The property market for 2013 – is it a buyer’s market?
Property prices crashed in 2008 and since then it’s become more difficult to borrow money from the banks. If you are a first time buyer is 2013 the ideal time to enter the property market?
We interview Ewald Kellerman, head of sales at FNB, to find out what property prices are doing in 2013 and whether buying a house is a wise investment choice.
How will property prices do in 2013?
We entered 2012 on a good note but that deteriorated towards the end of last year. For 2013 we will do a little bit worse and if you compare it to 2012 we saw 5% nominal growth but for 2013 we will see 2.5% nominal growth. These figures are based on the FNB home index.
Do you think interest rates are likely to go up this year?
Interest rates move in cycles and would almost certainly go up again, however, the current slow economic growth rates and fragile global economy suggests that we would rather see an interest rate cut this year. However, an interest rate cut in the current environment is not expected to cause large shifts in house prices on the back of a weak economy.
What properties will do well? What should first time buyers be looking at so that they get a decent return?
If you are buying a property for yourself make sure that it fits in with your own needs. There are a couple of things to look out for. Owners of larger properties with higher rates and taxes will feel the financial strain a lot more, while the owners of small residential properties like sectional title units will struggle less. Sectional titles are easier to maintain as you share a lot of the costs, such as security and maintentance, with other owners of sectional title units.
We’ve definitely seen a shift towards these more affordable properties. Remember that everything will be going up from water to rates to electricity. So the large three-bedroom home will be a luxury that a lot of people won’t be able to afford. That’s almost excessive in today’s times. Our parents were lucky enough to afford it but these days I don’t think first time buyers should look at those sorts of properties.
What about investment pads?
The demand for smaller properties has increased. I think larger properties won’t hold their prices as well as there are a lot of people are trying to get rid of them as they can’t afford them. So from an investment perspective I’d look at the smaller properties as opposed to the larger ones. Income return is also easier to maintain in a sectional title complex where you don’t have to worry about maintaining a garden or the outside of the property as that’s taken care of by the body corporate.
What about rentals? Are people able to charge rents equivalent to the cost of the mortgage?
According to our rental index we are seeing growth yields picking up relative to property value. So rent is getting more expensive. There are a lot more renters and more accommodation needed. There is a lot less supply of residential rental properties. It’s not a very popular asset class at the moment but there are a lot of hands that want to rent. A lot of people are downscaling due to financial pressure. Our estate agents are saying that a quarter of the market are moving into rental properties and exiting the property market ownership.
It’s [buy-to-let] on the way up and it will become a lot more attractive. We are close but there won’t be a lot of property investment this year. It will grow this year and next year it will grow a lot more. If you rent out a property it’s almost like running a business and you have to and ensure tenants are running the property. It takes time and effort and I am not sure you get compensated for that yet.
What kind of deposits are banks looking for?
Buy-to-let is a higher risk as the applicant is more exposed. Many banks do offer 100% loans but it’s not that common so generally there is a 10-20% deposit required.
What advice do you have for first time buyers?
I would encourage any prospective first time buyer to save for a deposit and try to practice good financial discipline by buying well within their means. Should interest rates or ongoing maintenance costs (like electricity) rise again in the next two years, the new owner would need to be able to absorb the increase.
What advice would you give those looking to enter the buy-to-let space?
Property should be seen as an active investment or a business in contrast to a passive investment like an equity share. The risk of owning and renting property is quite high and I believe that the yields are not high enough to stimulate massive investment in residential property yet. However, seasoned investors are able to make good money out of property investment and benefits greatly from the low property price growth and rising rentals, which in turn increases gross yields.
Overall is it a good time to enter the property market?
There are certainly a lot of advantages for first time buyers entering the market. Interest rates are the lowest they have been for 30 years, property prices are reasonable and there are not a lot of buyers in the market so you could get a good deal as sellers are struggling to sell their properties. You won’t necessarily get 20% below the asking price but you will get a good deal.
To keep up to date with the latest ways to save on entertainment, sign up to the Moneybags weekly newsletter here.