Sobering statistics suggest that most South African consumers are not savers and very often don’t have a financial plan for the future. The country’s current household saving rate is around 16%, which is relatively low when compared to other emerging markets.
Adrian Goslett, CEO of RE/MAX of Southern Africa, says: “South Africans that aspire to homeownership and do not currently have a financial savings plan will need to relook at their spending and saving habits as soon as possible. It is concerning to note that while the market conditions are ideal for investing, many are unable to do so, simply because they have failed to get their finances in order over the last few years. With credit approval linked so closely to affordability, it is crucial that potential home buyers understand the importance of personal financial planning.”
Before the introduction of the National Credit Act in 2007, money lending practices were far more lax and consumers had a lot less trouble securing credit with little or no deposits required. While this meant that consumers were able to purchase property and other items relatively easily, it also created a culture of irresponsible spending habits which has led to many South African households having a high debt-to-income ratio.
Although figures show that many South African households are still struggling with debt levels, since the government clamped down on lending and financial institutions became strict with their criteria for credit approval, there has been a marginal improvement. Due to the fact that banks take a much closer look at an applicant’s finances to obtain an overall picture of their credit history, the total amount of credit outstanding as well as the applicant’s ability to pay debt off, managing debt has become an essential part of the South African consumer’s life.
Goslett says that because of the nature of credit applications and the need for buyers to show affordability for the approval to be granted, many consumers have had to focus on curbing their spending to reduce debt levels and start saving. “Aside from the fact that potential buyers need to show affordability to lenders, another factor is that in most cases banks will require a deposit to secure the finance. The general amount is around 10% of the purchase price, however, certain aspects could have them ask for as much as 30%,” he says. “Buyers who have set aside savings for a deposit are finding it far easier to purchase the house of their choice and take advantage of property prices available in today’s market.”
Goslett says that there are a number of ways that consumers can cut back on living expenses, reduce debt and save. He offers some pointers for those who are planning to invest in property and want to get their finances in order:
§ Consult with a professional financial adviser who can help formulate a personal finance plan
§ Draw up a budget and stick to it
§ Make sure that a savings plan is included in the budget
§ Curtail on luxury purchases or unnecessary expenses
§ Do comparative shopping to find the best prices on items and services
§ Reduce credit and pay cash wherever possible
§ Review insurance policies and medical aids regularly to ensure you are getting the best deal available
§ Save on electricity and water costs by cutting down consumption
“Reducing spending and household debt-to-income ratios will be key elements for a buyer to start saving for a deposit and show affordability when wanting to obtain credit. While consumers will need to assess what money management techniques work for them, implementing a financial plan will be essential to realising property- ownership dreams in the future,” Goslett concludes.
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