The holiday season is upon us, and we are all excitedly looking forward to enjoying the summer break with our friends and family. This time of the year means many things to people but there is one common thread: home. Regrettably, millions of South Africans still do not have a solid house that serves as a foundation for their family life. The good news is that today South Africa’s Millennial cohort is very active in the property market, accounting for 30%-42% of all property purchases, especially in urban areas. There is also a new generation of South African homebuyers, the Gen Z’s, who are leveraging property to build generational wealth that will break the poverty cycle and minimize the effects of ‘black tax’ on future generations.
‘Property has always been a way for people to provide security for their families, and ultimately own an asset that will appreciate in value over time,’ says Stephan Potgieter, Executive of Asset Ownership at Nedbank. ‘It’s great that younger South Africans have seen the benefits and are entering the property market early because a family home can be passed down to the next generation as a solid foundation for intergenerational wealth and the nucleus of family life.’ Stephan advises property buyers to take the time to make good money choices by looking at the different financing options offered by financial institutions like Nedbank.
Leveraging for growth
A property is more than a family home, it’s an asset that can be leveraged to make further investments — this is a strategy that smart homeowners have followed for centuries. Stephan says we should focus on seeing our primary residence as the first step in building up a portfolio of assets.
For many Millennials, the aim is to buy more than one property in order to let it, the idea being that the rent would cover most or all of the bond repayments. The rental market in South Africa is very strong at the moment, and many see this as a way to finance an expanding portfolio of investments, not restricted to property.
Stephan’s top tip for would-be builders of generational wealth? Don’t wait until you are settled—get into property early on and start paying it off. In addition, paying extra each month will significantly reduce loan repayment time.
Plan for the future
Property ownership is a long-term financial commitment — before making a purchase it is important for buyers to take a hard look at their financial position to make sure they are in a position to service the bond.
‘Bond rates fluctuate, so don’t make the mistake of looking at what you can afford now — consider whether you can weather an increase in your payments,’ he says. ‘Spending some time with your bank’s consultant is well spent as they will help you scope out what is possible and how to plan for all contingencies.’
Another point to bear in mind is the likelihood that you will want to improve your property over time, whether you are living in it or letting it out. Stephan says that Nedbank will help clients future-proof their property investment by building extra funds as part of the home loan application to cover this eventuality.
Here’s how it works: Nedbank’s HomeVision offering allows you to register a bond at a higher loan amount (up to 30% more than the property price, up to a maximum of R7,5 million), giving you access to extra funds to use in the future. To access the extra funds, you can simply apply for a readvance without registering another bond, saving you time and money on your journey to building generational wealth. Repayments will increase only if your application is approved, and you receive part or all of the extra funds you’ve applied for.
Importantly, loan repayments are based on the amount loaned, not the registered amount.
Property remains an excellent way to build wealth that can be passed on to the next generation, and it has the benefit of being understandable in a way that more complex investments are not. ‘By working closely with your Nedbank consultant, you can put yourself onto a wealth-building trajectory—and leave a solid legacy for your children and grandchildren,’ concludes Stephan. Visit Nedbank to explore the HomeVision offering at the start of your home loan application.
