Work out what bond you as a Purchaser should qualify for

The loan amount you can qualify for is limited by your monthly income and by your total disposable income. Only 30% of your income can be used to pay towards a home loan.

The National Credit Act has taken this one step further and banks are now required to ensure you have enough disposable income to support a bond repayment.  Thus the way in which purchasers are assessed has changed.

To work out how much you qualify for:

Calculate 30% of your monthly income:

ie: R30 000.00 per month will be R10 000.00 – the bond amount would be limited to a maximum of R10 000.00. You will then have to list ALL your current expenses, including fuel, petrol, school fees, etc and prove that you can in fact actually afford to repay R10 000.00 per month back.

 If after ALL expenses are deducted, you are only left with R6 000.00 then a bond with a repayment of R6 000.00 is all you will qualify for even though it is less than their 30%.  Also remember that the bank looks at your credit record – do you pay your accounts on time? Are you black listed etc.

The good news is that if you are currently paying rent – this amount is added to your disposable income.

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Properties under R1 Million, “To target Investors”

With the interest rate at the lowest in years, investors are now targeting buy-to-let properties. Many landlords are now looking at double-digit rental increases this year.

A strong recovery in investment buying is predicted for this year. Investors will be looking to buy properties priced below R1m, due to stronger returns being expected than cash in the bank. Property still remains the best value for money.

“FNB property strategist, John Loos, backs up these claims referring to the latest Stats SA figures, which show that residential rentals have steadily increased with an average growth of 5.6% recorded in November year-on-year. Sectional title flats have shown the largest increase, jumping by 8.6% while free standing houses recorded the lowest growth at 3, 56%.”

According to the TPN (Tenant Profile Networking) Credit Bureau the percentage of residential tenants paying their rent on time has risen to 81% in the 3^rd quarter of last year. The number of defaulting tenants has decreased to 10%.

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The Interest Rate Lingo

Current Prime Interest Rate = 9.0%

What is a Fixed Rate vs Variable Rate:
The interest rate on a fixed rate home loan does not change.

The advantage of this is that you are protected from rate increases and your monthly payments are consistent. The disadvantage is that you will not benefit when the prime rate is dropping.

The fixed rate will usually be slightly higher than the prime rate at the time of your application.

The variable rate means that your repayment amount will increase or decrease with the prime rate.

What is a prime rate?
The rate at which the bank is currently lending.

Repo Rate vs Prime:
The Repo rate (repurchase rate) is the rate at which the Reserve Bank lends rands to our local banks.  This rate is usually 3.5% lower than the current prime rate.

Jibar Rate vs Prime:
The Jibar rate (jhb interbank agreed rate), is used by SA HOME LOANS, while the Prime rate is used by the Major Banks (STD, ABSA, FNB and Nedbank).

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Positive Feeling for Property 2011

The residential property market has several factors in its favour going into 2011:

1. exceptionally low interest rates
2. slower-than-expected consumer price inflation
3. decreasing levels of household debt

Where you aware that the interest rate is the lowest it has been in 36 years?

With decreasing household debt couples can now consider purchasing a home of their own. Banks will be more favourable to granting a higher percentage bond. Low interest rates are already helping the property market by putting extra money into household piggybanks and boosting the demand for credit such as home loans.

Economists are predicting another rate cut early in the year, which can only be good news to consumers.

Standard Bank has estimated that inflation will average 4.6% y/y in 2011, so even if house prices only grow at 7% – which we think is what we can reasonably expect – these will still beat inflation in most cases.

Experts predict there will be a noticeable growth in the “small house” segment sales. All in All there is an atmosphere of positivity for the property market. Although property won’t boom, there will definitely be growth.  Purchase Price will still remain a strong factor. The general feeling is that buyers. Similarly, while access to shops, schools and major transport routes is still important, these are also secondary considerations to price and running costs in almost every case.

There is a general feeling of positivity and growth for the property market for 2011, although there consensus that we cannot at this stage expect a property boom.

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Potential Restrictions to the use of your Property Purchased

Title Deed Restrictions

A property cannot be sold in contravention of a title deed restriction. For example,  a property developer registers restrictive conditions against the title deeds of erven within a development, restricting the use of each of the erven. For example, there could be limitations on design, house size and roof covers. This type of restriction is very common for golf estates and gated communities.

