans “and will probably remain so” because they either have impaired credit records or are self-employed without significant financial records.
“At the same time, there are many sellers now who are effectively ‘captured’ by their properties, and the instalment sale concept could well be the answer to bring both together for their mutual benefit.”
He says, however that legal and property expertise will be required to ensure the instalment sale contracts used are individually tailored to suit the circumstances of each sale, and that the property title deeds are correctly endorsed.
To err is human: Do you your homework
PROXIMITY The convenience of a nearby shopping centre should not be underestimated. Picture: Supplied
Buying property is a complicated process so it’s understandable that first-time buyers almost always make mistakes. But Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, says not all mistakes are equal.
“Many oversights or errors in judgment are easily remedied while others can significantly impact on your life and investment returns.”
She says common first-time buyer errors include:
Not having a clear idea of what they want:
Many first-time buyers neglect to consider crucial factors in their property search which can seriously affect their lives and make them regret their choices. Factors like the type of neighbourhood they want to live in, proximity to amenities, and how much fixing up and upkeep they are willing to undertake are important.
Not being sure what they can afford:
Pre-qualification gives buyers the peace of mind that their credit record is in good standing, and the knowledge of how much they can afford to spend and the type of bond deal they can expect from a bank or bond originator.
Not factoring the additional costs into the budget:
As a rule of thumb, buyers should allow for between 8% and 10% of the purchase price for the additional costs over and above the deposit. It is essential that they do their homework to ensure they are aware of all the relevant fees and procedures before they even start looking for a home.
Not shopping around for the best rate:
Buyers should know that shopping for a mortgage is like shopping for a car, and it always pays to compare offers.
One of the best ways to compare offers:
Use the services of a bond originator to source the best financing option.
Not checking out the neighbourhood in which they want to buy:
Look out for signs of suburb decline and check if there are any major developments in the pipeline that could impact on your lifestyle.
Not taking into account the impact of regular convenience:
A nearby shopping centre where you can accomplish several errands at once could have a significant impact on both your happiness and your wallet.
Allowing their emotions to influence decisions:
Many first-time buyers overextend themselves financially because they fall in love with a home that is beyond their budget, or get in way over their heads with a fixer-upper that takes up all their spare time and money.