Buy now, and buy cheaper

House prices are up, and inflation and interest rates are both on the rise too, which means that newcomers to the property market need to hurry and buy now, even if it means their first home is smaller and cheaper than they originally planned.

"Fortunately, there are many people who are able to work from home most of the time now, which means they can consider a property that is further from the centre of town, where land is generally less expensive," says Gerhard Kotzé, MD of the RealNet estate agency group. "Meanwhile there are those who still need or prefer to be close to a city centre because it means they can do without a vehicle, and will find that the developers are coming back into the market now with small apartments that are relatively affordable."

"But whatever your preference is - and this actually goes for repeat buyers too - it is time to buy before rising costs make it very difficult, if not impossible, for you to finance your home purchase."

Commenting on this month's interest rate increase by the Reserve Bank, he says this should be a signal to all prospective buyers to assess how much real estate market has shifted in the past few months - and what effect this could have on their buying or investment plans.

"For a start, the rate of inflation has risen steadily and is now running at 5% a year, due mostly to higher fuel and electricity costs. This is what prompted the Reserve Bank to raise rates, but it also means that most households have less disposable income, which is one of the key factors that banks look at when considering a home loan application.

"In addition, many households now have considerably higher debt levels than they did at the start of the Covid-19 pandemic in 2020. In fact, many are paying more than half of their after-tax income towards the reduction of debts such as credit card balances, personal loans and vehicle purchases - and given that wages and salaries are quite static at this stage, every interest rate rise is going to increase that debt repayment percentage."

This is going to leave less and less room, says Kotzé, for homebuyers to afford or qualify for a bond that is going to cost them anything more than their current monthly rent, or their current bond repayment.

"Having said that, however, it is important to note that property prices have risen quite considerably in the past year. According to property data company Lightstone, the national average annual increase was just under 5% at the end of June this year, with several provinces showing much higher increases than that. Prices in the Free State were up 7,5%, those in Limpopo 5,8%, Mpumalanga 6%, Northern Cape 5,7%, an North West 6,3%.

"As for the major metros, prices are currently rising by more than 7% a year in Nelson Mandela Bay, by more than 6% in Ekurhuleni, by around 5,5% in eThekwini, by 5% in Cape Town, and by 4,5% and 4% in Tshwane and Johannesburg respectively.

"And what this means is that most prospective buyers are already in the situation where what they can afford to pay will buy less house than it would have a year ago."

What is more, he notes, interest rates are set to keep rising around the world now, and the Reserve bank will need to follow suit in order to ensure that SA stays competitive in attracting investment, so it is very likely that affordability will decline further and that it will become progressively more difficult for prospective buyers to qualify for home loans.

"So there really is no time for homebuyers to waste now, and our advice would further be that they adjust their expectations and look seriously at lower-priced options in order to ensure that they have some leeway to cope with the effects of increasing interest rates."