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Should You Invest In Property Right Now?

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Should You Invest In Property Right Now?

If you didn’t know this already, there are better and less better times to be buying a house and/or invest in property.

The interest rate is the lowest it has been in a decade in South Africa, does this mean that you should head out and capitalise on the market by investing in property right now?

Due to the economic downturn that Covid-19 brought, the repo rate has been cut with a total of 300 basis points to mitigate the impact of the pandemic and in attempt to assist cash-strapped consumers.

The SARB (South African Reserve Bank) controls the repo rate (repurchase rate); the interest rate at which SARB lends to South African banks. This, in turn, determines the prime interest rate, and then the rate at which banks will lend to its customers. The prime interest rate is the repo rate plus the amount added by the bank to ensure they make a profit on their loans.

The repo rate cut means that banks are bringing down their lending rate, which means consumers will need to pay lower interest on their debt, and that translates into much-needed financial relief.

For those planning to buy a home, the drop in interest rates will now make it easier to qualify for a home loan, because the required household disposable income will be lower. It will also make it easier for new owners to afford their monthly home loan repayments.

This means it’s an ideal opportunity to buy property – either as an investment or as a move up the property ladder. The record-low interest rate opens doors for those wanting to buy property as a long-term investment. Those who wanted to buy in specific neighbourhoods but couldn’t afford the prices; or those who were renting because they couldn’t afford to buy, may very well now be able to consider putting in offers to purchase.

The Caveat

Even though the reduction in interest rates might seem like a golden opportunity to buy a home right now, there has been an unexpected and rapid recovery in the housing market. Experts predicted that the market would fall by between 5 and as much as 14%, but it rose with 1.4%. Not significant by any measure, but opportunists planning on capitalising on a price crash would be disappointed.

This means that while the interests rates lowered, property prices have increased slightly. The good news is that the rise in the price of houses is minor to the drop in rates, still making this the best time to buy in quite some while.

And while nobody can be certain of what’s to happen in the future, it’s highly unlikely that any more cuts will be made, which means that people will capitalise as much as possible at this moment, which in turns means that the price of houses will not fall due to supply and demand being at play.

So, according to us, one bird in the hand is worth two in the bush. This is by no means financial advice, but one has to assume that this is the best time it has been and will be, for a while. If you are fortunate enough not to have been affected by the pandemic in any way and were thinking to buy property in South Africa beforehand, it’s a fantastic time to pull that trigger.

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