With interest rates starting to come down and demand on the rise, many home owners are holding back on selling now in anticipation of higher prices later this year – but those who intend upgrading should not actually not delay.
The reason is that if they wait for a “sellers’ market” to become fully fledged, they will also have to buytheir new homes in that market – and could end up paying quite a premium.
For example, if property prices rise by the expected 6% this year, the owners with a R1m house for sale might be able to get R60 000 more for it by waiting a few months. However, if they are also aiming to upgrade to a property that costs R1,5m now, they should expect the same increase to apply, and be ready to pay R90 000 more for it by the time they are ready to buy.
Indeed, since the pattern of upgrading is already developing and the supply of homes for sale is diminishing, they may even find themselves in a competitive situation that means they have to pay an even bigger premium for their new home.
In other words, whatever benefit they might derive from a delayed sale is highly likely to be negated, and they will also risk being unable to qualify for the bigger home loan that they will need, while having to find more cash for the deposit, transfer duty and transaction costs on the new home.
To qualify for an 80% bond on a R1,5m property, a buyer currently needs a household income of around R38 500 a month. If prices rise 6% percent, the minimum income required to qualify for an 80% bond on the same house next year will be around R41 000.
In addition, the total of transfer duty and transaction costs such as bond registration and legal fees will rise from about R66 000 to R71 000, and the additional amount required for a 20% deposit will be R18 000.
As for the type of property to buy when you decide to upgrade, pre-owned homes in good condition offer the best value for money, especially if you are planning to buy in a secure estate.
According to the latest available statistics, newly-built homes were already about 30% more expensive than comparable pre-owned homes last year, and building prices have continued to rise since then, showing year-on-year growth of 4,6% in February.
However, it must be said that newly-built or off-plan homes will come complete with structural and other guarantees, and should offer lower maintenance costs for at least the first five years of ownership. Many new homes now also have “green” features built in which will generate long-term savings on utility costs.