I am currently in the process of buying a home. It has been one of the most time-consuming and irritating times of my life; not only because the prices of houses are ridiculous, but also due to the fact that banks make it almost impossible for one to get a home loan. One is treated like a criminal only because one wants to put a roof over one’s head or, to put it simply, invest in the country.
I am all for the new NCA rules, but honestly, at times I find that it is directed more at making it impossible to invest in property than at preventing people being too flashy. I found buying a car to be a much simpler process than what I am going through now.
At times one can understand why more and more young people would rather buy a flashy car than a house. The system is designed to make sure one does not get into unnecessary debt, yet it is more often simply a pain in the butt.
Anyway, that’s not the main reason I am writing this; I just needed to vent a bit — do excuse me. The reason I am writing is simply this: call it ignorance or just lack of interest, but only now that I am entering the property market am I realising how much of my hard-earned cash I have wasted over the past eight years of being employed, paying off someone else’s bond.
When I sat down and actually calculated how far in bond repayments I would be right now had I entered the property market from the moment I started working, I was almost brought to tears. Can you imagine how far I would be? I mean, if I had taken out a 10-year bond, I would practically be finished paying off the house now.
Such a sad state of reality; sadly, though, not many of the youth have actually realised this property trap. It is so easy to decide to move out because one is chasing independence and start renting property somewhere. It is so easy it should be criminalised. Yet, as I said before, at times the system works against us. It is much easier to get approval for a car than it is to get approval for a home — especially if you fell into the debt trap at a very early age. In terms of the NCA, you are just a rotten apple. The fact that you were young and did not have to deal with the NCA laws back when you made the debt errors means nothing to the financial institutions.
Personally I think it should be the other way round. Too many of the youth spend thousands of rands on expensive cars that will never bring any monetary returns, as opposed to buying property. As the youth, we are more concerned about the here and now. Not many of us think about the future. Not many of us think about tomorrow, for that matter. We are too busy wanting to show off to our friends that we earn a big salary via driving a big, flashy car. Meanwhile, back at the ranch, not only do you lack any investments for the future, but you also most probably do not even have a proper bed to sleep on.
To be honest, my eyes were opened by meeting a young man who drives a modest car yet lives in one of the most beautiful and biggest houses I have come across. This man proved to me that when you go out, people might think you are a second-class citizen because of the car you drive, yet when you get home, you are king of your castle and no one can take that away from you.
A car is for showing off while a house is security — not only for yourself but also for your kids in the future. Nothing beats having a home you can call your own. Nothing beats knowing that no one can send you a letter informing you that your lease is being cut short because the owner of the property you inhabit has decided to sell it. Nothing beats that.
Young people, let’s enter the property market. Yes, it will be difficult at first, but trust me: after those initial months of adjusting to the bond repayments, you will know that this is the best decision you have made, not only for yourself, but also for your future. Your fancy car, on the other hand, will not.
Thanks God you woke up after 10 years. Welcome to the real world.It’s a snail’s pace but you’ll get there.
Like all markets the property market has its ups and downs. If you can wait now is not the time to buy. We have just hit the top of the cycle (about April 2007). Buy when everyone is selling and no one is buying – my guess is about 2-3 years from now. Note interest rates are still going up.
I expect property to come off by about 20% in the next 2 years. That is also a lot of money not in the bond and so saved.
Most Europeans rent as buying a property over there is very expensive.
But yes, if one can – buy don’t rent.
Mpho
Don’t be cross – be grateful. It is because our banks have always been so careful that we have not been hit by the sub-prime crises of the USA.
But you are right – it is very silly to pay rent and not a bond!
According to Standard Bank, property prices have dropped 5% since last year and are continuing to drop. Only a financial idiot would buy a depreciating asset (a house) with debt (a bond) at this point in time .
@CG
Only a financial idiot would confuse a depreciating asset (an asset that, once bought, loses its value in a monotonic* manner) with a correction in an asset class (where prices of an asset class fall as part of a shorter-term cycle).
A car is a depreciating asset. A furniture suite is a depreciating asset. Property, when measured over any period of 20 years or longer, has been shown to be an asset that appreciates in value, beating inflation, and is even a potential source of passive income.
The property market is in a downturn right now, sure, and nobody knows how long that will last. But that doesn’t make a house a ‘depreciating asset’.
