| Market opening up again for buyers… |
The consolidation of the property market after
the buying frenzy brought about by lower interest rates and generally
improved confidence within the country provides a second chance
for homebuyers who feel they might have missed out on the residential
boom.
The return to relatively stable conditions in many
of the country's hottest residential areas has, for example, created
new opportunities for homeowners seeking to upgrade, because the
rate of price growth is slowing down faster in the upper brackets
than in the rest of the market. Thus the seller of a mid-level home
will still reap the benefit of most of the price growth of the past
two years but is less likely to be outbid on a higher-priced house.
Developers of entry-level homes in good areas are
also pegging their prices now to put them within reach of first-time
buyers - who are the biggest beneficiaries of the Reserve Bank's
recent decision to keep interest rates at current levels because
they have now had an opportunity to add start--of-year salary increases
to their incomes in order to qualify for home loans.
The return to more realistic property price expectations
may also mean that homes that did not sell during the peak demand
period come back on to the market - at prices more in line with
buyers' ability to pay.
The wider choice of residential property for sale
that will appear as estate agents rebuild their inventory now will
also give potential buyers more scope and should temper sellers'
expectations.
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| … And then there's rent-to-buy |
Although there are many mortgage products available for first-time
buyers, it has become increasingly difficult for them to qualify
for a home loan due to the rapid price increases over the past few
years.
But first-timers may still be able to realise their dream of homeownership
if they can lease a home with an option to buy it at the end of
the lease period - or even earlier, finances and landlord permitting.
The best way to create a lease with option opportunity is by searching
the "homes to let" ads for a landlord who can be persuaded
to give you an option to buy. And you should be prepared to lodge
an option fee that will be forfeit if you do not go ahead with the
purchase by the agreed date.
Like any contract, the terms of the lease-with-option will be negotiable:
the length of the lease, the rent and the eventual purchase price.
The seller may even agree to credit a portion of the rent each month
toward the purchase.
For potential buyers, the advantages of such an arrangement are
obvious - for relatively little upfront cash, they can tie up a
property at an agreed price, and live in it before deciding to buy
it.
There are, however, also advantages for landlords/ sellers - their
tenants are likely to take much better care of the property if they
intend buying it, and they will have an incentive to do so if part
of the rent is going towards their "deposit". Meanwhile,
the seller still has a monthly income from the property - and gets
to keep the option fee and the property itself if the tenants don't
take up the option.
The potential disadvantages for both parties lie in the possibility
of a market change before the option to buy is taken up. To avoid
the possibility of selling too low - or paying too much - sellers
and potential buyers should seek the assistance of an experienced
estate agent before settling on the purchase price and drawing up
their lease-with-option agreement.
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| Getting the offer to purchase right |
Making the offer to purchase your first home is
undoubtedly an important milestone, but it is just the first step
in the whole process you need to go through to become a homeowner,
and it must allow enough time for you to complete all the steps.
You will hopefully not have offered more for the
property than you can afford, and the estate agent will usually
allow a reasonable time in your offer document for you to secure
a home loan. In this time the bank or independent lender should
be able to run the necessary checks to ensure that you are a good
credit risk, and evaluate the property to ensure that it will provide
sufficient security for the loan you have requested.
However, your lender may also require that you
take out additional life insurance to cover the amount of the loan,
and that can take time to arrange.
You may also need additional time if you need to
convert other investments to cash before you can pay a deposit or
the transfer fees.
And then, you may also want to make the offer conditional
on the property passing inspection by professionals to ensure that
you won't face a surprise bill for re-wiring or new plumbing or
pest removal just after moving in. Again, this may require additional
time, which should be written into your offer.
Buyers should know that any delay in meeting deadlines
laid down in the offer document could jeopardise the entire deal,
and should of course respond promptly to a request from a lender
for supporting evidence of earnings or investments, or from an attorney
to sign transfer or bond registration documents.
However, they can save themselves a lot of stress
by dealing only with reputable agents who can help them get the
timing and the offer to purchase right in the first place.
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| Step carefully around the TAB trap |
By now everyone knows that SARS has given us three
methods of determining the value of our properties as at 1 October
2001, the date from which capital gains tax is applicable.
These are the market value method, the time-apportioned
base cost (TAB) method and the 20% of the proceeds rule, where 20%
is applied to the proceeds after deducting any expenditure incurred
after 1 October 2001 (the valuation date).
If you didn't have your property valued, it is
likely that you are depending on the TAB method, but most people
don't really know how this will work in practice.
Paul Nelson, director of Johannesburg-based auditing
firm Nelson Financial, explains that the Income Tax Act provides
for owners to claim the expenditure incurred before the valuation
date, which is generally the cost of the property, and that incurred
after the valuation date, such as estate agency commission on the
sale of the property.
"The formula which is to be used where costs
are incurred before and after the valuation date, stipulates that
the proceeds received from the disposal of the property must be
apportioned between these costs, based on the value of this expenditure
relative to all the expenditure incurred.
"However, the Act does not take inflation
into account, and this together with the recent rapid gains in values
means that the commission may account for a significant portion
of the cost incurred - and attract a significant portion of the
proceeds received in the TAB formula. This could result in a significantly
lower base cost than expected and a higher capital gain."
What is more, Nelson notes, the Act does not give
sellers the option of including or not including the post-valuation
expenditure, so they will have to include all the costs incurred
- and pay the higher tax that may result - or risk contravening
tax legislation.
"Fortunately, most of us will qualify for
the R1-million primary residence exemption, which disregards the
first R1-million of the capital gain on the disposal of a primary
residence, and so avoid the TAB trap.
"But if you did not have other properties
valued before the deadline last year, and now wish to dispose of
any of them, your best bet is to contact a reputable tax consultant
or accountant to assist you with the TAB calculations and ensure
that you comply fully with the legislation."
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