Johannesburg still has the cheapest houses in South Africa

If you live in Johannesburg, want to buy a house, and cannot afford one, think twice. You may have to relocate to the smaller towns or the rural areas because Johannesburg has the cheapest houses in the metropolitan centres of South Africa.

According to the latest ABSA Housing Review, Johannesburg Central and South have the cheapest small houses in the mid-segment category.

These are houses of 80m²-140m².

Port Elizabeth comes in second place with, ironically, East Rand having the most expensive in this segment.

The average small house in Johannesburg Central and South costs R592 523 while in East Rand the average is R1.04 million.

Port Elizabeth takes top spot in the middle-sized and large houses.

Middle sized houses are 141m² to 220m² while large houses are from 221m² to 400m².

In PE medium houses cost R759 921 and large houses R1.4 million.

Cape Town is the most expensive in these categories with medium houses going for R1.5 million and large ones for R2.2 million.

It is better to buy a house than rent one, for now

Buying a house is currently more attractive than renting one but this trend could change within the next months as interest rates go up and the cost of borrowing increases.

According to the Property Barometer released by the First National Bank, the House Price/Income Ratio Index is quite high by historic standards and this is causing concern that house prices must be due for a downward correction.

“It hasn’t happened in a big way yet, due to the low interest rates that translate into a Home Instalment/Rental Ratio Index level that is at its lowest level since the late-1970s,” FNB says.

The nominal prices of houses in the middle segment went up by 8.5 percent in the first seven months of this year, according to the ABSA House Price Index.

Lending rates have gone up twice so far this year by 50 basis points in January and 25 basis points in July with the repo rate, the rate at which the Reserve Bank lends to commercial banks, now at 5.75 percent.

Banks are lending to the public at 9.25 percent but ABSA says this is expected to increase to 9.5 percent by the end of this year and further to 10.5 percent by next year.

The repo rate is, however, still below inflation which dropped to 6.3 percent in July.

The increase in lending rates will make houses less affordable to many as they will be required to earn more to qualify for bonds.

As an example, the average small house in the middle segment currently costs R826 000. To qualify for a bond at the current rate of 9.25 percent, one needs to earn about R25 000 a month. A couple can aggregate their salaries to qualify.

If the lending rate goes up to 10.5 percent as predicted, one would need to earn about R27 500 to qualify for the same bond.

Saving money has nothing to do with how much you earn!

Most people believe that they have nothing to save because they earn very little. Their incomes are not even enough to meet their basic requirements. But saving has nothing to do with how much you earn. It is about how you use the money you earn.

Economists Steven Venti and David Wise, from the United States, argue that “Saving is more of a choice than a game of chance.”

In their study: “Choice, Chance and Wealth Dispersion at Retirement”, they found that it was not only families with low incomes that saved very little but a significant number of those with high incomes also saved very little.

At the same time a substantial proportion of those with low incomes saved a great deal. Saving was therefore not by chance by but choice. “Some (people) choose to save more and spend less over their working lives while others choose to save little and spend more while working.”

Saving is therefore a choice that you have to make. It is a state of the mind. You have to consciously adjust the way you spend your money and make sure that you live within your means.

Tahira Hira, another US expert on personal finance and consumer economist says, “The best way to save money is to first have a good understanding of how you are spending it. You should not take any drastic steps. Take time to review your current spending and see where you can cut costs or reduce expenses.” She continues with, “the first thing is to reduce impulse buying”.

She recommends that for four weeks record everything you spend money on daily. Review your records at the end of each week. This will enable you to see things that you are spending money on when you shouldn’t. It is only when you start spending less than you earn that you can start saving.

Jack Milne, a South African, wrote in his book Streetwise Investor, “That it is better to put your money under your mattress than not to save at all.”

Milne ended in disgrace when he got greedy but his advice still makes sense. If you put aside R5 a day, you will have R1 825 by the end of the year. How many of us have this money in our savings accounts?

Imagine how much more you could save if you really sit down and plan how to save your money! If you save R200 a month you will have R2 400 at the end of the year. You can afford to save this kind of money even if you are earning R2 000. This is just 10 percent of your salary, money that you would normally pay as tithes to your church, or money that you can easily blow on drinks or ice cream, sometimes over a weekend.

 If you save 30 percent of your income, or R600 a month on a salary of R2 000 a month, you will save R7 200 by the end of the year. In two years you will save R14 000, enough to pay a 20 percent deposit on a house loan of R60 000, the maximum you are allowed on a salary of R2 000 a month.

Here we are assuming that you will be putting your money under the mattress where it will not earn any interest. But by putting your money under your mattress, you may indeed be saving, but someone can steal that money and you lose all your savings. So rather put the money into a savings account. At least it will earn a little interest, but more importantly it will be safe. Once you have adopted the culture of saving, it will be easier to look for better ways to maximise your interest.

