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A Glossary of Terms for the Homebuyer

property-investment-real-estate-trading-word-cloud-illustration-word-collage-concept-35121918When considering a mortgage bond from a bank to buy your dream house you may find yourself bogged down in a swamp of legal terms and bureaucratic mumbo jumbo. Not everything is as straight forward as your bond calculator.

Affordability Score

The Bank’s assessment of a Buyer’s ability to afford monthly instalments based on their income.

Agent’s Commission

The amount payable by the Seller to the agent for work done on marketing and selling a property. This is a percentage of the selling price.

Asking Price

The price at which the Seller is offering their property for sale.

Beetle Certificate

A certificate issued confirming that a structure is free of wood borer or termite infestation. This is a legal requirement when selling.

Bond

A lending agreement between a Buyer and the Bank. The legal bond document states that the Bank will lend an amount of money in the form of a bond.

Bond Calculator

Online software used to calculate estimated repayments on a bond. Input data is required, for example the desired monthly price. The sales price is then automatically adjusted enabling the user to appraise his/her position in the market place.

Bond Cancellation Cost

Costs accrued during the cancellation of a bond. These include an Attorney’s registration fee and a Deeds Office fee.

Cancellation Attorney

The Attorney who attends to the cancellation of the Seller’s bond and is appointed by the Bank with whom the current mortgage bond is held.

Conveyance Tax

A tax charged for the transfer of property from the Seller to the Buyer.

Conveyancer

A Conveyancing Attorney will attend to Deed Office transactions such as the transfer of a property from a Seller to a Buyer.

Cooling Off Period

The 5-day period after the Offer to Purchase has been signed during which the Buyer of a property has the right to cancel this agreement.

Credit Report

A detailed score card of an individual’s credit history prepared by an official credit bureau. This report will determine your risk as a borrower.

Debt-to-Income Ratio

A ratio which shows a Buyer’s monthly payment obligation to debts and which is divided by gross monthly income to ensure affordability.

Estate Agent

The Estate Agent is a person who is authorised to act as an agent for the sale of land or the valuation, management, or lease of property.

FICA

The Financial Intelligence Centre Act, 2001 was formed to regulate money laundering and requires valid information to be presented to the Bank.

Home Loan

An agreement between the Buyer and a Bank, where the Bank lends the Buyer money in order to purchase property.

Home owners Insurance

An insurance policy that covers your house (structure and property) in the event of damage or loss.

Instalment Amount

The monthly amount paid to the lender as part of the total home loan amount. Instalments run for the entire duration of the agreed term.

Interest Rate

A percentage interest is added onto the amount of money borrowed from a Bank. This amount is fixed for a period and is based on the amount of money borrowed.

Mortgage Broker

Someone who acts as an intermediary between the Buyer and a Bank, for the purposes of arranging a home loan.

Municipal Rates

Taxes paid to the municipality by property owners.

Net Income

This is your yearly income after taxes.

Occupational Rent

A charge applied to the Seller for occupying the property after registration has taken place or to the Buyer for occupying the property before the registration has taken place.

Offer to Purchase

A legally binding document signed by the Buyer and Seller stating the agreement of the sale and its conditions.

Payslip

A document issued on a monthly basis by your employer as proof of your monthly income.

Property Transfer

When ownership of a property legally changes hands from Seller to Buyer, through registration of the property at the Deeds Office.

Purchase Price

The amount paid for the purchase of a property as set out in the Offer to Purchase agreement. This can be worked out retroactively by using a bond calculator.

Qualified Buyer

Someone who meets a Bank’s requirements of affordability and has qualified for a home loan.

Registering Attorney

The Attorney who attends to the registration of the new bond into the name of the Buyer.

Repayment Term

The number of months allocated to pay off a home loan. The maximum repayment term is 30 years. This can be easily calculated with a bond calculator.

Sectional Title

An entire property of flats or townhouses. The property is divided into individual units and sold separately and runs under a Body Corporate.

Subject to Sale

When a sale of a house becomes binding and unconditional then certain conditions are met, such as bond approval.

Title Deed

The legal document which states ownership of a property. The Title Deed is filed at the Deeds Office and contains details of the property.

