Although it is quite frequently said that the major lending institutions are so averse to risk that it is difficult to get a home loan, the current situation has many advantages for those potential property investors whose credit records are unimpaired.
This is according to Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, who says the first advantage is that it is now predicted with some confidence that low interest rates, with prime currently at 9.25%, are likely to be maintained until September 2015, and thereafter they are unlikely to rise by no more than 75 basis points before the end of 2016.
Van Alphen says although he does not expect, as some people now do, that the low interest rate scenario will remain for years on end, the current low interest rates are going to be with us for some time, and they do make homeownership easier than it has been since 2008.
He says in his view, any investor who is not putting 25% to 30% of his capital into property at this stage in our economic cycle is making a mistake; where else can one acquire income earning assets at such low borrowing rates?
The second big factor in favour of borrowers is that with 45% of South Africa’s credit active consumers debarred from getting long-term home finance on account of credit record impairments, competition to serve those who do still qualify for loans is increasing, says Van Alphen.
As a result, he says bond originators are finding that they can achieve success rates of close on 70%. Furthermore, they are now finding that there can be as much as 0.75% between interest rates offered by one lender and another, and as much as 25% between the deposits stipulated.
Van Alphen says the third factor favouring the residential property investor is that, by Absa’s forecasts, 2015 will see the middle segment house prices growing by 8% (3% growth in real terms, allowing for inflation), while low segment and upper segment growth will slightly exceed this figure.
Again quoting Absa’s figures, Van Alphen says South Africans are, it seems, slowly rejecting their tendency to incur debt on non-durable items such as cars and white goods and are once again beginning to make homeownership their priority; 77.3% of secured credit balances in South Africa and 58.9% of total household balances are now home related.
He says he appreciates that with low economic growth, high unemployment, a depreciating exchange rate and the possibility that inflation will eventually start to rise, consumers may lack confidence for some time to come.
“Nevertheless, investing in residential property at the current time seems logical to me, it is also one of the safest asset classes currently available,” says Van Alphen.