Milne has a simple explanation for saving. He says it is better to put your money under your mattress than not to save at all. It is better to take the money from under your mattress and put it into a savings account. At least you will earn some interest. 

But it is even better to move your money from a savings account into a fixed deposit account, because the interest is higher. You can move it from a fixed deposit into a call account or a notice deposit or an even an investment account, the interest rates are usually higher and this is usually for shorter periods, but they require you to invest sizeable amounts.

In other words when you put your money into a savings account, you earn interest which is anything between 0.20 percent to 4.7 percent depending on the amount and the length of period you leave that money in the bank. You can open a savings account with as little as R50.

But the moment you have R10 000 in your savings account, it is no longer wise to keep it all there because you can earn higher interest by moving it into a fixed deposit. In other words, you can have two accounts with some of the money in a savings account and the bulk in a fixed deposit.

Once you get to R20 000, you have to look at investment options with higher rates than the fixed deposit. Retail bonds, for example, offer higher interest rates but you have to invest for a minimum of two years.

Although there are other options you can use to earn higher interest rates, we are not going to look at them here because this book is not about investment options; it is about ways you can save money to buy a house.

We are therefore assuming that you are not going to save for more than two years before you buy a house because you have to remember that while you are saving money the price of houses is also rising and usually at a much faster rate than the interest you earn on your savings. 

We therefore advocate that you sacrifice some of the luxuries that you normally enjoy for a few months to save enough to buy the house that you can afford.

This was excerpted from Chapter 4 of our book: How to buy a house for half the price.

4 things that determine how much a bank can give you to buy a house

Everyone dreams about owning their own house and even where that house should be. That is life. We are allowed to dream. But the reality is that the final determinant is how much money you can get to buy the house. If you had cash, you would not be reading this piece.

There are four major things that determine how much loan a bank can give you. These are:

• Your income - how much do you earn?
• The loan term - how soon do you want to repay your bond?
• The prime interest rate - what is the prevailing interest rate that your bank charges on your bond?
• The bank’s lending criteria- does your bank want a deposit or it can give you a 100 percent bond?

     

Your monthly income is the single biggest factor that determines how much you can borrow from a bank to buy property. Normally a bank will make sure that you do not spend more than 30 percent, or roughly one-third, of your monthly salary on your mortgage repayment.

It is better to work with one quarter, or 25 percent. When calculating how much you can borrow, banks also take into account other credit agreements that you have, such as if you have bought a car or furniture on credit and you have not paid up your account. The more unpaid accounts you have the less credit you will get.

If you are married you can buy property as a couple. This way you can combine your salaries and therefore qualify for a higher loan. But unless your salaries are too low, it is better to work with one salary and use the other for your upkeep or to buy other essentials like furniture or a car. But this will largely depend on how solid your marriage is and how much you trust each other.

    

Banks are governed by the National Credit Act which says that they must make sure that when they give someone a loan that the person can afford to repay the loan. If not they can be accused of “reckless lending”.

The term of your loan also determines how much you can borrow. You can get a bond for 10 years, 15 years, 20 years or even 30 years. The longer the period, the more you can borrow. The standard length is 20 years.

    

The interest rate also determines how much you can qualify for. The lower the interest rate the more you can borrow.

And lastly, the bank’s lending criteria also plays a part in the sense that if you do not pay a deposit, you actually have to buy a house that your income allows you to, but if you raise a deposit, you can buy a house with a higher value than the bank would lend you if you did not have a deposit..

    

The easiest way to find out how much you qualify for is to use online bond calculators. Every bank in South Africa that offers home loans has a bond calculator which tells you the size of loan you can get and how much your repayment would be when you feed in your gross monthly salary. Of course you should also know the prime interest rate and the repayment period.

    

We have found the calculator provided by Bondbusters to be much simpler to use. You can find it here: http://www.bondbusters.co.za/online-calculators/mortgage-installments.php

This was excerpted from Chapter 3 of our book: How to buy a house for half the price which you can buy here or here.

Lindiwe Sisulu’s 10-point strategy to deliver 1.5 million houses in the next five years

Human Settlements Minister Lindiwe Sisulu has announced a 10-point strategy to boost housing delivery in the next five years. She intends to deliver 1.5 million “housing opportunities” to reverse the 25 percent decline in the past five years. Here they are in her own words.

Number one.  We will appoint an audit company to audit some of the entities where we feel their output and management of finances are cause for concern.

Number two: We will restructure the Department to make it more adept to deal with the challenges we face. We will establish a unit headed by a DDG that is dedicated to Military Veterans and the vulnerable in our country, such as child headed households. The then Department of Housing  adopted a policy for housing for Military Veterans in 2007 and up to now  there is not a single house to show for our responsibility towards people  who fought a war for this country to be liberated from oppression.