Ms Maboi, if anything, has shown herself to be fully aware of the difference between paying rent (an expense) and paying a monthly bond on a house (an asset).
Maybe she should wait a bit longer to buy, as there is a good chance that prices will fall further. But in the meantime, she will still be paying a monthly expense in the form of rent, rather than paying off an asset.
*monotonic: moving in an unchanging trend. The value of your car falls every year. The value of your house rises in most years, but does have periods where it falls.
Well done Mpho! Property appreciates in value but a car depreciates before your sale agreement is concluded.
Apart from anything else, out tax system favours buying a home to renting.
Also, most small businesses in SA are funded by the owner’s home bond
mpho
nice article, Property will almost always be a good long term investment, even if there are ups and downs, and makes far more sense than a flash car, which is great when you first get it, but once the novelty wears off it justs get you from A-B the same as a Citi golf!
But careful though, you have joined the land owning bourgeoisie, next you’ll be voting DA (or are you already?)
Its not that bank treat as criminals. It is because so many people default on their home loans. The bank is also a business and must therefore protect itself against such losses. Blame those in society who don’t know how to work with money for the new national credit act! Thanks to them we now have to be looked after like babies by the government.
I also wouldn’t call buying a home ‘investing in the country’ – in fact your primary residence is technically not an investment. You are afterall living in it. Now if you bought another house to rent out that would be an investment. Many people make the mistake of putting too much of their money in their home. Your money should be working for you. As a young person you need to ask yourself constantly – is this the best place for my money?
I get your point but I must also say that there is value in having the freedom of not having property. You can come and go as you like and bear in mind the hidden cost of selling and buying if, for example, you need to move to another city or country. Once you have a home loan and all the associated financial responsibilities it can seem like the proverbial albatross around your neck! And the cost of moving goes up too because your belongings seem to expand according to how much square metrage you own!
I would recommend to young people to club together to buy property. It takes a fair amount of organising in terms of legal issues and plans for what if someone wants out or in, but its a possible solution to the problem. Paying rent is terrible – all you doing is paying off someone else’s bond! Unfortunately in SA a car is often essential for a job so its the first financial hurdle. But South Africans should buy second-hand cars rather. Are new car prices are criminal. I’d also recommend saving and paying cash for your car. Paying interest on a depreciating asset is criminal!
Even though you may think you’re not paying rent on your own house, you’re still implicitly giving up income by not being able to rent it out to someone else.
Mpho,
You have not woken up too late. I am one of the previously young people who failed to invest in property. I am now scrambling to do that. At least I managed to save myself about R80 000 to afford a decent deposit. So my bank is not too contemptous.
I am pushing 40 now, and have driven all sorts of fancy cars, from the famed GTI’s to the Beemers. the rides were always cool, and yes, I had the nice girls to show for it. But they always returned to my backyard rented room, where I also purchased state of the art sound and other fancy gadgets. The cars are gone. The girls married men with proper houses. I drive an old banger now. No airbags, no power this – power that, no GPS. Just road tax, roadworthy and 3rd party insurance.
In the midst of my fast meaningless living, I was at least able to refrain from making too many children. The one that I have deserve something better than the bleak future I almost left behind.
I no longer care whether the market is going down or up… I am resolved to have enough money in my account to pay at least 2 months bond. See, I’d rather wash people’s cars and save that money, than be thrown out of my house. Its not easy, but I calculate by the time I hit 60, I’ll owe jack on the house and then i’ll hand over an asset to the next generation. my own father, despite the tough conditions in Soweto, fought to keep a roof over his 6 kids. He may be poor, but the laughter and fun we had in that house during the rainy days defines security more than any remote controlled gates they can install.
Nice Story Soweto
good piece of article…
I have 3 properties i bought(i was 25 & 26) during the bull run in the market. Tito Mboweni and his MPC cohorts are conspiring to have me loose my properties…
indirect taxes (think electricity levy, new property rates, fuel levies, new tolls, security costs, insurance) are taking their toll. i have a retirement annuity in addition to my pension!!!
I drive a cheap beemer which i will have not choice bu to sell if Tito hike the repo rates (by the way Tito, hiking repo is not working to contain domestic inflation…just hav too look at the results of all the hikes).
in South african roads, u need airbags, ABSA, EDB will all the kamize drivers!!
by the way, i am a darkie!!! from e-kasi
nice one Soweto!
