Keep a cool head, even in a soft real estate market

The banks are keen to lend, homes are selling more slowly and owners are keen to negotiate, so now is definitely a good time to buy, but that doesn't mean you should throw caution to the winds, says Rudi Botha, CEO of BetterBond, SA's leading bond originator.

"There are some golden rules for home buyers and investors to follow - in any market conditions - and they risk getting stuck with a bad investment if they deviate too far from these."

For a start, he says, buyers should by all means try to negotiate price on a promising property but should in most cases avoid the home that's on offer at a remarkably low price. "It may appear to be the opportunity of a lifetime, but closer inspection before you snap it up will probably reveal that it is in need of major repairs that the owner cannot afford or is heavily encumbered in some other way."

Next, buyers should focus on location. "There is a much bigger variety of favourable locations these days than there used to be, including properties close to decentralised commercial hubs and those located in self-contained estates as well as those in the tried-and-tested central suburbs, but you should still focus on those where there is good demand and prices are rising, rather than being tempted to buy a property in a less desirable area just because is a 'bargain'.

"Falling into that trap is likely to cost you a lot more, in the long run, than the savings you make on the initial purchase."

Third, says Botha, you really need to do your homework on pricing before making any offer. "Get help from an experienced local estate agent who can provide you with a comparative market analysis (CMA) showing how many sales there have been in the area recently and the actual selling prices of these homes, as well as the length of time they were on the market and what their original asking prices were.

"And don't be embarrassed to walk away from a property if the results of your research are less than favourable. As with any type of investment, professional advice is very important if you want to maximise your potential returns, but it is also vital to keep a cool head and make your own decisions."

As for finances, Botha says that while cash might give you something of an advantage in negotiations with keen sellers, it is probably not the best idea at the moment to empty out your savings account and spend all your cash on a property purchase, because the rate of property price growth is generally lower than the rate of interest you would get on that money in the bank.

"A much better idea is to consult a bond originator like BetterBond and get pre‑approved for a home loan before you start looking for properties to buy. This will also give you an advantage in negotiations because it lets sellers know that you are a serious buyer and have the financial means to complete the transaction.

"You can then use some of your cash to pay a deposit and qualify for a lower interest rate on a home loan, especially if you apply through BetterBond, which makes use of a multiple lender application process to ensure you get the best available rate. This will lower your monthly bond repayments and make your home more affordable while also cutting the total amount of interest payable over 20 years by thousands of rand.

"By gearing the purchase in this way, you will only have a share in the risk in the property but get all the benefit of any future growth in its value - and you will still have most of your cash available for emergencies, or perhaps to use as a deposit on a further property purchase."