The trouble with cash…

The new National Credit Act that imposes stricter criteria on lending and makes credit harder to get is prompting more homebuyers to look at paying cash instead of applying for a home loan.

And those who can afford to do so – or at least put down a substantial cash deposit - are likely to have serious clout when it comes to negotiating price, says Berry Everitt, MD of the Chas Everitt International property group. After all, a cash offer is every property seller's dream.

“What is more, investors buying a property to let with cash in hand won’t have to worry whether the rent coming in will cover the bond repayment every month.”

However, he says, there are some potential pitfalls, the most important being the fact that no home loan means no bank valuator – and no confirmation that the property is worth what you’re paying for it.

“So before you hand over a large cash sum, you should seriously consider getting your own valuation done by a qualified professional.”

Writing in the Property Signposts newsletter, Everitt also says cash buyers need to be pretty sure that the property will appreciate much more than their cash would grow if saved or invested elsewhere – and that they are going to realise this “profit” within a relatively short time.

“And thirdly, cash buyers need to be prepared for possible delays in the transaction due to the requirements of the Financial Intelligence Centre Act (FICA).”

This legislation, intended to keep SA free of money laundering and other dubious financial transactions, provides for estate agents to report to the state Financial Intelligence Centre the receipt of any cash amount of more than R50 000 in any property transaction.

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