I wish there were more houses available to buy at the low income level. Us poor wit okes are moving into the townships but its hard core being the only mlungu! Ek praat die taal kodwa angikhulumi isiZulu kahle!
Mpho,that was a carefully thought-out article,it is eye-opening.In the last two years i moved out to rent a flat,paying no less than R2000.00 per month and i soon realised that,i was making someone rich sitting somewhere in Australia.
I moved out,my hometown is just 30minutes drive,and immediately extended my Mothers house and now in the process of getting my Own propery.
What was strange is the amazement that my friends and those around me found in my decision,some even calling me move counter-productive,and almost pleading with me not to move out,as my flat also benefitted them.I then decided that i cannot define my success by paying a rent to someone else pockent and with my limited education i have i was actually making a mockery out of it by not realsining that earlier.
It is true though,the financial system seem to favour people who want to buy cars than property and the majority of us are happy with that status quo.
What a great time to invest in property. Prices are low, good deals can be found for far less than the asking price.
You can’t afford a property? Get a couple friends together and buy a property, it’s not getting any cheaper.
The NCA is a great regulation, yes more paperwork, but it stops the average person spending all of their money.
I learned to buy properties in Trusts, you can do it too.. and you too can own a property, just don’t be a sheep on do your homework!
Good article Mpho
I made mistakes of a different kind when I started working. I did not buy fancy cars, but I blew all my money on fancy clothes via clothing acounts and credit cards at a time when I was earning barely enough to feed myself. That is what people around me were doing and I merely followed suit.
Then at the age of 29 in 1999, I woke up, got married and bought a modest property in an unfashionable but good area for R100000. It was a tiny house but it met our needs at the time. It was also the best decision of my life. The store cards and credit cards still made sure that things were a little bumpy finacially in the first few years after that. After all this is at a time when interest rates were at approximately 19 percent, having just come down from the peak of 25%.However, we bit our lip and managed to pay off our store cards and credit cards, while keeping our house. Meanwhile, I got a better paying job, which helped a lot. Today, our R100000 little house is worth R500000. We owe less than R30000 on it and have people queeing up to buy it because there are no longer any houses in that price range in our area.
We have had three children, have stayed away from store cards, personal loans and other bad credit and are about have recently rented out our house and bought our second house. More importantly, we have been driving the same small car that we bought in 2002. With regular service, it gets us to where we want to be like all the fancy cars.
When you are young, it is easy to get taken in by the flashy things like cars and clothing. But believe me, they only slow your financial progress.
Property is definitely a great investment and well done for seeing the light Mpho. It is not the be all and end all of a financial plan, but it is nevertheless a vital part of it.
It is also the best legacy that you can leave behind for your children, especially if you are black like me and come from a family where no one has ever owned any land.
People seem to appreciate appearances more than they do things that add value. A car losses you money but property rarely does. A flashy car seems to be a must if you are young black. We need to start learning about making money, not spending it.
Mpho
Well done !! I wish you all the best in buying your first property
‘A journey of a 1000 miles starts with the first step’
If you need any assistance help with the purchasing process, you are more than welcome to contact me.
Keep smiling
Eric
Hang in there girlfriend, it will all be worth it when you are in your 40s and begining to think seriously about retirement and what you will leave for your kids etc. No one said it was going to be easy…
Soweto, you sound like a pragmatic genuine person who gives advice selflessly. I cant agree with you more. Mpho baby girl, go for it. If anything this is the right time to be buying because it is certainly a buyers market. I know a couple of people trying to sell for over 12 months now with little success. Just be careful and buy the best property in your price range because there are hundreds of houses in the market. Good luck!!!
Nice article Mpho. It’s an eye opener.
I bought a place when i was 25, and have been meaning to buy a fancy car ever since. Truth is right now I can’t afford it(the fancy car I mean) due to the NCA, the rising interest rates, cost of living being too high, despite having managed to up my salary by at least an extra 8k since buying the place a year and half ago. It’s crazy. At some stage I felt like selling the damn place and buying myself the car of my dreams(Audi A4 2.0T with Sports-package damn that thing is nice) just so i can show off a bit before i am 30 and then i will buy a place.
