PRO TIP! Print this action plan and stick it up against your fridge. Tick things off as you go along.
Buying a home in South Africa is a significant milestone — a dream many aspire to achieve. It’s not just a financial investment, but the cornerstone of stability, wellbeing, and many other facets of your life. After all, where you buy a home has a big impact on your job prospects, your access to a community, which schools you can send your kids to, what hobbies you can engage in, and more.
But navigating the property ladder, especially if you are a first-time home buyer, can be difficult, complicated, and intimidating. You need to understand the market, the financial implications, and the buying process. Here is our guide to help you navigate the path to homeownership in South Africa.
Step 1: Understand the South African Property Market
- Consider the Housing Market: Stay abreast with the current trends in South African real estate. Whether it’s the bustling urban landscapes of Johannesburg and Cape Town or the serene outskirts in Mpumalanga, property values fluctuate with economic conditions, interest rates, and supply-demand dynamics.
- Check the Neighbourhood and Location: The mantra holds especially true in South Africa, where the location of your property can significantly affect its value and your quality of life. Consider proximity to good schools, work opportunities, and amenities. Use Property24 and PrivateProperty to build a baseline of the going rate in the area that you're interested in. You should also consult the property agents' catalogs, e.g. REMAX, Pam Golding, etc. Keep in mind that specific property agents may specialise in specific areas, so use Google Maps to see which property agent has offices in the area you're interested in.
- Reach out to Estate Agents: A reputable estate agent with a good grasp of the local South African market can be invaluable. You generally won't have a choice in the estate agent for a specific property, because the seller appoints the agent, but you can always reach out to an estate agent directly to see which properties they have in their portfolio that might suit your needs.
Step 2: Evaluate Your Finances
- Save for a Deposit: A healthy deposit can influence the terms of your mortgage and monthly repayments. In South Africa, it's advisable to save at least 10-20% of the property's value.
- Understand the Interest Rates: South African financial institutions offer various mortgage options. Interest rates can be fixed or variable, and it’s vital to secure a rate that suits your long-term financial plan. Fixed rates are generally quite rare. With a variable rate, keep in mind that the interest rate you pay on your home loan will fluctuate with the rate set by the South African Reserve Bank (SARB).
- Make Provision for Additional Costs: The price of the property is the most visible expense. However, keep in mind you will also need to pay: (i) transfer duty (the tax on buying a property, which scales with the price) and (ii) attorney fees (for a conveyancer, who will handle the property deed transfer for you). These can be significant costs, so you need to budget for them. Learn how to draw up an effective budget. Furthermore, you should check what the (i) monthly rates and taxes (municipal bill) as well as (ii) levies (if the property is in an apartment block or estate) will be, to make sure you can cover those.
- Buy Cheaper Than What You Can Afford: It's generally a good idea to buy a cheaper home than you can afford, so that you don't stretch your finances to the limit. If you have a variable interest rate, which is the default for most home loans, you should also beware of interest rate changes by the SARB. Make sure you have a buffer in your finances: would you still be able to afford your monthly home loan if the interest rate were to rise by 2-3%?
Step 3: Understand the Home Buying Process
- View Properties: You can use a website like Property24 or PrivateProperty to find properties that you are interested in. Reach out to the estate agent to arrange a viewing of the property. You should never make an offer on a property you haven't seen first-hand.
- Make an Offer: Once you’ve found the perfect home and viewed it, you would indicate your interest to the agent. They will then send you a form so that you can make a formal offer. In South Africa, this is usually done through an Offer to Purchase (OTP) document, which becomes legally binding once accepted. You should be certain that you want to buy the property before submitting an OTP, because there may be costs for you if you withdraw from the OTP. You would normally specify in the OTP that your offer is subject to you receiving a home loan, so that you can walk away should you not secure a home loan.
- Secure a Mortgage: Use a bond origination service like Ooba or BetterBond to let the banks compete for your home loan. A bond originator will automatically submit your home loan application to multiple banks, to see which one can offer you the best interest rate and terms. You’ll need proof of income, a good credit score and history, and other documentation that your bond originator will advise you about. You should also tell the bond originator which bank you currently use, as your bank may be able to offer you a discounted rate because you're a current customer.
- Start the Transfer Process: Once you have secured a home loan, the transfer process begins. This involves transferring ownership, registering the property, and settling all associated fees.
Step 4: Consider What Happens Afterwards
You've bought a property — congratulations! Now, think about how to preserve your investment.
- Homeowners' Insurance: In South Africa, it's wise to secure home insurance to protect your new asset against unforeseen events like theft or natural disasters. Your mortgage lender might insist that you have homeowners' insurance in place to cover any structural damage to the property. This is generally fairly affordable with competitive options available to you.
- Maintenance and Upkeep: Homeownership comes with the responsibility of maintenance. Keep a budget for regular upkeep to maintain your property’s value.
- Mortgage life insurance: With mortgage life (credit life) insurance, the balance of your mortgage will be paid to the bank if you were to die. This is useful if you have dependents or if your spouse wants to keep the house after you pass away. Since the property could be sold to pay off the mortgage, find out if mortgage life insurance is necessary in your situation. Speak to a financial advisor.
In Summary
Buying a home in South Africa is a big decision that requires due diligence, financial readiness, and patience. By doing your research, understanding the costs involved, and working with the right professionals, you can make an informed decision that paves the way for a secure and prosperous future.