Back to basics for buyers

 13 August 2009

 Following the boom years in the property market, buyers may be forgiven for being slightly bewildered by the new realism that has taken hold.

 But says Dr Willie Marais, national president of the Institute for Estate Agents (IEASA), that realism is not really new – in fact it is a return to basic real estate “rules”.

 “It is a reversion to tried and tested fundamentals that were often neglected during the boom when credit was easily obtainable, prices sometimes doubled in the matter of a few years, and investors made huge profits in a relatively short time,” he says.

 “Once again, buyers now are advised to keep basics in mind when they enter the property market.”

 The first basic principle remains to save up for a deposit, he says. “Not only will it reduce the monthly repayment and the amount payable in interest over the lifetime of the bond, but you may well be able to negotiate a more favorable interest rate if you are able to put down a substantial deposit.”

 Borrowing within your means was a second fundamental often overlooked during the boom because borrowers calculated that the growth in value would quickly overtake the amount outstanding on the bond.

 However, Marais says, this is no longer automatically the case and borrowers should also take the recessionary economic cycle into account when calculating how much they can afford to pay per month – and preferably budget for a little leeway to act as a buffer for unforeseen circumstances.

 Short-term speculation is a quick way to burn your fingers. Traditionally, investing in property was a long-term undertaking – and this remains good advice, Marais says. “Now is not a good time to look for fast returns in the property market – but buying now will reward those with a long-term view because prices currently favour buyers.”

 Marais adds that property buyers and sellers should also understand their local markets.  “National trends are but a vague indication and do not always apply to your local market. Specific issues that may influence local markets include the health of the local job market, local foreclosure statistics, price movements, average listing times before homes are sold and the availability of new housing stock coming to the market,” he says.

 Finally, the importance of "location" remains as important as always, he says. “It remains a better investment to buy a modest property in a good location than an upmarket home in a modest location.”

 Buyers are also cautioned against buying any property before properly inspecting it. “Property advertised in supplements of national newspapers or glossy magazines may at first sight look like good investments, but should preferably be inspected personally before making a commitment.

 “The same principle applies to coastal and other developments marketed off-plan and buyers should inspect the site in person and scrutinise plans and contracts diligently before signing on the dotted line.”

Issued by the

Institute of Estate Agents of SA