@ Soweto by Starlight
I know what you are talking about. I know your story, the german car driving guys, drinking Hennessy Cognac’s and going out with varsity students and before you know it, you are turning 40 and have not much to show for it. We need more of you guys so that the upcoming young stars can see that hanging out at the cool places with the fancy chicks, fancy cars, never pays up. I get to see a lot of guys like you @ places like Joe’s butchery(Gomora), The rock, Zambezi lounge, Divine Lounge etc. I am certain you know all these places. And i always say to myself, “Damn i don’t want to be like him(your type i mean), age 35, still hanging out with 20 year olds at YFM party’s etc.
It’s because of people like you that the blacks where identified as the so called “Black Diamonds” by marketing people and to top it all up some stupid bunch of guys from Soweto went and opened a bike club called the “Black Diamonds Bike Club”
Sorry mate just had to say all this.
Good one Mpho! It’s the first time I read your article. Where have you been? I agree with you that it is better to suffer paying off an asset than paying an expense. Fact is one day we will have kids and the sport cars won’t be useful and we will only long for the days gone by. At least you can sell a bond if the going gets tough and it is a great feeling telling someone that you are going to your own house rether than to a flat. The great man himself, Nelson Mandela once said that “A man is a man when he has a house.” The biggest challenge that is facing us as a country is the interest rates and whether we should go for fixed rates or not when buying a house.
Great article once more, looking forward to your next one.
Mpho’s example is inspirational. She’s touched a nerve with many of us. To be fair, this is not about the experience of Black South Africans alone. White brothers and sisters, and every shade in between, feel the same things.
I once saw a TV programme in which a European girl (not South African) was picking up any useable rubbish off the street, cleaning it up and pawning it as ‘art’ or decorations to raise a deposit for a flat! She reached her target. She’s a hero of those determined to push into the middle class.
Among many others, Soweto’s comments are also very interesting, despite the bitter-sweet taste they carry. I was especially touched by his reference to his committed dad and the joy in his house. Sounds like while apartheid was hunting and killing dreams, there were families refusing to sulk! A touching human story, nicely written.
Many of the posts here are very wise, and reinforce our shared values: there are important and less important things in life. Jackson also mentioned a serious thing: store cards. EISH! Pasop.
Thanks once again for this brilliant thread.
driving your own car nowadays is no longer a luxury but a necessity with all the not-so-reliable taxis and public transport generally. Not investing at all amounts to poor or lack of planning. As Mpho may have learned today.
I started working last year winter just after I graduated for my degree. I bought a car six months later yipee me! Let us ask an Economist or an Accountant (which I am one) if I made a “smart” decision. Well my guess is they would all have atleast a hundred reasons why I should have bought “property” but do they join me on the long ques at a taxi rank on friday night after a long day at work? yes? not.
Everyone needs to remember that there are dynamics involved when deciding to invest and there are many other rewarding ways of investments like investing on your brother’s or sister’s education or your own education which is in fact expensive too and the nice thing about it you won’t have to go thru the NCA dillema. I have heard a lot of guys in my black communities talking about how property is thee investment decision of a life time. I think this hosh-talk is fumed by the idea of lower risk and higher return investment psychology which is nothing but wishful thinking. They all talk like property sales persons. One of the most ridiculous things I get told is to buy a flat say for R400k and keep it for three months and sell it for R600k and I obviously ask what kind of b/s is that. I have entrepreneurial qualities and have owned a business myself and this kind of a deal sounds like a fly by night kind of an undertaking.
Why don’t you guys investigate the ways in which we can get into the JSE and become the Soros’s and Buffet’s competitors and slow down on this misguided property talk.
Submarine
There is a simple way to calculate the difference. If you pay R3000 pm rent now – how much will it be in 10 years time, escalating at 10% per year, and what will you have to show for your money.
If you pay R3000 pm on a bond, it will be roughly the same in 10 years time – and you will have equity in the increased value of your house on which to borrow if you want to start a business.
To be safe – calculate what you can afford at 3% more than current interest rates. If necessary do what they do overseas and buy with a friend or friends and have an attorney draw up your ownership contract.
I don’t think the statistic quoted above is correct. I think the banks are saying house prices are only escalating by about 5% a year – not 20% a year like a few years back.
However property is a long term investment, and often not an easy asset to sell. Selling can often take a year or more usually because sellers are always overpriced in the beginning. When you are buying offer 10% to 20% less than asking price.