Guide Plans

A guide plan is a broad outline for determining land use patterns for the future development of a region er for industrial development, commercial development, residential establishment, farmland, recreational areas, etc
Urban Structure/Development Plans

The larger local authorities should each have a structure, development or policy plan specifying the land use patterns for an entire town or city, or parts thereof. It should set out where shops, offices and residential development can take place.

Town Planning Schemes

Every local authority has a town planning scheme, which is devised for the purpose of providing for the general welfare and attractiveness of the environment. The scheme should consist of both a scheme map and scheme clauses, which sets out limitations and controls for the usage of property in an area:

The above impacts the way the land may or may not be utilized. If you are purchasing your property with the intention of starting a business, a day care centre etc. You will need to find out whether or not you will be permitted to do so before concluding an offer to purchase to avoid being disappointed.

Removal of Restrictions

It is possible to have a title deed description removed in terms of the Removal of Restrictions Act 84 of 1967. Applications for the removal of title deed restrictions are normally dealt with on behalf of the property owner by an attorney or town planner.

Rezoning can be more involved and the success of an application depends on the following:

• The town planning scheme
• The structure/development plan
• The need for re-zoning
• The desirability of the rezoning
• The environmental impact of the rezoning
• The precedent set by the rezoning
• The opportunities/restrictions relating to the property
• Acceptability of proposal to adjacent residents and civic associations

A rezoning application generally takes around 6 to 12 months to be processed and involves the following steps:

• Preparation of motivation or application for rezoning by applicant
• Advertising of the application, calling for comments from the public
• Replying to comments and objections
• Consideration of application by the local town planning department
• Referral of the application if required to other town council departments
• Referral of the application to the council committee
• Referral to provincial authority on appeal

In conclusion, the variables in land use control are vast. If any questions or queries on land use are required, it is prudent to refer these to a professional; a town planner, the local municipality or an attorney.

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Benefits and Disadvantages of Pricing a Property

The Benefits of Correct Pricing:

• It gives the impression of good value to your purchaser
• It increases the response from your advertising
• It projects Seller Commitment
• It achieves the maximum response in optimum time and maintains the Seller negotiating advantage.

THUS the consequences of Correct Pricing are:

• A maximum number of acceptable offers
• A maximum Seller price is achieved
• The marketing period of the property is minimized and the property is not overexposed, thus the Seller’s lifestyle is not disrupted continuously
• Bargain Hunters are discouraged and the property is sold within the shortest period of time possible.

The Disadvantages of Over-Pricing:

• Potential buyers lose interest as the property is over-exposed
• Marketing time is prolonged and advertising is expensive, therefore properties are not advised as well as they should be
• Lower offers are attracted as a result of a reduced advertising response
• Buyers become reluctant to make an offer, as they wonder what is wrong with the property – why it has not been sold. Is it a sound investment?
• The property gains a stigma and competing properties become more attractive
• Bargain Hunters now “stalk” the property, waiting for it to become an urgent sale

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What is Bridging Finance?

It is an advance of money which the seller expects from the sale of his/her property.

It allows sellers to have access to cash before the registration and transfer process has been completed. The seller is able to use the funds to pay outstanding rates and taxes, for example.

Bridging finance can be a useful tool to help you out of a “catch-22” situation, like having to wait for the profit of the sale of your house to pay for the registration and transfer costs of your new home.

However, it is very important to make sure you understand all the costs involved when using this type of short term lending. Find out if there are administration costs, what interest will be levied – each institution offering bridging finance have their own rates, there is no standard. Be aware of this type of financing, it can be expensive.

 Most institutions that provide bridging finance will only finance up to 80% of the surplus money which you will receive from the sale of your property. They evaluate the risk to themselves before deciding on what percentage they are willing to loan. It is seldom, if ever, that a 100% loan is granted.

