Why you should be planning to buy property in 2020

In good financial times and bad, property is seen by most financial advisers as a safe investment. In difficult times such as the world is experiencing at present, your home may lose value for a time. In the long term, however, bricks and mortar have traditionally held their value.

Before the Covid-19 lockdown, banks were granting more home loans as well as asking for lower deposits from applicants. Inflation is expected to be relatively low in the near term, and the South African Reserve Bank (SARB) indicated at its last meeting (in March) that there is a strong possibility of one more 25 basis point rate cut later this year. Although there will be some challenging times ahead for consumers, we don't believe the outlook for property is all doom and gloom.

The prime rate of interest is at the lowest level it has been since 1973, with the prospect of potential further rate cuts. For first time home buyers the cost of renting versus buying is now swinging very much in favour of buying, especially for properties priced below R1 million, where no transfer duty is applicable.

Here are likely to be attractive deals in the market as sellers who have been holding on for some time to sell their properties are forced to reduce prices, which should bolster demand.

Fewer transactions

During the national lockdown, real estate transactions have come to a halt, world wide. Data from China, South Korea and Italy reflect a drastic drop in real estate transactions in those countries, and South Africa is no different. What's important, however, is the fact that there is always a rebound once the crisis is over. In all recorded cases to date, once the epidemic - or pandemic in this case - is over, real estate snaps back to normal.

Stock market woes good for property

The stock market crash will doubtless have far-reaching effects for investors. When it comes to the property market, however, van der Merwe says some of those effects could actually be positive. During times of economic turmoil, a lot of investors tend to seek 'safe harbour' in brick and mortar assets. With interest rates as low as they are at present, the net yield on properties has increased, making this even more attractive. We're hoping this trend will help the market rebound once the Covid-19 crisis is over and agents can resume operating as usual.

Opportunities for first-time buyers

This return to normality, paired with low interest rates, eager lenders, and the flood of properties expected to hit the market will create very favourable conditions for most buyers. These opportunities are compounded for first-time buyers, whose rental instalments could soon be neck and neck with their potential bond repayments. For those who can afford it, the post-Covid-19 period is going to be an excellent time to snap up bargain properties at record prices. That said, it's not the time to overreach. As the economy recovers, interest rates will climb again. You don't want to be at the edge of your affordability when that happens.

Lower income earners

As interest rates tumble and property prices come under pressure in the months following the immediate Covid-19 health crisis, lower-income families could be presented with their best opportunity in almost a decade to buy a property. While the economic fallout from the pandemic will result in many people losing their jobs, those in occupations identified as "essential" during SA's lockdown - such as nurses, paramedics, teachers, police officers and drivers - will most likely remain employed. This should help them to qualify for home loans, especially since interest rates are already at their lowest levels in decades.

The household income required to qualify for a R500 000 home loan has already dropped from about R19 300 a month to around R16 400. Repayments on home loans have also become more affordable, falling from R4 825 to R4 100 a month on a R500 000 home loan taken over 20 years. We foresee that prices will be extremely negotiable for the next 12 to 18 months. More stock will be coming on to the market at the lower price levels from distressed sellers and buy-to-let investors who have lost their tenants.

Cautious lenders

He expects the banks to be cautious about approving new home loans in the coming months and says they will be looking for applicants with good credit records as well as steady incomes. However, banks will be keen on lending, and what is happening in the market now is similar to what happened after the 2008/09 financial crash, which proved to be an exceptional opportunity for low-income buyers to enter the formal property market and start building up personal wealth.

Property planning

The lower interest rates favour mortgage applicants at present, so if you are in a position to buy a property this is an ideal time to take the plunge. For now, though, there is little for buyers and sellers to do but wait for the Covid-19 lockdown to come to an end.