The R10 000-a-month property shocker
September 7, 2007 – 7:49 am | by JohanNew Here? You’re Invited To Simon’s Town News Updates Subscribe here.
The following article from www.Moneyweb.com may not be directly related to Simon’s Town property owners. But when the Government what to curb foreign property buyers because some believe they are the cause for the steep increase in property values then it becomes and issue.
I suppose the reasons for the increase is complicated and even though stats indicate that foreign buyers make up only one percent of the property market. The real reason for the increase may be the back diamonds.
Under the National Credit Act (NCA), only people who can prove they have at least R10 000 in spare change each month need apply to buy a modest home in a middle-class suburb.
This emerged when the latest house price statistics were released by Absa (JSE:ASA) on Tuesday.
The average house in an average suburb cost about R925 000 in June.
Banks can no longer tell you what you must earn to be eligible for a home loan on that amount because they no longer grant credit based on a percentage of gross income, said Absa senior economist Jacques du Toit.
Instead, the bank will award an amount based on an assessment of your current debts and income. It must tally up all your bills, ranging from essentials - like food - to nice-to-haves such as children’s extramural activities. The bank will grant you a loan based on your remaining capacity to take on debt.
Looking at this average house price, and taking into account the average interest rate in June and a repayment term of 20 years, Du Toit estimates that you will need to have slack of about R10 800 a month to get approval for a 100% loan.
Absa’s House Price Index shows that price growth was at its lowest in almost eight years in June.
The bank expects growth to continue slowing into 2008.
Interest rates are expected to start dropping some time next year, which should fuel price growth.
Real year-on-year growth in house prices of 7,9% in May – the lowest since February 2003 – is still a little higher than inflation (around 7%), while nominal house price growth is around 14-15%, according to Absa.
Du Toit said it is too early to assess the possible impact the full implementation of the NCA in June could have had on house price growth last month.
This is because there is likely to be a lag effect. Interest rate increases, for example, are believed to take six to nine months to have an impact on property prices.
Nevertheless, Absa does not expect the NCA to have a devastating effect on the residential property market.
“We don’t think the market will collapse, though there may be a temporary period of adjustment,” said Du Toit.
However, the introduction of the NCA has meant a permanent change to the environment. Ultimately the demand for housing will remain, said Du Toit, noting that South Africans are still expected to aspire to property ownership.
He said volumes may drop, but prices are expected to continue rising, though at lower levels than a few years ago.
In the meantime, people who want to buy may have to put in lower offers or opt for properties in a lower price range.
Spending patterns will also have to be adjusted by many people who want to get a foot on the property ladder.
Note too that economists expect another interest rate hike soon, at which time you will have to show you have even more than the R10 800 available for extra spending if you want to buy a modest home.
Jackie Cameron
03 Jul 2007 19:29
We need to keep track on these developments if you consider to sell your home in Simon’s Town because we are in the property value cycle and foreigners purchase buy property in Simon’s Town.
Regards
Johan Horak
SimonsTownRealty: Sell, Buy A Simon’s Town Property? Phone Today 021-7864028 or 082 870 2004
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