Publications
Partners
Cape Town - If you are a first-time home buyer and you qualify for a bond, take it, according to Riaan Roos, CEO of MSP Developments.
"Banks are becoming more risk averse in order to protect both their stakeholders and the economy. As a result, you have no guarantee that you’ll qualify for a bond in future – and therefore you’ll be well advised to buy while you can," said Roos.
"Similarly, investors who can leverage their credit profile to buy with the bank’s money should use the opportunity to gear their financing so that they can get into a position where a tenant pays back their home loan."
In doing so investors get the triple benefit of using the bank’s money, to purchase an asset which will appreciate in value, and provide a stable monthly income which increases at an inflation-beating rate every year, in his view.
In much the same way as buyers have to be approved by their bank, so too do homes. Whilst buyers are qualified based on their salary and ability to afford their bond repayments, homes are qualified on their value.
"Your bank will only approve your bond application if the property that you wish to buy is worth the asking price," he explained.
He used the Buh-Rein Estate (an MSP development), about 25 minutes' drive from central Cape Town as an example.
It is situated on former farmland and borders a region of wine estates.
"At Buh-Rein Estate every new development is pre-approved in terms of valuation. More importantly, since no deposit is required buyers get the benefit of appreciation on the price of the unit they buy from the date that they sign their contract up until the date of occupation – which usually is about nine months later," he explained.
"Furthermore, in February next year all prices are expected to increase in line with rising labour and material costs. So buyers who commit now can expect to their property values to increase by at least 6% at the beginning of February 2015."
Villa Milon - part of the estate - is a case in point for him. It comprises 30 sectional title apartments with prices start from R669 900 and include all costs (VAT, transfer and bond registration).
Roos indicated the minimal initial shortfall between monthly bond commitments and estimated rental income for investors, using the case of a R700 000 property, where a gross income of R23 000 per month is required to qualify for a 100% bond.
This property could achieve a rental of R6 000 per month (based on actual rentals currently achieved in Buh-Rein Estate).
“From year six you will no longer have a shortfall – in fact you will be making a surplus. If that surplus is also used towards your bond repayment, the bond will be paid off in year 13. At that time you will earn a monthly rental income of around R15 000 – and the capital value of the property of your apartment will have appreciated to R1.75m (assuming a conservative annual appreciation of 8%),” he said.
At the beginning of 2011 an entry-level two-bedroom apartment at Buh-Rein Estate sold for R424 900, while today a similar unit sells for R599 900. This increase in price represents a compound annual growth in value of 9.01%.
Upon completion Buh-Rein Estate will comprise over 3 000 homes, and will include 20 pocket parks with jungle gyms, 10km of pathways for running and cycling, a multi-purpose sports field and a sports clubhouse.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
