Bill Rawson, Chairman of the Rawson Property Group, said recently in an interview with a member of the national business press that he has on many occasions advised clients not to sell their current homes.
“Granted that today’s low interest rates make upgrading an apparently logical step forward,” said Rawson, “there can be occasions when this is not the best move to make.”
What are those occasions?
Rawson said that if the home owner is at all unsure about his job prospects and could be made redundant, he should obviously hold back on any further financial commitments.
Even if this is not the case, he said, serious consideration should be given to improving the existing home rather than moving elsewhere.
“The big problem about taking out a new bond, even if a substantial deposit is paid, is that it will usually take a long time, often as much as 20 years, to pay it off and in that time it is quite possible, even at today’s low interest rates, for the home owner to pay twice the original purchase price by the end of the loan period. For example, on a R1 million bond at 8,5% taken over 20 years, the borrower would pay just over R2 million in total — the interest paid being higher the actual amount paid for the home.
“By contrast, the home owner who pays for improvements from his monthly salary once every three or four years can add significantly to the home’s value without incurring any interest charges.”
Rawson quoted as an example a Hout Bay home valued recently by the Rawson Property Group’s franchise for the area. Over the years the owner had converted the garage into a study, built a long front stoep, replaced three windows with French doors, put in skylights, aluminium guttering, a wooden floor in the living area, built a swimming pool, a more solid boundary fence and cultivated the garden to a point where it has become very attractive. All of these improvements, he said, had been done without taking out an extra loan.
Such radical changes, said Rawson, can add as much as 35 to 40% to the value of a home, which, as in this case, often originally had very little architectural merit.
“Today’s younger generation tend to see themselves as high flyers and this is a tendency that I find very dangerous,” said Rawson. “It often leads to over-commitment and unhappiness among the family members. My serious advice to those people wishing to move up in the world is to examine carefully the potential for on-going home upgrades. As the architect Quentin Miller has said in a public statement, these changes can be done as and when it suits the home owner’s budget and schedule and, while transforming the home, can often be done without incurring severe financial strain.”