Now that the bond binge – the halcyon years of 100 percent mortgages – are well and truly behind us, a culture of equity based home ownership is returning to the South African property market, says Ronald Ennik, a director of the Leapfrog Property Group.

“This is a healthy process, and a welcome reminder of the important wealth building role that home ownership plays in investment. Furthermore, it heralds a return to market normality in the sense that people who buy homes can actually afford them.

Having meaningful equity in their properties by way of a deposit is motivating home buyers to act more responsibly in taking proper care of their homes, and not defaulting on bond repayments. In doing so, they are avoiding the prospect of losing their hard saved deposits by, for instance, bank foreclosure,” says Ennik.

He went on to say that, “This contrasts sharply with the free and easy pre-recession days when, if there was no financial effort and sacrifice in acquiring a house, there was certainly no discomfort in losing it.

The enforced process of putting more equity into home bonds will ripple into other areas of wealth creation and money management – engendering a more saving focused, debt averse, national mindset. It also means promoting better, more disciplined control of household purse strings”.

A Store of Value

“Granted, while the continued tough stance by banks on mortgage finance remains a bitter pill for buyers and sellers alike – certainly at the lower end of the homes market – it nevertheless heralds a welcome return to the reality that equity acquired homes are a true store of value to their owners,” stated Ennik.

“Furthermore, as equity based ownership takes hold, it will foster a far more widespread culture of savings by young future homeowners. They have grown up in a post-1994 consumption driven climate that took the national household debt ratio [the proportion of household income spent on paying off debt, such as a mortgage] from around 50 percent just 10 years ago to nearly 80 percent now!”