Rands and cents of buying low

After something of a mini-recovery in new mortgage loans granted through 2017 to early-2018, the second half of 2018 proved to be a weak period for new mortgage lending.

However, according to the latest issue of FNB Property Insights, the fourth quarter of 2018 did show a little less weakening than the third quarter. “The March 2019 SA Reserve Bank Quarterly Bulletin showed the value of new mortgage loans granted for residential, commercial and farm properties to have declined at a year on year rate of -2.45% in the fourth quarter of 2018, after a massive -15.91% decline in the third quarter,” says John Loos, property sector strategist at FNB Commercial Property Finance.

“Although new mortgage lending declined less in the fourth quarter of 2018 than the prior quarter, it remained in the doldrums heading towards 2019, and leading indicators suggest that early-2019 remains a weak environment.”

“The prevailing macroeconomic fundamentals point to a muted property market in the near term, with house prices confined within the 3,5% to 4,5% range, against our average annual inflation forecast of 4,7% in 2019,” says FNB economist, Siphamandla Mkhwanazi.

Much will hinge on the evolution of the broader economic fundamentals, particularly employment growth, and whether the current consumer reticence lifts after the general election in May.

So, with mortgage grants slowing, and the supply of homes for sale now exceeding buyer demand, could this be the ideal time to set consumer reticence aside and buy a new home or investment property?

Gareth Bailey, area principal for Pam Golding Properties Durban Coastal, believes that a down market in the shorter terms represents an opportunity in the medium and longer term when the market picks up.

“Ordinarily, if you are buying property to sell within a year or two, you won’t necessarily realise growth. However, if you hold onto it for five years or longer then you should see positive growth. This growth potential is exaggerated if you buy in a down market and sell a few years later in a stronger market.

“Furthermore, buying a property is a forced saving that you might not otherwise make if you are tempted to spend money on other shiny things. So it offers protection against short term gratification and results in growth in equity over time.

“All of the above apply even more if you buy in an area that experiences an increase in demand over time.”

Carol Reynolds, who is also an area principal for Durban Coastal, says: “I endorse Warren Buffett’s investment strategy, which is to buy real estate for the long term: buy in a down market and hold for 10 years or more. In fact, ideally – as Buffett says – you should never sell real estate. “I also agree with his view that it is better to buy a great asset at a fair price, than a fair asset at a great price. This validates the importance of area when it comes to property. Buy now in an area poised for growth and you simply cannot go wrong.”

Bill Rawson, chairman of the Rawson Property Group, says: “The political and economic noises being made at the moment are negative, so many sellers are prepared to accept lower prices for their properties. It’s at times like this that skilled buyers would look at the market and see what is on offer, then make a cheeky offer on a property they are keen on buying. Often sellers will accept, but not always.”

And he points out that there is a big difference between buying a home to live in and buying a pure investment property.

“If you are going to be occupying the home, you would be far more fussy about what the property offers, and price would be a secondary consideration.”

Rawson says that in a market like this the banks are generally very keen to grant finance, so their criteria tend to be more lenient right now. According to ooba, nearly 58% of mortgage loans granted in the first two months of 2019 were for 100% bonds, and the average deposit required is down to only 12.7% of the purchase price – levels last seen before the 2008 recession.

“Absa, for example, is known to be aggressively wanting to grow its market share. The interest rates are also quite low, and are not expected to rise in the near future – once again because of the political and economic scenario.

“So now is a very good time to get a good property at a good price and a mortgage bond at a reasonable prime rate and a low or no deposit,” says Rawson.