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Home Loan Talk – Access / Flexi Bonds

Banks offer a home loan package with an access facility should you wish to take it up – but what does it mean? It provides you with access to the cash you already have invested in your home. The difference between the value of your home and the amount that you owe the bank is the EQUITY in the property. Equity can be as a result of paying in a deposit, or through the appreciation in value of the property, or even the savings that you have invested in your home loan by paying it off at a faster rate.

It is advisable to request an access facility when applying for a home loan. What are the benefits?

• Most banks offer access to your equity in the property via internet banking or even from an ATM, which makes accessing cash very convenient and easy.
• By depositing your savings into your home loan account, you can enjoy tax-free savings at the prevailing bond rate that you are eligible for at that particular point in time. Take a good look at the interest that you earn in your savings account and compare it with what the bank charges you to lend that money back to you. Then consider that you will also pay tax on the interest that you have earned in your savings account.
• You have flexible access to equity in your home loan for those high-value items that traditionally you would have financed through hire-purchase, lease or rental agreement. Advantages include flexibility i.e. you could pay your car off over 20 years and save on interest. Repayments are calculated at the bond rate that you are enjoying, which could be as much as 5% lower than lease or HP rates!
• You now have flexibility with your repayments – you can double the bond repayment, but still have access to that ‘extra’ cash.

When you need to access the funds you will still go through a similar re-advance approval process with the same forms and proof of earnings. The bank needs to assess your ability to service the additional amount.

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Fast Facts – National Credit Act Explained

The Act came into effect on the 1st of June 2007. Its main aim is promote a fair and non-discriminatory market place by regulating consumer credit and improve the standards of consumer information. It aims to prohibit unfair credit and marketing practices and promote responsible credit granting. As well as to assist in providing debt re-organization. Why is it good for us? In terms of the act the onus has been shifted from the consumer, who should not borrow more than they can repay, to the Banks and other credit extenders to fully assess the ability of the person applying for the credit to reasonably be able to repay such credit.

If this is not established a magistrate may declare the loan reckless lending and therefore unenforceable or the magistrate may suspend the debt for a determined period, during which period no finance charges nor interest may be charged or alternatively the debt may be restructured. The result: We are finding that the financial institutions are hesitant to extend credit as freely as in the past and we are therefore seeing more frequent declines or lower amounts being approved.

In terms of the National Credit Act, all consumer information is contained in the National Credit Register – a credit record containing information of all credit agreements, judgements and surety ships, past and/or current, of the consumer. The consumer has a right to access his / her credit record at no charge once a year in the month of his / her birth. The consumer now has certain rights against credit grantors and is entitled to full disclosure of all financial charges. Disputes can be addressed to the National Consumer Tribunal.

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Transfer Duty: Natural Person vs. Juristic Person, Explained.

A purchaser can buy property in his personal capacity (a natural person) or as a juristic person (a trust, a company or close corporation). The purchaser will have to consider the following factors before deciding how he wishes to purchase property:

Transfer Duty for a natural person is 8% of the purchase price.

Any transaction under R500 000.00 is zero. From R 500 001.00 to 1 million = 5% Transfer Duty.
Above R 1 000 001.00 = R 25 000.00 + 8% Transfer Duty.

Example: If the purchase price of the property is 1.5 Million you will pay R 25 000.00 + 8% on R 500 000.00.  Remember a Company / CC / Trust will pay a flat fee of 8%.

Please note the Receiver of Revenue’s has stricter interpretation of nomination clauses, the purchaser will have to have a clear idea of the most suitable entity for acquiring ownership at the time of purchase as the nomination and acceptance thereof must take place on the same day on which the agreement was signed. You can no longer decide later.

If a purchaser elects either a close corporation or company as the preferred entity of acquisition, the agreement of sale may be signed by the Purchaser “on behalf of a company/close corporation to be formed.” Once the company/close corporation is formed, it would have to ratify the decision to purchase the immovable property concerned. In this manner the “nomination” will not attract double transfer duty.
Unfortunately the Trust Property Control Act specifically prohibits the
acquisition of immovable property by a Trustee for a Trust to be formed.

Purchasers must keep in mind that no transfer duty is payable if the seller is registered as a VAT vendor on date of registration, in which event the seller is liable to pay the VAT, charged at 14% to the Receiver of Revenue.

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