The right time to buy or sell

Those who are inexperienced in property matters often approach her organisation for “market advice”, says Lanice Steward, MD or Anne Porter Knight Frank, the Claremont, Cape Town, headquartered estate agency which in the last year has branched out to cover much of the Atlantic Seaboard.

“What they are usually trying to ascertain,” she said,” is whether now is a good time to buy or sell. My answer almost invariably is “yes”.”

The first obvious point to be grasped, said Steward, is that anyone selling and buying in the same market (i.e. in roughly the same area and roughly the same time) will iron out the fluctuations that have occurred in the last year or more: if they sell for less than expected, it is probable they will be able to buy at lower than they budgeted for.

“So long as you are buying and selling at genuine market prices, what you “lose” on the sale you are likely to “gain” on the buy. House prices react uniformly to market conditions. If you sell at a price lower than anticipated you will probably be able to buy lower too.”

If, however, the seller is downscaling, to realise a cash sum (because of difficulties in meeting bond payments or other debts) in a poor market, it is possible that he will end up still owing the bank a fair sum on his bond – and it is, said Steward, frightening how these still-to-pay bond debts can mount up.

“This is especially the case when the house is repossessed and put up for auction. In these cases it is not uncommon for the home to be sold below the price on which the bond was negotiated and the banks will still hold the bondholder responsible for the outstanding amount.”

Even in this situation, said Steward, it is essential to be realistic and to sell sooner rather than later.

“We have homeowners (who bought at high prices in 2006/2007 and who are now in debt to their banks) desperately hanging in there in the hope that the market will recover faster than it is doing. The nett result is that they end up with even greater debt.”

In these “tight spots”, added Steward, the banks have often done a deal with the bondholder, e.g. allowing him initially to pay the interest only.

“Usually there is no need to despair if you are open with your bank,” she said.

If after buying a home the owner finds that the market is tailing off and the home’s value is depreciating, this should not be a cause for concern, so long as the owner can still afford his monthly repayment.

“Experience has shown that the downturns on average last 32 months. If, therefore, the buyer does not sell too quickly, it is highly probable that he will make a profit. Typically, South Africans upgrade every seven years, by which time a capital growth is almost guaranteed.”

Steward warned, however, that the heady days of 2004 to 2007 when prices shot up at 30 to 40% per annum, are unlikely to be repeated. She, in fact, anticipates the annual growth rate for the next two years being ±8%.

“Over an extended period such increases do add up significantly – and it is always better to be paying off your own bond and slowly building an asset base rather than to be helping a landlord do this by paying rent.”

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