Economic problems such as those that SA is currently experiencing are usually viewed as negatives for the real estate industry, but they often also spell “opportunity” for astute property buyers, says Shaun Rademeyer, CEO of BetterBond (Previously BetterLife Home Loans).
“The economy has now slipped into a technical recession following the loss of confidence caused by the investment rating downgrades earlier this year – and such events always change the dynamics of the real estate market by lowering demand, increasing the supply of homes for sale, and causing sellers to be more negotiable on their asking prices”, he says.
“And what this means is that there will shortly be some excellent buying opportunities for existing home owners who have been contemplating an upgrade, as well as for investors seeking to acquire rental properties – even if they do have a tough time getting home loans.”
Rademeyer notes that there is widespread speculation that the Reserve Bank will respond to the recession by lowering interest rates after the next meeting of the Monetary Policy Committee in July, and that this would not only lower the home loan installments of existing owners, but also make it easier for buyers to qualify for new loans.
“This is not to say that the banks are likely to relax their credit-granting criteria, because that is really not on the cards. But it will mean that you need to earn less to qualify for bigger loans, especially if you are selling or have already sold your current property and will be able to put down a significant deposit on your upgrade home.”
Meanwhile, he says, the rate of home price growth has already slowed right down and could even turn negative over the next few months as the number of sellers increases faster than the number of buyers. “This is bound to make sellers more flexible when it comes to price negotiations and it means that even if interest rates do not come down, properties are going to become more affordable”.
“In short, savvy buyers and investors will not want to miss the opportunity that the current market conditions are creating for them to upgrade or to build up their portfolios, in the same way they did in the months following the Global Financial Crisis and recession in 2009″.
“At that time, prices were plummeting and most people were desperately trying to offload their properties and get out of the market. But one only has to look at the increase in values since then to see what a smart idea it was to go against the tide, especially in upmarket areas like the Atlantic Seaboard and Sandton.”
However, says Rademeyer, this does not mean that those who want to buy now will necessarily have an easy time obtaining finance “The current economic situation does unfortunately increase the overall risk of loan defaults, so the banks are increasingly cautious about lending, and the best chance that prospective buyers have of being approved for a home loan is to apply through an established and reputable bond originator”.