select
|

Time to guard against negative equity

With the economy now officially in recession, it is time for homeowners and buyers to get serious about preventing negative equity, says Berry Everitt, CEO of the Chas Everitt International property group.
 
“And the best way to do that is for homeowners to keep putting whatever spare cash they may have, as well as their non-emergency savings, into their home loan accounts, and for those who are buying property now to put down the biggest deposits they possibly can.”
 
He explains that the rate of property price growth has already slowed down significantly in the wake of the ‘junk’ investment ratings SA received earlier this year, and the subsequent loss of confidence in the economy on the part of consumers, businesses and investors.
 
“This has now led us into recession and the real possibility that property values could start to fall, as they did during the recession in 2009, when the supply of homes on the market begins to exceed the demand. There are always fewer buyers than sellers when times are tough. 
 
“And such a scenario can quickly lead, as we saw in the previous recession, to many property owners finding themselves in a negative equity position. This occurs when your outstanding home loan balance is suddenly bigger than the current market value of your property, and in the US is called being ‘upside-down’ on your loan.”
 
Everitt says this may not be a problem for homeowners who are able to ride out the recession and wait for property prices to start rising again when the economy recovers and demand once again starts to exceed supply as part of the normal property cycle.
 
“But realistically, there is a much greater risk of job loss during a recession and the real problem with being in a negative equity position if that occurs and you are forced to sell your home is that you will not be able to sell it for the amount that you owe the bank.
 
“You will end up having to pay in the outstanding amount, at the time when you are least likely to be able to do that. You will also gain nothing from the sale of the property to put down as a deposit on another home – and could even end up having a debt judgment taken against you and losing your credit rating for several years if you are unable to pay what you owe.”
 
He also says that consumers should not count on the Reserve Bank being able to lower interest rates by any percentage significant enough to boost the economy out of recession at this stage. “This is what happened in 2009 and was also the response of many other central banks around the world, but this time around the Reserve Bank also has to try to keep rates high enough to retain and attract more investment into SA. It is a delicate balancing act.
 
“Consequently, homeowners should be doing whatever they can to help themselves – and if interest rates do come down at all, they should regard that as a bonus and keep paying the same instalment as they do now in order to further reduce the capital portion of their loan.”
 
Meanwhile, he says, investors and home buyers who believe there are going to be some excellent purchasing opportunities in the next few months are right – but they will also need to guard against the potential for negative equity by putting down significant deposits so that they immediately have a large stake in their properties.
 
“In addition, they are going to find themselves in a strong position when it comes to negotiating price, and if that results in any savings on their monthly instalments, they should also put that extra money towards paying off their home loans. This may be difficult at first, but they will not be sorry because at the very least they will end up paying those loans off faster than they expected.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK