Youth Independence - Property Investment is the Answer

Youth Independence - Property Investment is the Answer

Young investment savvy South Africans should look at the property market as a first step towards building an investment portfolio, and a key step towards personal and financial independence.

Property sales continue to rise and first time home-buyers, many of whom are aged between 22 and 32 years, have driven a sizable chunk of this growth says Bradd Bendall, Head of Sales at ooba.

As a long term investment, property offers security because it is less volatile than other asset classes. In periods of continued house price growth such as currently seen in South Africa, property investments can appreciate significantly in value.

However Bendall advises that due to the size of investment, sacrifices are involved.

"Investing in property can be a route to riches for young people, but it involves sacrifices. The first sacrifice is to ditch the idea of buying a new expensive car and rather settle for a cheaper second hand model.

For example, Bendall says, "a new sporting hatchback can cost in the region of about R255 000 with a monthly installment of no less than R5 000 over a period of 5 years. But if you can afford R 5000 a month, that same amount will allow you to service a R 440 000 bond at current interest rates. And although a bond normally has a lifespan of 20 years, each monthly payment takes you one step closer to owning a valuable asset. The sporty hatchback however depreciates by between 15-20% the moment you drive it off the showroom floor.

How to avoid having to stay at home longer

A recent survey in the United Kingdom by the Office for National Statistics showed six in ten men and four in ten women aged 20 to 24 still live with their parents.

Bendall says he would not be surprised if the figure was higher in South Africa.

"In the UK the average price of houses being bought by first-time homebuyers has increased a massive 204% in the past ten years, while the increase in average income for adults aged 20 - 24 rose by 92% during a similar period.

"While we have seen similar property increases in South Africa, we have not seen similar wage increases putting property out of reach of many individual youngsters," he says

In order to escape home, most young people rent as a group. Bendall says they should investigate the option of buying a property jointly.

"If two new graduates with a joint monthly income of R15 000 pool their rental money and consider buying a property, they would qualify for a R400 000 bond. The monthly repayment at an interest rate of 12.5% interest rate would be R 4 500 over a 20 year period.

"Properties priced at less than R500 000 fall into the lower price range, and this is where most young people can start off. Starting small is key to building an investment portfolio, and returns yielded from an investment in property tend to show gains in the long-term" says Deats.

Here are some of the tips for youngsters who want to invest in property:

Don't buy an expensive sports car while staying at home

Don't rent an expensive apartment.

Investigate which suburbs are less expensive, but show signs of a boom in the near or distant future - this is where you are most likely to get strong capital growth.

Make a point of staying informed about the property market: read, research and ask questions.

Consider borrowing money from family members to raise the initial deposit - they may be happier to lend you the money knowing it is being securely invested.

Hello ooba news

When applying for a home loan, one of your most important considerations should be securing the lowest interest rate possible. And when the home loan is granted, you should do everything you can to reduce the term and the interest that you pay.

It came as some relief to homeowners when the prime interest rate was cut by 50 basis points to just 8.5% last month. Although this provides a welcome reduction in the monthly costs of repaying a mortgage, ooba, the South African home loan experts, say it would be wise for people to keep their repayment levels unchanged.

Despite the buyer's market in the property industry at the moment, in the wake of the global economic downturn, banks are still wary of granting 100% home loans. In light of this, if you're considering buying a home, it's a good idea to start saving up for a decent deposit.

If you're thinking about buying your first home, get your financial affairs in order as soon as possible. You need a clean credit record to secure a home loan. Unless you have a clean record of servicing debt, your bank will be unlikely to grant you a home loan.