Utilities

Services provided by the government for your use at home. Utilities include: water, electricity, telephone service and other essentials.

Voetstoots

Refers to a property sold “as is”. After a sale of property, a Seller is not liable for defects following a reasonable inspection of the property.

Print this list out and keep it handy when those terms start flying around that you’re not too familiar with. Remember to refer to your bond calculator as the figures start coming at you. With both your bond calculator and your glossary of terms you’re all set to go house hunting.

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BOND PROTECTION INSURANCE

So you’ve decided to work out the dePicturetails of your bond repayments with our bond calculator. But now you need to start thinking about, what they call in the industry, Bond Protection Insurance.

Bond Protection Insurance is a bond insurance plan that has been specifically designed to provide flexible risk benefits in respect of home loan protection.

The plan pays the original bond in the event of Death, Dread Disease or Permanent Disability, and pays the monthly bond instalments in the event of illness, injury, temporary disability and retrenchment. Under most plans the bond holder has the flexibility to select any combination of the benefits, in addition to the death benefit.

Most insurers these days offer choices, making the cover more accessible, highlighting the convenience and expertise they offer. Getting insured should be a straight forward process ensuring that your particular financial needs are adequately met and that your most important asset is protected for Life.

This is all very well but what about the details. Once you’ve used your bond calculator and you have some idea of the kind of house you’re in the market for and what the repayments you’ll be  faced with, bond protection insurance is like another hill before the end of the marathon. So let’s look at what insurers are offering.

What are the benefits?

Firstly there is the direct payment of benefits into your home loan. Next there is the death benefit (which typically pays a lump sum directly to the home loan within 48 hours of receiving all the documentation on a valid claim). There is also an instalment protection benefit which covers the bond instalment in the event of illness, injury, temporary and permanent disability.

There is usually a permanent disability benefit which pays a lump sum directly to the home loan in the event of a valid disability claim as well as a dread disease benefit which pays a lump sum directly to the home loan in the event of a valid dread disease claim allowing you to focus on getting better. A retrenchment benefit is offered which covers the bond instalment for up to 6 months while you focus on finding new employment.

Very rarely are there medicals or HIV test. Two lives may be insured under one policy, thereby providing a more affordable premium. The policy can be ceded to any financial institution. The policy will pay the full death benefit on death even if the instalment protector benefit has been claimed. While a valid Instalment protection benefit is being claimed, all the policy premiums due during that period do not have to be paid. You should be able to increase or decrease your cover to suit your home loan requirements.

Free death cover is offered, usually around three months,  while the bond registration is pending. Cover is provided for the term of your home loan.

Typical Features of the Products

Instalment Protector Benefit

If you as a homeowner are prevented, as a result of illness or bodily injury, from earning an income for a period of usually 90 days or more, your bond protection plan Insurance will pay the monthly home loan instalments while you are unable to work. These would be the same instalments you that can be worked out with a bond calculator.

Dread Disease benefit

Most Bond protection policies include what’s called a Dread Disease Benefit. A list of diseases would be included with the policy. If you are diagnosed with any disease on that list you will be paid the sum assured, usually after a period of 90 days, allowing you to concentrate on recovery. If the sum assured is greater than the outstanding home loan balance, the difference will also be paid into the home loan account.

The following 12 Dread Diseases are more often than not covered by most insurance companies:

Blindness, Cancer, Coma, Coronary Artery Bypass Graft, Heart Attack, Heart Valve Surgery, Loss of Limb, Major Burns, Major Organ Transplant, Paralysis, Renal Failure, Stroke.

Retrenchment Benefit

If a homeowner is retrenched for a period longer than 30 days, Bond Protection Insurance will, if this benefit is included, pay the home loan instalments for up to 6 months, allowing the homeowner the peace of mind to find alternative employment.

Lump Sum Disability Benefit

Almost all bond protection insurance covers homeowners who are totally and or permanently disabled rendering them incapable of earning income for a period of 90 days or more. Bond Protection Insurance will pay the home loan instalments for the first 24 months, before paying the lump sum benefit equal to the sum assured into the home loan account. If the Sum Assured is greater than the outstanding home loan balance, the difference will be paid into the home loan account.

