Are you a first time buyer? Take away the emotion & do the maths!
Are you a first time buyer? Take away the emotion & do the maths!
A recent report released by John Loos, the household and property strategist with FNB, indicates that agents who participated in the group’s Agent Survey believe that around one third of first time buyers are suffering from buyer panic.
What's interesting is that although first time buyers may be buying up a storm, there doesn't seem to be any real reason for the frenzy.
"The June FNB House Price Index rose by a “mediocre” 5% year-on-year, and this growth rate is only slightly above CPI inflation,” says Loos. “The good news should be that there appears little reason for first time buyers to panic that they may not be able to afford the price of a house in future if they don’t buy now, because home values are not rising fast.”
South Africans have always placed home ownership high on their agendas and yes, while it is important for people to own their own homes, buying a property before you can afford to do so can have disastrous consequences. Ask most homeowners and they will tell you that the first couple of years of home ownership are the most difficult. This is perhaps understandable - a major asset has been bought, but it's not only the bond instalments that are going to have to be factored into the financial equation. Expenses such as rates and taxes, electricity and water have to be paid on a monthly basis and while non-payment of utilities can mean that the supply is cut, municipalities have a much more severe way of dealing with those who don't pay their rates - they repossess the property. The other problem is that interest rates are not static and the costs of servicing a bond will increase if the South African Reserve Bank increases the repo rate.
It could be argued that a property is an asset and could be sold if the homeowner finds himself in trouble. The problem with that mind-set is that property is generally not a short term asset. Those who sell within a few years of buying often find themselves on the losing end and this is mainly due to the 'other' costs associated with homeownership. Things such as transfer fees and conveyancing costs can take a huge chunk of buyers' savings and even if the home is sold at a profit, the amount received will seldom be enough to cover all of the seller's costs.
Buying a home is always going to be an emotional experience. However buyers, particularly those who are investing for the first time, should never allow this emotion to cloud their judgement. Every possible financial implication should be weighed up very carefully before a buying decision is made, and anyone who realises that his budget stands a good chance of being strained by the purchase would be better served delaying the decision until he is in a better financial position.
Owning a home, but lacking the financial resources to maintain the property or to sustain any form of enjoyment outside the home is incredibly stressful. Yes, homeownership may be important, but it's not important enough to ruin a life.
Take away the emotion, do the maths and make sure that you are in a strong financial position before deciding to plunge into the property market. This doesn't mean that you'll never own your own home, it merely means that you will have to rent for a few more years before you are in a position to make a well-thought out and sensibly-budgeted purchase.
Source: Private Property