select
|

How affordability levels affect the market

According to statistics from the South African Savings Institute, household savings in relation to GDP is at just 1.7%, indicating that South African consumers have a poor saving culture. On average, the household debt ratio in relation to disposable income is around 75.8% and household disposable income is at just 2.4%.
 
“South Africa is considered to have a relatively low savings rate when compared to other emerging markets around the globe,” says Adrian Goslett, CEO of RE/MAX of Southern Africa. “The implications of a low savings rate at household level is that if there are not enough savings to fund the requirements of a household - be it for consumption or investment purposes - that household will be forced to borrow money. The effect of this is that the more consumers borrow, the less creditworthy they will become, which in turn pushes up the interest rates they will be charged.”
 
He notes that consumers who wish to purchase property in the future but don’t currently have a savings plan in place will need to start adjusting their financial strategy and put money aside. “The market phase we have seen over the past few years has produced some excellent opportunities for buyers to get their foot into the door, however it is concerning to think that so many have been unable to take advantage of the conditions because they do not have their finances in order. Obtaining the necessary finance to purchase a home is closely linked to affordability, but many households are struggling with high debt-to-income ratios and no savings – this emphasises the importance of personal financial planning,” says Goslett.
 
Before the National Credit Act was introduced in 2007, consumers had little trouble securing a home loan with small or no deposits. Today, most potential homebuyers will require some form of deposit along with the other costs associated with a property purchase such as transfer duty and attorney’s fees. “Deposit requirements vary depending on the circumstances but generally range between 10% and 30% of the purchase price. Buyers who have set aside savings for a deposit are finding it far easier to purchase the house of their choice,” says Goslett.
 
According to bond origination statistics, in 2007 approximately 70% of bond applications were approved and converted into home loans, in 2008 that number dropped to just 28%. In 2014 just over 50% of bond applications are converted to a home loan, which indicates that while the bank’s appetite for lending may have improved slightly, lending criteria remains stringent.
 
“The government’s clamp down on lending practises has forced financial institutions to take a far closer look at an applicant’s finances before issuing credit.  The idea is for the bank to have an overall picture of the client’s credit history, the total amount of credit outstanding as well as the applicant’s ability to pay debt off. For this reason, managing debt has become an essential part of the South African consumer’s life,” says Goslett.
 
He notes that due to the nature of the financial assessments carried out by the banks, a paramount factor is for an applicant to show the required level of affordability. Essentially this means curbing spending, reducing debt levels and increasing savings. Goslett says that there are several ways in which consumers can cut back on living expenses and show higher levels of affordability.
 
He provides some suggestions for those who are planning to invest in property and want to get their finances in order:
 
- Consulting with a professional financial adviser and planner, who will assist in formulating a personal finance plan
- Create a budget which includes a savings plan and stick to it
- Cut down on or cut out luxury and unnecessary expenses
- Shop around – comparing prices will help you find the best value for items and services
- Rather pay cash whenever possible and avoid charging it to credit
- Review insurance policies and medical aids regularly to ensure you are getting the best deal available
- Go green - save on electricity and water costs by cutting down consumption

Goslett concludes by saying that consumers who can cut down on their spending and reduce their household debt-to-income levels will have a far greater chance of showing the necessary affordability levels to purchase a home. “It is important for consumers to integrate a finance plan that works for them. While it may be difficult at first, it will bring them a step closer to owning a home.”


  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