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Daily Maverick
a day ago
- Business
- Daily Maverick
Shelter or income generator — Risks and rewards of owning a property
In South Africa, keeping a roof over your head means more than just making monthly payments, it's about doing whatever it takes to hold onto the family's most valuable asset. Whether you're in a townhouse in a leafy suburb, or in a crowded taxi in a township, you probably know someone who's moved into a back room or a smaller flat so they can rent out their main home and keep up with the bond. 'The property is most probably the biggest asset you will ever own,' said Mfundo Mabaso, product head of FNB's home and structure business unit. For many South Africans, especially first-generation homeowners, a house is more than shelter; it's a symbol of progress and a vessel for generational wealth. But what happens when life throws a curveball and money gets tight? An all too common trend Mabaso has seen families 'vacate the main home and take residence in the garage to rent out the main home so that they can keep up with the repayment of the bond.' For them, losing the property is unthinkable. It's the last thing they're willing to give up. Two speeds of property investment Mass-market homeowners: These are often first-time buyers who see property ownership as a milestone and a way to build wealth. When financial pressures mount, these families might downsize within their own property – moving into smaller spaces like garages or back rooms – and rent out the main home to cover bond repayments. Affluent investors: Those with multiple properties who, when faced with economic challenges, tend to rent out their primary residences and downsize to smaller units. This strategy helps them maintain their investment portfolios and keep their long-term financial plans intact. Even if you're rich, you aren't immune to financial pressures. Mabaso explained that when wealthier families hit hard times, they often rent out their primary residence and downsize to something more manageable, all in a bid to hold onto their investment properties and keep their financial plans intact. The numbers behind the struggle This determination to hold onto property is riding a swell of a rising market. Property prices in South Africa are soaring, with the average residential price surpassing R1.6-million for the first time, and the annual growth rate in average residential prices now reaching 6.4%. Source: The Africanvestor Pieter Wessels, trustee of the PD Wessels Trust and owner of a Stellenbosch property, understands this well. 'Property like a house or flat is 'bricks and mortar'. You can see it,' he said. For Wessels, the appeal lies in leveraging a relatively small deposit into a significant investment, something much harder to achieve with shares or crypto. However, he quickly pointed out the risks. 'The less you pay, the easier it is to earn a better return in the form of rental. If you buy in a 'good' area, you might also get meaningful capital growth on your property apart from earning rental income.' Legal fees, transfer costs, and taxes on rental income are all part of the reality check for would-be investors. Security in a steady job While Wessels approaches property ownership from an investment perspective, others such as Thato Pheko, a high school teacher in the Free State, focus on the security that comes with steady employment. For Pheko, buying a house on a bond was about providing her children access to better schools near the city. 'I manage the payment with my salary,' she told Daily Maverick. Pheko feels insulated from major risk because she works for the government; a sector where, in her experience, sudden job losses are rare. 'I do not feel that there is much risk for me because I work for the government,' she said, confident that her employment stability will see her through the life of her bond. What this means for you Understand the full cost of property ownership: Beyond the purchase price, factor in legal fees, transfer costs, taxes on rental income, and ongoing maintenance; Plan for financial fluctuations: Job security and steady income can help, but unexpected challenges happen. Know your options, such as payment holidays or loan term extensions, and communicate early with your lender if you face difficulties; and Seek professional advice: Whether it's financial planning, tax implications, or legal matters, expert guidance can help you make informed decisions and protect your investment. When trouble strikes Financial stability can be fragile. Mabaso urged homeowners not to wait until it's too late. 'When you hit hard times, talk to your bank and that's the best thing that you can do for yourself.' Too often, he said, customers avoid the conversation, missing out on solutions such as payment holidays, interest-only periods or term extensions. If those options don't do the trick, banks may offer a 'quick-sell' process to protect your credit record before repossession becomes the only option. 'The execution or repossession of the properties is the action of last resort,' Mabaso said. By understanding the risks and rewards and knowing when and how to seek help, you can better navigate the complexities of the market and safeguard your home for the future. DM

IOL News
25-06-2025
- Business
- IOL News
Understanding the barriers preventing young South Africans from joining the property market
Less young people affording to buy property can lead to stagnation in property development. Image: File The growing number of young South Africans who are unable to participate in the property market due to poor personal financial management and impaired credit records is concerning. Young adults are traditionally the engine of first-time homeownership, Mfundo Mabaso, the Product Head at FNB Home and Structured Lending (HSL), said. When this demographic is financially excluded, it can have negative consequences, including the declining demand for entry-level housing, leading to stagnation in property development. He also said that it leads to slow property turnover, reducing liquidity and investor confidence, and developers facing reduced incentives to build affordable housing, further limiting access. This also perpetuates a cycle where young people are denied access to the full offerings of the economy, he said. Mabaso said broader economic consequences, including the inability of youth to access credit and invest in property, have ripple effects across the economy. 'Wealth creation is stunted: Homeownership is a key driver of generational wealth. Without it, many remain in cycles of renting and debt. 'Credit markets are strained: A high rate of defaults among young consumers increases risk premiums and tightens lending criteria. 'Reduced economic participation: Financially excluded youth contribute less to the formal economy and tax base," Mabaso said. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. 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Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕ The financial institution said strategic interventions are needed, which will focus on providing the help young people need. HSL said it believes in proactive solutions like financial literacy programmes tailored to youth that can build responsible credit behaviour. It said another intervention is credit rehabilitation initiatives, can help young people repair their financial standing. Innovative mortgage products with flexible terms can ease entry into the property market, it added. All these were said to be available at FNB HSL to assist the youth to manage their credit behaviour and one day purchase property. Mabaso said it is everyone's responsibility, both in the public and private sectors, to address the situation, with the government having programmes like First Home Finance to assist qualifying customers with affordability or payments of transfer costs when purchasing a property. FNB said it also has solutions tailored to low-income earners, such as covering up to 110% of the property purchase price to assist customers with transfer costs, and solutions like collective buying that allow groups of up to twelve people to contribute to the bond repayment of one property. 'All these are solutions aimed at assisting the youth, but it's still the onus of the youth to educate themselves around responsible credit usage so that they have good credit behaviour and records. "At FNB, we can offer that help and encourage young people to ask for advice and not be put off by the perceived complexity of financial services. We focus on meeting our customers wherever they are in their financial journey.' If South Africa's youth remain largely excluded from homeownership, property development, and property investment, the impacts will be far-reaching, undermining not just the property sector but also the broader economic and social development goals of the country, Tsekiso Machike, the Spokesperson to the Minister of Human Settlements (DHS), said. He said this will lead to a shrinking future market for property; as the current property-owning population ages, demand will decline if the youth do not replace them as buyers and investors. The long-term health of the real estate market depends on consistent generational participation. This will result in an ageing market with reduced liquidity and long-term stagnation, Machike said. He said this led to a widening wealth gap as property is a major tool for intergenerational wealth creation, and if the youth do not participate in the purchasing of homes or invest early, they will miss out on capital gains, equity building, and passive rental income. 'Thus, entrenching economic inequality, leaving youth more vulnerable to poverty, housing insecurity, and financial instability.'