He added that banks would only contact customers to offer credit where they had assessed that, on the information available to them, they probably had the ability to repay the facility
Which kind of implies to me that all those telemarketing agents (who work on commission let's not forget) have been signing up anyone with a pulse regardless of their actual ability to pay back any debt.
6 comments:
Warning 1 / Last time interest rates were 12.5 % in SA, the following year they went up to 18% and the year after that 21%
Warning 2/ The property market has turned in the US and already 22 lenders have gone bankrupt yet the real bad times are still to come ... a recession is almost inevitable ...
Warning 3/ Last year a young man in the US without a job managed to secure bonds for 10 "investment" properties - the banks didn't seem to worry too much about the risks - well the market turned, the prices have dropped and even if our hero investor can find sellers for his properties ( which he can't) he would still be $250,000 in the red ... OUCH !!!
Im subscribed to this RSS feed, and find the comments very interesting. however, while you guys are writing cynical articles about the property market, some of us are still making money at the lower to middle end of the market. if you buy right, and reach a balanced, or positive cashflow
it doesnt matter what the market does.
We had this debate recently over at Moneyweb Property when someone said he bought R150,000 properties in Durban and managed to rent them for R2000 each. I conceded that the numbers at least worked even though his profit per house was only a few rand a month. His rent is relatively high for the value of the property (6 times better than the rent/price ratio one gets for more expensive properties) and he says he can easily get tenants - so that helps a lot.
However if interest rates do go to 20% like they did in the past and if prices do drop 20 - 30% like they are doing in areas of US, then he is still in trouble - he will be paying out a lot more per month than he would be receiving and he can't rescue to situation by selling a property to generate income as he would be in negative equity.
If he has had some decent capital growth already ( $40-50%) he might just be OK - but there is a risk that for 5 years or so he could make no profit, he would be eating away at his savings or existing growth profit and he would have no asset value increases going on to justify all his efforts ... so kinda defeats the whole purpose of the exercise.
I certainly don't think it would be wise to get into something like that now, at this property cycle peak, even with low priced houses - this would be especially the case in Cape Town where you have the additional problems that areas with that sort of price are usually pretty dangerous.
Ok, first of all, i am not trying to argue with you. i like to think of myself as objective toward these matters. i study the US property market, as well has what happened here in the 80's & 90'and often warn people that the local property market is oversubscribed and overheated.
however, i have been buying conservative investment properties with decent 8%+ returns for a few years, and i now have about 10 properties with significant equity averaging 30% - 50% above what i paid for them.
so, my question to you, is what is your recommendation moving forward. according to your research, what do you believe will happen, and when? do you recommend that i sell all my properties? do you recommend putting money in cash? commodities? equity? under the bed?
i enjoy the property market, and have a habit of spotting areas before them become common knowledge, woodstock, brooklyn, obz, grassy park etc. and yes, many of these areas may be considered dangerous, but considering the fact that i live in campsbay, and have been robbed a few times, along with all of my neighbours, i guess you could say everywhere is dangerous.
again, i appreicate your advice, and your comments, and do not want to argue. any further insight you could give me would be much appreciated.
I reckon it is already to late to sell. In the area where I stay proterties were sold in the first 2 weeks about 4 months ago. Before that properties for sale were hard to find, at the moment 4 properties are for sale in the same road. Now that could mean many things, but one thing is for sure, they are still for sale after 1 and half months. Another thing I saw that I havent seen in a very long time is show houses. The estate agents are trying harder, a good thing.
To answer the above mentioned question. If it was my money I would take it offshore and contemplate emigrating. When dumb money chases smart money, the party is over - Kiyosaki. That has been the case is SA for a while now.
If your returns are 8% then I assume you have purchased a cheap property in cash. As a return you could do better in the bank and as interest rates rise, this return will also increase.
Obviously, equity increase is what you are after and you have already done OK in that area.
Without equity increase you are wasting your time. So the question for a cash buyer like your self is, are the prices of cheap houses going to increase more. Maybe. If any part of the market stands a chance to move more, the cheaper end could be it. However, if the rest of the market gets in trouble, I don't see why the lower end is not going to be affected, although it is not in such a big bubble as the higher end.
What do I see coming down the road ... well, US housing is in big trouble and will remain in a downward spiral for many years - US will go into a recession - Dow will drop to half what it is now, consequently rest of the worlds markets will crash, and their own property markets will also crash.
Over stretched borrowers worldwide will be hurt bad. Governments worldwide have been playing tricks with their ways of calculating inflation so the figures have appeared smaller than they really are - so interest rates will increase - last time SA had 12.5% interest rates it went up to 20 % 2 years later. This could happen again.
The US is leading the way with their property crash - watch and learn what is coming our way. Repossesions up. Lenders are going belly up. House prices are dropping, up to 32% in some areas ... and this is just the start.
One commentator says the US is about to hit the perfect storm.
Property has been the road to riches for 6 years - that cycle is over - maybe gold is the next fad - some say it is heading to 2000 or 3000 over the next few years - if that happens, putting your cash in gold shares would make you much more wealthy than in property.
Property could become a curse as people start hurting. Already they are moaning at rate increases - how are they going to feel when their bond goes up to 22% and prices drop 30%.
If you are a cash buyer then you probably won't be hurt by the bad times ahead - whether you will make more money than putting your cash in a bank is probably doubtful - if you have a bond on the houses then your 8% doesn't cover the bond so you are already losing money - if interest rates increase you are in trouble.
The easy money in property has long gone - you sound like you have your head screwed on OK - you will probably survive the bad times unlike many others ... it might cost you your profits to date however.
If profit is your motive then you need to ask, what would happen if you cashed in your profits while there is still some life in the market, learnt about gold and entered that market at the right time, rode a gold bull market for a few years, then repurchased properties again with your hugely increased wealth years down the line when property is dirt cheap again because there has been much blood letting .... and Zuma has become President !
I can't advise you - I don't like what I see out there and have been sharing my thoughts with others as the other side of the story hasn't been getting out. All I can do is tell you how I and many others see things, and leave you to take the facts and make your own decisions.
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