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HOW TO SURVIVE THE STORM
HOW TO WIN - The opportunities CASH IS KING SA has built a large group of experienced property entrepreneurs who have large assets, property skills and confidence in the market's future. Many have been quietly building cash hoards as the interest rates rose and they're on the prowl for bargains. In a few years, the misfortune or stupidity of others will make them richer than they are today. TAKE YOUR TIME The best opportunities are still to come as interest rates rise further and wreak damage on those who can't hold out. Research the market in detail to ensure you get the best opportunities. On the other hand, don't be greedy. If you can get the return you're looking for now, why not take it? NEGOTIATE AGGRESSIVELY The arithmetic is simple: if the seller doesn't accept your offer, there may be no more, or the next one will be lower. You, on the other hand, have a lorry load of properties to choose from. LOSERS SELLERS CLINGING TO UNREALISTIC PRICES They won't listen to sense and will lose a packet as prices continue to fall and their property gets a negative reputation. DEVELOPERS WHO DIDN'T DO THEIR HOMEWORK Large developments are beginning to fold and it's just the beginning. Most of the collapse will be out of town or coastal developments. But many ugly urban schemes will be in trouble, too, as buyers become picky and have more choice. Quality will survive. MANY COASTAL PROPERTY OWNERS Estate agents are closing in droves in prestigious coastal towns like Plettenberg Bay, Hermanus and the Cape west coast. "These towns are flooded with houses for sale," says agency chief Samuel Seeff. Coastal and secondary properties are always the first to be hit by a downturn, says Catalyst property analyst Paul Duncan. "But they're also the first to revive." BOUGHT LATE AND PAID TOO MUCH Buyers have become more astute in recent years and keep in touch with property prices through bank information and data providers. But there are many naïve buyers who are easily persuaded into thinking that prices will continue going up forever. BORROWED TOO MUCH Some property educationists have sold the idea to their students that they should buy properties and increase their borrowings as rents and values rise. Many of these schemes will end, and investors will discover they have not only over borrowed, but also overpaid. THE BIGGEST MISTAKE CASE STUDY One of the worst things a homeowner can do is to cling to an unrealistic price in a falling market. W called in Jawitz estate agents to sell his Sydenham, Johannesburg, home. Jawitz valued the property at around R720 000, but W insisted on putting it on show at R760 000. He rejected all lower offers, and the property sat on the market for six months. The offers started getting lower as interest rates rose, and the property developed a reputation as a nonseller. "We finally got W to accept an offer a couple of weeks ago," says agency chief Herschel Jawitz. "It was six months after we got the mandate and at R690 000." W was lucky. If he had waited another six months, the price could have been R20 000 or R30 000 lower. Catalyst property analyst Paul Duncan calls this a type of 'loss aversion", which is "when a seller doesn't want to admit that he's losing out to the market". If W had accepted R720 000, he could have put the money on call for six months at about 11% interest and would have had R756 000 today, almost what he was asking. Many sellers are clinging to wishful premiums they're not going to get, and they will only lose in the end. The lesson is that unless you are selling into a booming market, you sell at a reasonable valuation from a responsible estate agent as quickly as possible. HOW TO SURVIVE THE STORM Cash-flow problems are the biggest threat to your survival. High interest rates and the slow property market are likely to endure for the next two years, so if you're already finding it difficult to meet your monthly obligations, it can only get worse. Even if your property is worth much more than your mortgage, get into survival mode. Find a way to hang on to your property until interest rates start easing. But be realistic. Call in agents Get two or three valuations from estate agents in your area. Don't argue with them, take the average of the three and accept this as your upside price. Tell your bank Absa group executive Gavin Opperman says the bank really wants you to keep your property. "It's in everybody's interests to find a solution." Banks are also eager to avoid legal action and a brush with the largely untested National Credit Act. "The value of most properties exceeds their mortgages and we're ready to use that equity to carry the situation," Opperman says. "This could be by reducing the payments to less than the accruing interest and let the debt build up. But everything depends on the individual's situation...and past payment record. All the major banks seem to have adopted this attitude. Raid your pension fund Many pension funds have arrangements with banks for homeowners to use up to 70% of their pension money to buy or improve their homes. It was initially aimed to help people buy low-cost homes, but owners of expensive homes can use it too. The advantages are that your interest rate could be as low as 2% below prime and you can access the money in as little as 48 hours. Your pension fund trustees may agree to you using this source to help you reduce your cost of borrowing or to top up your debt. If you have to sell, sell now You've lost your job, or your biggest client, and you're already some months behind in your payments. The situation can be hopeless. The worst thing you can do is hang on. Constant calls from credit clerks, the monthly angst as you try to divide R10 000 into R25 000 in instalments, or, even worse, your debit orders are bouncing, quickly trigger one of the most debilitating conditions - interest-rate fatigue. Clear the decks. Put your house on the market. The bank will probably give you time to sell. You have two years to recover your position and buy another house, possibly at an even lower price than today. Cancel your debit orders Get the monthly pressure off your back and take control of your cash flow. Paying something each month to each of your creditors can buy you extra time. It's never too late for a solution. |