Death Benefit

In the event of death all Bond Protection Insurance schemes pay a benefit equal to the sum assured. Again, if the Sum Assured is greater than the outstanding home loan balance, the difference will also be paid into the home loan account.

Now that you’ve seen all the benefits of Bond Protection Insurance you can soberly consider the value in pursuing this next stage in your journey to purchase your own home.

BMW Beats the Banks

Whilst the European crisis and it’s ripples to South Africa have got grey suited local bankers all in a Windsor knot, one motor finance company is putting its hand up making itself available for, what is believed in some circles, to be signs of better times ahead for residential property.

In a move that in itself may boost the whole house marketing sector, luxury car manufacturer, BMW, has made public its plan to move into the home finance sector. Actually BMW have been easing its way into this world for some time.  But now there is a drive to acquire a greater number of applications.

In pursuit of motive for the movement into the housing market BMW’s response has been a bold one.  BMW intends to counter what it considers to be extremely poor service by banks. It seems that banks are quivering in the face of implementing Basel III.

Basel III is the third of the Basel Accords. It was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis.

With the onerous requirements of Basel III on banks, one ought not to be surprised to see that non-bank players are becoming more prominent in the SA home loan market. We should expect this to continue. Expect that the standard home loan interest rate will have to be set one or possibly even two percentage points above prime, because the cost to the banks of funding these loans will rise that much.

Back to BMW, an investigation by Finweek found that: BMW Finance provided “better service, a more competitive interest rate & lower administrative costs than any of SA’s big 4 banks.” “FNB was the only bank that came close to providing a deal that competed with that of BMW Finance. However, the bank’s initiation fees were higher & you are required to open a primary bank account with it.”

Bill Rawson of Rawson Properties said in a press release that the move by BMW Finance, in his view, makes complete sense because the existing BMW clientele base is almost certain to be an excellent initial target market.  The link-up between motor cars and homes also increases the security of the loans because homes are a more reliable asset than vehicles.

Watch this space for other motor finance houses following suit.

More up-beat than the effects of Basel III is the belief in a slow but steady upturn and recovery in the property sector. BMW’s lead with a plunge into the market is not all that has estate agents aflutter.

–          the average House Price Index is now at a two year high and rising at 8,6% per annum.

–          a 12% plus decrease in civil summons in the first quarter of this year.

–          a 42,4% decrease in liquidations

–          the number of 100% bonds issued has risen by over 35%.

(According to the FNB Property Barometer.)

Many analysts seem convinced that South Africa can ride out the effects of the European Financial Crisis. Although difficult times may be ahead they are unlikely to differ from the difficult times currently experienced.  The impression one gets is that though ill the market is not terminal and will continue to survive as a provider of necessary products for which there continues to be a market.

Golf Estates: “Swing hard in case you hit it!”

As a social phenomenon it’s not surprising that golf estates would do well in South Africa, given the priority of security on the one hand and sharing the outdoors within one’s community on the other

“If you think it’s hard to meet new people, try picking up the wrong golf ball.”  Jack Lemmon

As a social phenomenon it’s not surprising that golf estates would do well in South Africa, given the priority of security on the one hand and sharing the outdoors within one’s community on the other.

It’s hardly unusual that people will take whatever measures possible to ensure the safety of their family and the lifestyle that they have become accustomed to. So it may come as a bombshell to find a slump being reported by some in the golf estate property market.

We know that property world-wide is depressed and so it stands to reason that the golfing estate market would not be immune to such pressure. Golf estates like those along the Cape’s Garden Route that were lauded as a major economic driver during the last ten years are currently struggling.

“These greens are so fast I have to hold my putter over the ball and hit it with the shadow” Sam Snead.

Not so for these golfing estates:

  • Pinnacle Point had as many as 15 properties for sale a couple of weeks ago, including a R14m luxury house.
  • 46 properties were on sale at Kingswood in George.
  • 53 properties were listed at Pezula in Knysna.
  • 26 properties for sale at the Oubaai golf estate outside George.

That’s a lot of stock!

In Plettenberg Bay, two massive golf estate developments, Hangklip and Roodefontein, have been put on hold despite winning approval from the provincial government and Bitou municipality as early as 2009.

