Beware buildings insurance trap

Declining house prices and rapidly increasing building costs are creating a very real gap between the market value of properties and their replacement costs. Property owners need to reevaluate their buildings insurance to guarantee that they are sufficiently covered in the event of a disaster.

"Property owners need to ensure that the sum insured (replacement value) on the property is increased proportionately with current building prices," warns Craig Deats, Insurance Managing Executive at ooba. "If they are under-insured at the time of claiming, they will find that the insurer will not settle the entire claim."

While the property market has devalued in the last few months building costs, the cost of building materials and the cost of labour, have been climbing steadily. Key contributors to rising building costs are steel, cement, copper and the impact of rising oil prices.

Statistics from the Bureau for Economic Research Building Cost Index show an average building increase of 15% for 2007 with the last quarter 2007 at 16.5% and the first quarter of 2008 at 21.9%.

"There is a sharp increase in building costs mainly due to a low base rate increase in Q1 2007 and rises in input costs of builders," says Deats.

"For buildings insurance, you need enough cover to rebuild your home and replace all the fixtures and fittings within the home from scratch and the BI policy provides cover on a 'new for old' basis" says Deats.

Buildings insurance is a requirement if the property is bonded and protects the actual building structure and all the permanent fixtures and fittings, garages, swimming pool, paving and walls in the event of fire, floods, lightning and other unforeseen causes.

"The cost of building materials and the cost of building labour changes on an ongoing basis so it is necessary to reevaluate your building insurance on an annual basis to ensure that, in the event of a disaster, the full value of replacing your property is covered," notes Deats.

For an accurate replacement cost of the buildings, property owners should be requesting a replacement cost valuation from a certified valuations company. The property owner's insurer should be able to recommend one.

A client can speak to their Property Finance Consultant when applying for a bond and they will be able to assist them with all their building insurance needs.

"It is critical for home owners to take a look and reevaluate their buildings insurance today as there may be a significant difference between the actual replacement cost of the building and the market value of your property," concludes Deats.

Hello ooba news

ooba (formerly MortgageSA) welcomed the 0.5% interest rate cut announced yesterday by the South African Reserve Bank which will save South African home owners an estimated R259m in home loan repayments each month, but says more cuts are needed.

According to a new poll by South Africa's leading property listings website, nearly a third of home hunters decide that a property is right for them before they even enter the house - and a kitchen is overwhelmingly the most important room when it comes to the buying decision. has entered into a partnership with to provide access to the latest fractional ownership listings which will be available from the 12 December, 2008.

South Africans spent over R10 billion during the festive season last year. This year ooba suggests carefully planning your holiday season spending to avoid a financial hangover in January 2009. "Festive season debt can take months to pay off in the new year," says Jenny Rushin, Provincial Sales Manager for ooba (formerly MortgageSA).

Weak economic conditions, higher interest rates and the global credit crisis have forced banks to be far more picky about who they will lend money and less generous with their lending rates. But Mary Jane Lefevre, Regional Sales Manager of ooba, said that before you apply for a home loan, there are steps you can take to improve your credit status and encourage lenders to look more favourably on your application.