PROPERTY NEWS - I was about to conclude an offer to purchase on a property costing R950 000 and halted the process due to the lockdown. Is it advisable to go ahead with the transaction or wait a bit? Perhaps the aftermath of the lockdown may result in lower property prices.
The timing of a property purchase is always a subjective matter. When considering the price you are comfortable committing to, it’s always a good idea to determine your intention for buying the property. Do you intend purchasing a family home, or are you buying an investment property? Understanding the intention behind the purchase is the first step in assessing what a fair value offer would be.
Property valuations are often guided by what other similar properties in that area have sold for in recent times. Ultimately, however, the final price will be determined by what the buyer is willing to pay and what the seller is willing to accept.
It is evident that you have identified a specific property you would like to purchase. That said, you now need to assess what impact this pandemic and the lockdown would have on the seller as well as the property market in general.
Property prices have fallen substantially in the past 18 months, and you will need to evaluate whether you offer represents a value that is near the bottom end of what the seller could reasonably expect to receive for their property. Even if the property market suffers further declines due to the extended lockdown, the seller may reach a purchase price below which they are not willing to accept, or simply cannot afford to accept.
If you intend purchasing the property as a family home, several factors can influence its value.
Is the property in the correct area for school catchments? Is it a larger home compared to your current home, or does it have the potential to be extended to meet such needs? Is it in the area you aspire to live in to have access to amenities such as local sports clubs, convenient shopping centres and public transport hubs?
There may be unique selling points to the property that will serve to enhance your lifestyle, and as such are difficult to attach a rand value to. In general, homeowner buyers are willing to pay a slightly higher premium than a property investor would be prepared to make.
Another factor to bear in mind is that the extended lockdown may cause the value of this property to fall, which in turn could result in increased competition for the property. A lower price means it will fall into the price range of more buyers, and this could affect your chances of acquiring the property.
In addition, the interest rate cuts since the beginning of the year may also increase the affordability for many buyers who were previously excluded from that particular price range.
Finally, if you are currently renting your existing home you will need to calculate what these additional months in rent will cost you while you wait to see the effect of the lockdown and a possible price reduction. Will this be a calculated risk when measured against a potential price reduction and interest saving over the term of your bond?
Would you feel secure that your interest and offer on the property would not possibly come under threat from more interested buyers?
In short, we don’t know if the property market will continue to be depressed or if it will rally in the aftermath of the lockdown as a result of the interest rate cuts.
Property is fickle and is largely driven by location and demand. If you intend buying this property as a family home, it may face increased competition from additional buyers in the near future. If you intend purchasing this property for investment purposes, one could argue that there will be other investment opportunities for you in the future.
I trust that the above points have given you sufficient information to make an informed and considered decision.