Environmentalists in general and in the Cape in particular, are not big fans of golf estates, due to the high volume of water required to maintain these emerald isles and the reputation – fair or not – of the ecological destruction caused by the landscaping.

In the late 90’s investigations were made in the Western Cape, when local environmentalists made enough noise about the potential threat of golf estates to local ecology. By the time local government had produced a report in the mid 2000’s, twenty two golf courses were already fully functioning with more on the way. The report declared the golf courses unsustainable but no one had the political will to declare a moratorium.

The Cape Times quotes Tasneem Essop, Western Cape Environmental Affairs and Development Planning MEC, as saying the negative impact on natural resources, especially limited water supplies, might well outweigh the benefits of golf resorts. However the claims of tourism and job creation benefits needed to be properly assessed, she said.

Elsewhere in the country it’s the newer developments that are the most at risk, with banks withdrawing their funding for some of these projects as enough buyers can’t be found to warrant financial backing. This is due in part to the slump in the market in general and, as Alliance Group’s Rael Levitt believes, that the South African golf estate market has been overdeveloped in the last five years and that a number of estates will, unfortunately, go into liquidation in the near future.

“The ball retriever is not long enough to get my putter out of the tree.”  Brian Weis

Perhaps the golf estate market is more resilient than we think. Take the Ernie Els’s Copperleaf Golf Estate in the centre of Gauteng. Previously known as Gardener Ross, the name changed when developer Investec Property took over the development in 2010. Yes it’s true, the developer’s well ran dry and the land owners put their stands on the market.Since Investec Property took over and redesigned the development, land owners have taken their land off the market and want to build homes. This is an estate where a three bedroom, two bathroom home with a double garage has the entry level priced at R1.9 million.

There is also something for environmentalist to consider: the development has its own water treatment works, which recycles grey and sewerage water for the irrigation of the golf course and 2700 trees are currently being planted to add to the existing park, wetlands and grasslands.

One of the big criticisms of such estates is the high levy. One really needs to take this into account in any sectional title community but just for the record the levy at Copperleaf is being quoted to the public at R1500 monthly. One would figure this to be affordable if being in the market for a R2 million bond.

The big advertising pull is that of family living rather than just golf. The press releasefor Copperleaf tells us that:” Investec Property wanted to create a child friendly environment, family entertainment destination that all family members living at the estate or visiting the estate can enjoy.” Sam Hackner of Investec Property says that the recession has helped to separate the reputable developers from the suspect ones and right now, Hackner believes, the industry is left with reputable ones with integrity. Time will tell.

Like any investment, you want something for your trouble. The perception that golfing estates are a rich man’s refuge is not without foundation. To build a golf course of any quality costs in the region of R50m plus and once you’ve added the cost of the land, club house facilities, spa and other amenities, you have a business scenario not for those easily overwhelmed, with the sale of residential stands being the only means of reclaiming the investment.

In the early days the investment attraction was the weekend or holiday properties. But now a decade later there are hundreds of established residential golf estates offering more than thousands of properties, this has become a very different market. Golfing estates are now viable primary residential options.

Andrew Golding of Pam Golding Estates believes what is also likely to contribute to the success of golf estate living, is the virtual office scenario employed by so many entrepreneurs, as well as small to medium size business owners, whereby this sector can be based anywhere and enjoy a lifestyle perhaps originally intended only for the leisure consumer.

This leads one to consider the importance of golf. With little more than 125 000 registered golfers in South Africa – the target market is small.  Developers have had to shuffle their cards a little and make their appeal more broadly inclusive. Health and wellness, equestrianism, angling, walking and other sporting pursuits come into the mix. One may be forgiven for imagining scenes of people and friends galloping down the fairway or retirees fishing in the water features. Heaven forbid! But in earnest, options are opening up, broadening the scope of what golf estates can offer.

Continued research proves that there are two consistent and specific reasons for investment in real estate around a golf course – security and community. While those are creatively on offer, Golf estates will continue to be an attractive investment for retirement, rentals and lifestyle. Not being too reliant on the Golf aspect may preserve the future of Golf estates.

Or in the words of Dan Marino “Swing hard in case you hit it.”