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Reasons To Buy

Why Should I Buy Real Estate?

The question on every potential purchasers lips when considering a real estate investment is how best to time the market. Values are still declining in a down market, and the question is — how low can they go and how long should one wait?

Interest rates are bottoming out. In fact they are near an all-time low. They are unlikely to drop any further and if you wait too long you may not be able to afford to buy a home at any price.

At the other end of the scale the rental market is characterised by steadily rising rentals, driven by rising demand.

This guide is for anyone who might be considering taking the plunge into the housing market. You may be a home-owner who needs to sell first before you can buy. Or you might be renting and looking to be a first time home buyer. Whatever the case may be, here are seven reasons why buying your home now may be better than renting:

7. Mortgage Bond Rates Are At Near Historic Lows

At 9% rates are now at levels last seen in the mid 1970s. Traditionally the lending rate offered to clients ranges from prime plus 4 percent to prime less 1.2 percent with a maximum of 6.5 percent prescribed by the National Credit Act. Mortgage bond balances at banks around the country have declined to a point of lowest year-on-year growth since the mid-1960s. Predictions of world economic growth of 4,3 percent for this year and 4,5 percent for next year lead Absa to forecast a real economic growth rate of four percent for 2011 and 2012. Interest rates are expected to remain unchanged for the rest of the year and are expected to rise by a total of 2% next year after which they should stabilise. This will bring prime and variable mortgage rates to 11 percent by the end of 2012. If you decide to wait you are going to pay a higher interest rate.

6. The Worst Of The House Price Declines Is Over

From 2000 to 2007 South African prices of homes increased by an astonishing 253.7%. This saw a massive growth in the real estate industry. Estate agent numbers grew to an estimated 80 000 registered members in 2008. This number has since dropped to around 30 000 agents. 

House Price changeABSA forecasts that house prices in South Africa will rise slightly in 2011 and 2012.

The boom ended in the first quarter of 2008, after the global financial crisis. In response the Reserve Bank cut interest rates twelve times beginning in December 2008, to 6% in September 2009.

The market rebounded slightly, but to nowhere near the pre-2008 levels and in fact slowing significantly from January to May 2011. New housing approvals were up 1.7% on the same period last year, to 19,603 units. However, building completions fell 0.8%.

ABSA forecasts that prices will rise slightly in 2011 and 2012. This small rise will in fact equate to a fall when adjusted for inflation and buyers waiting for significant future downward adjustments in prices are going to be disappointed. If you wait any longer it’s likely that you may pay more for that new home purchase.

5. Qualifying For A Mortgage Is Likely To Get Harder, Not Easier. 

Many households’ ability to qualify for loans is still hampered by a relatively high level of indebtedness, impaired credit records, the impact of the National Credit Act and banks’ strict lending criteria. We are at the bottom end of the interest rate cycle right now and as it begins to edge higher in the next few years, lending criteria qualifications will be that much harder to satisfy. Another constraining factor is the effect on household budgets of coming higher municipal rates and service charges which have not yet worked there way into the market.

4. Less Competition In A Buyers Market. 

If you have been looking at houses lately and have perhaps attended the odd show house you would have noticed that there are fewer serious buyers looking to make a deal. This means that it is less likely that you will find yourself in a bidding war with competing buyers. It also means that sellers are more likely to approach negotiations realistically and buyers can therefore negotiate more effectively. When the market improves, and it will, you could find yourself in a more crowded pool of buyers as pent up demand becomes a factor. As a natural consequence sellers may become less negotiable as selling prices harden. Once there are clear signals of recovery, and the demand picks up, there will be less elbow room for buyers and it may already be too late to come in ahead of the curve.

3. Renting Is Not Such A Great Deal. 

This is simple economics. Over the past few years demand for rentals has increased as a result of the many foreclosures and fewer existing renters making the decision to buy. Due to reduced rate of construction the availability of supply of rental premises has not kept up with the demand. That’s caused an increase in rental prices as the demand outstrips supply. Another factor driving rentals prices is the growth of demand due to the lack of finance available to many potential purchasers who are unable to qualify for bond finance and have little choice but to enter the rental market. As rentals head upwards, it may become relatively more expensive to rent with the passage of time. Buying as opposed to renting it seems will steadily become a more compelling proposition.

2. Buying A House Is Security. 

One of the greatest joys of ownership is the aspect of setting down roots and realising the security that comes with the act of buying your own property. When you buy a house, you have your own land, your own house and a sense of becoming part of a community. Children enjoy the stability that a home can provide. In stark contrast, living in a rental property, the tenant is subject to rules imposed by the lease agreement and to the long term plans of the landlord. The tenant may usually not improve or alter the property in any way without the landlords consent.

1. Buying A House Is An Investment.

Buying a house, unlike renting, is an investment and in most cases is a good one. Although not all homes appreciate at the same rate, historically real estate keeps pace with inflation. Time is generally the most influential factor in the renting verses buying decision. So the less time that you own the property, the less likely you are to make an appreciable return on the investment. Under two years, and ownership is likely to result in a negative return. It rarely makes sense to buy if you can’t keep the property for at least four years. Renting makes sense if you intend to own for less than two to four years. Any longer than that and the pendulum swings back in favour of buying as opposed to renting.