South African homeowners are tightening their belts following the recent announcement of another 50-basis point increase in both the repo and prime lending rates (now at 7.75% and 11.25% respectively). And while existing homeowners are having to make their Rands stretch further to cover the increase to their monthly repayments, prospective homebuyers are left wondering if now is still a good time to enter the market.

“In a high-interest rate environment, it is imperative to take a long-term approach to property investment and remember that this is all part of a normal interest rate cycle,” comments Rhys Dyer, CEO of ooba Home Loans. “Interest rates go up, but they also go down. In fact, we have experienced six drops to the repo rate in the last four years alone”.

“In South Africa, property is still an attractive asset and taking a long-term approach to investing is one of the best ways to build generational wealth.” 

What is generational wealth?

Generational wealth refers to the financial resources passed down from one generation to the next within a family, and includes assets such as real estate, investments, businesses, and other valuable possessions. 

“More than just a buzzword, generational wealth provides long-term financial security for your family as assets can be passed down from generation to generation.”

Dyer shares that the idea of investing in property for financial security is becoming increasingly popular with South Africa’s new generation of homebuyers: Gen Z’s. More established Gen Z’s, now in their mid-20’s, are leveraging property as an effective wealth-building strategy. “The research shows that Gen Z’s place great value on homeownership.”

Why is it so important?

“In a country with huge economic disparity, investing in property to build generational wealth is an effective way of breaking the poverty cycle.”

Generational wealth allows families to maintain a higher standard of living, invest in education and business opportunities and provide the financial support necessary for future generations to do the same. 

“It’s worth noting that generational wealth is not limited to the financial value of the property itself – it also includes the intangible assets of the knowledge, skills and connections that are gained through successfully investing in property over time that can be passed down through the family,” says Dyer.

Practical benefits of property investment for wealth building

“Important to remember, as your financial security grows, you may find yourself tempted to invest in depleting assets such as designer clothes, expensive furnishings, fancy cars, or the latest technological devices. For the most part, these simply deplete your savings and cannot be passed on or sold for a value higher than what you purchased them for.”

Dyer highlights the key ways in which investing in property can be used to build generational wealth as follows:

Unlocks additional income streams: “Properties can be tenanted out as a ‘buy-to-let’ investment to help generate rental income. Your children or relatives can also help by managing the property, which helps to build skills that they can use for their own wealth creation strategy.”

Tax benefits: “Investors who own multiple properties can benefit from a variety of property tax breaks (Section 13sex) and capital gains tax deductions.  These have some stipulations and should be researched in detail but can go a long way in putting more money back in your pocket.”

Leverage: “Additional properties can be purchased with leverage on your existing assets, meaning that you can borrow money to invest in a property. This can amplify your returns and help you build wealth more quickly.”

Legacy: “Real estate can be passed on to future generations as an inheritance. This provides your family with a long-term asset that appreciates in value and can generate income.”

Start with what you can afford

Dyer acknowledges that while many prospective first-time buyers recognise the wisdom of investing in property as a strategy to build generational wealth, financing their purchase remains a challenge.

The first step in achieving your dream of homeownership is determining what you can realistically afford. “Using a free online bond indicator, you can check your credit score and affordability based on your income and expenditure - in just a few minutes. This gives you a clearer idea of the size of the bond that you will be eligible for, and what the associated monthly bond repayments will be.”

If your home loan application is denied, Dyer recommends seeking advice from an expert and taking the necessary steps to improve your credit score and/ or affordability before applying again. “We have been successful in securing home loan financing for almost two in every four applications that are initially turned down by a bank.”

“As with any investment strategy, it’s important to remember that property investment also carries risks and requires careful planning, budgeting and management to be successful”, Dyer concludes.