Why now might be the best time to invest in property
Category Investing
The real estate market fluctuates constantly, so timing is crucial to a sound investment. Recent financial developments and an economy on the mend suggest that now could be an opportune moment for buyers and investors to enter the property market. A combination of favourable inflation trends, interest rate cuts, and stable property prices suggests clear signs of opportunity.
Positive economic indicators signal opportunity
The South African economy has recently shown several positive indicators, leading many to believe the property market is on the verge of a resurgence. One of the most significant developments is the dip in inflation, which fell to 4.6% in August 2024, the lowest rate since mid-2021.
This certainly encourages consumers and signals the potential for the South African Reserve Bank (SARB) to again cut interest rates, as was seen last month with the 25 basis point reduction in the repo rate. Lower interest rates have historically stimulated property investments since they reduce buyers' borrowing costs.
Beyond this, government stability improvements (following the GNU's formation) and energy supply (brought about by the improved generation capacity of the nation's energy fleet) have helped build a real sense of optimism within the economy and in sentimentality.
Recent advancements in electricity supply, with fewer disruptions from the national grid following the over 150-day suspension of loadshedding, offers confidence that infrastructure improvements will support economic growth. These changes and a proactive government eager to drive monetary progress, suggest a more promising future for long-term investments, including real estate.
The impact of lower inflation and interest rate cuts
Reduced inflation, combined with the recent 0.25% reduction in interest rates, has created a favourable environment for property investment. With inflation below 5%, pressure on household budgets has eased slightly. This means more disposable income and extra incentive for potential buyers looking to enter the market.
Given the improved inflation trajectory, economists are predicting further interest rate cuts - another 25 basis point cut can be expected in November (the last interest rate setting meeting for 2024); and that the interest rate cutting cycle will continue in the new year. It's no secret that purchasing property when interest rates are declining offers long-term financial benefits, as buyers who secure properties now, will see their monthly repayment costs drop in the coming years.
Growing optimism in the property market
One of the essential components of a healthy property market is positive sentiment, and confidence is slowly returning. The uncertainty caused by the pandemic and economic pressures led to a subdued market for the past few years. However, as financial conditions stabilise, buyers and sellers are starting to regain trust in the market.
Recent data shows that banks remain willing to lend, and deposit requirements are at a decade-long low, providing even more accessibility for qualified buyers. The outlook of a declining interest rate cycle adds further confidence, allowing buyers to plan ahead with more certainty. For many, this is the assurance they need to take the plunge and invest in property.
The advantage of stable property prices
Another key advantage for current buyers is that property prices in South Africa have remained relatively stable over the past several years. Many areas have seen little to no capital appreciation for 5-7 years, meaning buyers today effectively purchase at the same price levels as in previous years.
This price stability and the prospect of future growth present a unique opportunity for investors. Buyers can enter the market when prices are still affordable, with the potential for appreciation as economic conditions improve. Historically, those who invest before a market upturn benefit the most from property value increases, making now a strategic time to enter the market.
How to assess your affordability in today's market
Before purchasing a property, it's essential to assess your affordability carefully. A good starting point is to calculate your debt-to-income ratio to understand how much of your income is already allocated to debt repayments. The amount remaining will give you a clear picture of what you can comfortably afford in terms of a home loan.
Additionally, consider your lifestyle expenses, as these fluctuate monthly. Working out a realistic budget that includes fixed and variable expenses will help determine how much you can allocate to a bond. A general rule of thumb is that your monthly housing costs should not exceed 28% of your gross monthly income, while your total debt payments should remain below 36%.
For those unsure where to start, consulting with a financial advisor or using online bond calculators to estimate repayment costs based on current interest rates may also be helpful.
Why acting now could save you money in the long run
The property market offers a unique window of opportunity right now. With interest rates on a downward trend and property prices stable, entering the market today could lead to significant financial benefits in the long term. Buyers who wait until the market starts to recover may face higher prices and less favourable lending conditions, making investing more expensive.
By all accounts, now is an ideal moment for buyers to take the leap into the property market.
|Are you looking to buy or sell your property? Visit our website https://www.homesofdistinction.co.za/
Sign up for our newsletter: https://www.homesofdistinction.co.za/newsletter/
https://www.homesofdistinction.co.za/agents/ or pop by our offices for a chat. Our friendly property practitioners are always available to assist.
Homes of Distinction CC holds a Fidelity Fund Certificate issued by the Property Practitioners Regulatory Authority (PPRA).
Author: Bryce Anderson