We owe it to them to prioritise them and it seems we have been bogged down by red tape for the last seven years, which is a completely unacceptable state of affairs. This DDG unit will ensure that we can, within the next 12 months have provided a roof over the head of all 5 854 indigent military veterans. These will be housing units with a top-up from the Department of Military Veterans to make it more suitable for people as deserving as these. The Military Veterans will be drawn in to build their own houses in every province where they reside. This will be under the direct responsibility of the Deputy Minister as Builder-in-Chief.

We will also consult with the Department of Social Development to identify child-headed households, so that we can provide them with shelter on an urgent basis. And also as part of the concept of Human Settlements, we will identify those areas where women are extremely vulnerable and provide shelter for abused women, which can be used by Social Workers of Social Development. Again, this will be under the direct responsibility of the Deputy Minister as caregiver-in-Chief. I must add, Chairperson, that the Deputy Minister has already started this work by providing a house for a woman with special needs in the Western Cape.

Number three: We will encourage employer assisted housing. We believe employers, especially big employers have a responsibility to ensure their employees are housed in decent conditions. We, as government will take the lead in this by establishing a Government Employee Housing Scheme. We hope that mining companies will follow suit and so too will many others.

Number four: Derelict buildings in the inner city are a safety and health hazard and prone to being hijacked. Once occupied, the responsibility on the municipalities is onerous. We will be looking into this matter and seeking legal advice on the possibility of expropriation where we find absentee landlords. These can then be productively turned into rental stock  after they have been refurbished. In reviewing the Prevention of Illegal Evictions from and Unlawful Occupation of Land Act, 1998 we will  consider options to confiscate property from absentee landlords.

Number five: There is a great demand for affordable rental  accommodation in cities and centres of economic development for low  income earners. Rental stock at reasonable rates, that which we call Social Housing, is the way we will find sustainable provision of affordable housing.

Number six: The subsidy quantum will be reviewed because MinMec has found it is unacceptably high. It is clear that the use of brick and mortar has become too expensive and we would need to look into innovative ways of building better, but cheaper houses.

Number seven: As you are aware, on Monday we returned the 402  families to the site they originally occupied in Lwandle. I established an Inquiry and we hope to learn from this what needs to be done about the vexing question of illegal occupants of land facing us on a daily basis, and as  urbanisation grows, will increase. It is also very clear to us that we need to send a message to landowners to understand that the value of their land is an asset only for as long as it is protected and safe. By the time it has been  invaded, it loses value almost immediately. What we must all understand is that the law that we have, is intended to protect the rights of people who establish their homes and protects them in the same way as it protects the owners of private property. When removing illegal occupiers from land, due processes have to be followed.

We remain very concerned about the issue of evictions, especially as it  is happening all over the country and invariably happens outside the  prescripts of the law. The Prevention of Illegal Evictions from and Unlawful  Occupation of Land Act, 1998 was specifically crafted in response to the  large scale evictions, especially of farm workers, which was reminiscent of  Apartheid’s forced removals and was passed in recognition of the fact that  many of those who occupy land was most affected by Apartheid.

Communities living in informal settlements, even on unlawfully occupied  land, deserve and must be afforded the equal protection of the law. In the same way that private property is protected by the Constitution. The balance  is worked out in due process.

There is therefore a need to look at how the processes laid out in the Act can be improved and strengthened in order to give protections to the vulnerable of our society. The experiences that we have witnessed and that we continue to see, suggest that the requirements of the Act are not adequate enough to give affected individuals the protection that is provided in the Constitution. Accordingly, we will review the provisions of the PIE Act.

We await the outcome of the Inquiry I established to understand the circumstances of Lwandle to assist us to understand where we have gone wrong, how far we have gone wrong and learn from it, so that we are better equipped to review the PIE Act. We have to find a way of dealing with both the scourge of illegal invasions and the callous way in which evictions occur, as was the case at Lwandle.

Number eight: We want to encourage our social partners to join us in building social housing for affordable rental. This is one of the biggest shortages in our country. We do not have enough stock for people to rent affordably and because of the shortage of land, our rental stock will have to take density into account. We will have to build upwards.

Number nine: Land shortage is a dire problem for us. As you know, the HDA was established to buy and bank well located land, near work opportunities, so that we would be able to build human settlements near work opportunities. Happily the Minister of Public Works, Mr Thulas Nxesi has acceded to our request and released land for our purposes. My sincerest gratitude to him.

Number ten: The President has instructed us to form part of the revitalisation of mining towns. These are, as you know Motlosana, Emalahleni, Sekhukhune, Lephalale, West Rand and Matjhabeng. I will be meeting with the Chamber of Mines next week to discuss this matter. We already have the required experience as we worked closely with some of the Mining Houses in 2008. Where these towns are, we look forward to the involvement of Members of the NCOP, because our experience in the past has been that the most difficult part in mining towns is stakeholder relations.