Why First-Time Homeowners Should Still Buy Property Despite Tough Economic Times

South Africa is facing a tough economic quarter, with low GDP growth, high inflation, rising interest rates, power cuts, strikes, and other challenges. Many people are struggling to make ends meet and are feeling the pinch of the rising cost of living. Thousands of people in vulnerable communities are going through hard times and are forced into poverty.

In such a bleak scenario, one might wonder if buying property is still a good idea for first-time homeowners. After all, buying a property requires a large upfront payment and ongoing maintenance costs. Selling a property can also take time and incur fees and taxes.

However, despite these challenges, buying property can still be a great idea for first-time homeowners who want to achieve their financial goals and secure their future. Here are some of the reasons why:

Buying property is an investment.

Buying a property is not just a purchase, it is an investment. It’s an asset that has intrinsic value and can appreciate over time. According to FNB’s House Price Index, the average house price in South Africa increased by 318% from R205 600 in 2000 to R859 900 in 2020. This translates into an annualized growth rate of 7.6%, which is above the average inflation rate of 5.7% over the same period.

Buying a property also generates rental income, which can cover the costs of ownership and generate a positive cash flow. It offers the opportunity to create wealth through value-adding activities such as renovations, developments, conversions, subdivisions, etc.

Buying a house is a hedge against inflation.

Inflation is the general increase in the prices of goods and services over time. It erodes the purchasing power of money and reduces the real value of savings and investments. Inflation in South Africa has been above the upper limit of the South African Reserve Bank’s target range of 3% to 6% for most of 2022 and 2023. It reached 6.9% in January 2023.

Buying property, however, is a hedge against inflation. This means that house prices tend to increase at least at the same rate as inflation or even faster. This protects the real value of property investments and allows investors to benefit from capital appreciation over time. It also generates rental income, which can be adjusted according to inflation and market conditions.

Buying property is a stable and tangible asset.

Buying property is a stable and tangible asset that has intrinsic value. Unlike other assets such as stocks, bonds or cryptocurrencies, property prices do not fluctuate wildly in value due to market sentiment or speculation. Property prices also do not depend on the performance or management of a company or an institution.

Buying a property is also a physical asset that can be seen, touched, and used. It provides shelter, comfort and security for its owners and tenants. It can also be improved, renovated, or developed to increase its value and appeal.

Buying property is a tax-efficient investment.

Buying property is a tax-efficient investment that offers various tax benefits and incentives for investors. These include:

  • Deductions for expenses related to owning and maintaining a property, such as interest payments, rates and taxes, repairs and maintenance, insurance, management fees, etc.
  • Capital gains tax exemption for primary residences up to R2 million.
  • Capital gains tax inclusion rate of only 40% for individuals and trusts and 80% for companies.
  • Transfer duty exemption for property below R1.1 million.
  • Section 12J tax incentive for investing in approved property funds that support small and medium enterprises in certain sectors.                  
  • Section 13sex tax incentive for investing in new or refurbished residential units that are rented out for at least three years.

Buying a property is a long-term investment.

Buying property is a long-term investment that requires patience, discipline, and strategy. Property prices do not always go up in a straight line. There are cycles of boom and bust, as well as periods of stagnation or decline. Buying property also involves costs such as transfer duty, conveyancing fees, bond registration fees, agent commissions, maintenance costs, etc.

However, over the long term, buying property has proven to be one of the best performing asset classes in South Africa and globally. It also provides a steady and passive income stream from rentals, which can cover the costs of ownership and generate a positive cash flow. Buying a property also offers the opportunity to create wealth through value-adding activities such as renovations, developments, conversions, subdivisions, etc.

Tips for first-time buyers

Buying property is a big decision and a big investment. The entire process can seem overwhelming for a first-time buyer – but it doesn’t have to be if you stick to a few basic buying tips. Here are some of them:

  • Know your needs and budget before you start house hunting. Make a personal checklist of what you are looking for in your house and how much you can afford to spend.
  • Check your credit history and score before applying for a mortgage. Pay off any outstanding debts and clear any errors on your credit report. A good credit score will increase your chances of getting approved and getting a lower interest rate.
  • Save for a deposit if possible. A deposit will reduce the amount you need to borrow and the interest you will pay over the loan term. It will also improve your bargaining power and lower your risk profile.
  • Shop around for the best mortgage deal. Compare different lenders, interest rates, fees, and terms. Use an online calculator or a bond originator to help you find the best option for your needs.
  • Do your research on the property market and the area you want to buy in. Look at the price trends, supply and demand factors, amenities, infrastructure, security, and future developments. Use online tools or consult with a property expert to help you find the right property at the right price.
  • Hire a professional home inspector to check the condition of the property before you make an offer. Look out for any defects, damages or repairs that may affect the value or safety of the property. Negotiate with the seller to fix any issues or lower the price accordingly.
  • Hire a reputable conveyancer to handle the legal aspects of the transaction. Make sure you understand all the documents and contracts you are signing. Pay attention to the deadlines and conditions of the sale agreement.
  • Plan for the moving costs and the ongoing costs of owning a house. These include transport, insurance, rates and taxes, utilities, maintenance, etc. Budget accordingly and set aside some money for emergencies.

Buying a house is still a great idea for first-time homeowners despite tough economic times. Buying a house is an investment, a hedge against inflation, a stable and tangible asset, a leveraged investment, a tax-efficient investment, and a long-term investment. Buying a house can help first-time homeowners achieve their financial goals and secure their future.

However, buying a house is not a get-rich-quick scheme. It requires research, planning, budgeting, financing, managing, and maintaining. It also requires choosing the right house, in the right location, at the right price and at the right time.

Therefore, first-time homeowners should consult with professional and reputable property experts who can guide them through the process and help them make informed and sound decisions.

If you are looking at buying property MultiNET Home Loans can assist you in finding you the best home loan with the most favourable interest rate, for more information contact us: 0861 54 54 44, www.multinet.co.za and info@multinet.co.za

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