Homeowners in South Africa are downscaling due to financial pressures

 ·16 Oct 2022

Data from FNB’s Estate Agents Survey shows an increasing trend for homeowners in South Africa to downscale due to increasing financial pressures since pre-covid 2019.

In Q1 2019, the survey showed that 16% of South Africa’s housing market sales were attributed to downscaling due to financial pressures. This then moved to 18% in Q2 2020, and to 19% in Q3 2021.

FNB’s latest survey for Q1 2022 showed that downscaling is still elevated due to financial pressure, which now represents 20% of sales in South Africa’s housing market. This is the second most popular reason for selling after “downscaling with life-stage”, which constitutes 23% of sales.

This upward trend of downscaling due to financial strain is attributed to the stark increase in living costs – with the most notable examples being the sharp increase in inflation and petrol prices due to geopolitical tensions and recessionary fears.

This has meant that homeowners and consumers have had to tighten their belts and look to save money where they can, especially considering fuel prices and mortgages have increased sharply throughout 2022.

To combat climbing living costs, as the survey suggests, many South Africans are looking to sell a larger home to buy a smaller one to unlock some equity.

In an interview with CapeTalk, MortgageMe director Andrea Tucker said that while there are definite long-term benefits to downscaling, she reminded those thinking of making the move that selling your home for another is still a costly exercise.

According to Tucker, the long-term benefits of downscaling your home are:

  • Fewer maintenance costs
  • Cheaper utility bill
  • More affordable homeowner’s insurance
  • Smaller bond repayments

In contrast, Tucker also noted some disadvantages of selling a property that doesn’t initially come to mind when starting the process, such as the costs of selling furniture that will no longer fit in the smaller home and replacing those with pieces that will fit. This often results in a loss in most cases.

She added that age is another factor, especially if you are 65 or older and looking to bond a property, as banks have a maximum age limit for the purpose of buying a home.

Additionally, Tucker said if you’re buying in a complex, you will need to abide by its rules and regulations.

The other more known costs that will come with selling your property are:

  • Rates and taxes clearance certificate – This is obtained from the municipality stating that your rates and taxes are paid up to date. Rates and taxes must be paid four to five months in advance before registration of the property into the name of the new buyer can take place.
  • Compliance certificates – Several certificates may be necessary, such as levy clearance certificates, electrical certificate of compliance, and plumbing certificate of compliance.
  • Estate agent’s commission – The commission is calculated as a percentage of the selling price. There is no set commission rate, and it is negotiable with the estate agent.
  • Capital Gains Tax (CGT) – This is the tax payable after the sale of your home. An individual is exempt from CGT on selling a primary residence (the house you physically occupy) where the gain/loss is not more than R 2 million.
  • Bond cancellation fees – This fee is paid for cancelling your existing bond.
  • Moving costs – These are incurred by moving your items from the old property to the new one.

Read: A look at the R1.5 million micro-apartment in Cape Town – inside a parking garage

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