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Why Alternative Finance is Becoming the Go-To Choice in 2023

Updated: Feb 28, 2023

The property market in South Africa has undergone a significant shift in the past years, with interest rate hikes, inflation, and unemployment dampening the industry's outlook. However, real estate investors are turning to alternative financing options to build their portfolios and save money on bond repayments. In this conversation, we speak with Meyer De Waal, the Director of MDW, a firm providing innovative property finance solutions, to gain expert insights into the current state of the property market and financing options.

Meyer De Waal shares his expert insights on financing alternatives for real estate investors in the current property market. From Rent2Buy to FLISP subsidies, De Waal details the different options available and how they compare to traditional bank loans.

Outlook for the South African Property Market

Interest rate hikes, inflation, and unemployment are affecting the property market, according to De Waal. Sellers are more careful due to buyers' affordability issues. De Waal believes the market is a buyer's market for cash buyers or those with a strong ability to qualify for property finance.

Using Alternative Financing Options to Build Portfolios

Rising interest rates and living costs have made property financing harder. De Waal advises investors leverage Rent2Buy and FLISP subsidies to build their portfolios. FLISP subsidies are for first-time purchasers who will live in the property, whereas Rent2buy is for buy-to-occupiers. Since home loans are hard to secure, De Waal says more sellers and buyers are using private Rent2Buy selling agreements.

How Rent2Buy and FLISP Subsidies work

De Waal describes how Rent2Buy works: the buyer chooses a home and a seller, agrees on a purchase price, the period of the agreement, the date of occupation, the deposit builder amount, and who pays for rates, taxes, insurance, and levies. The FLISP subsidy is available to RSA citizens who are natural persons, have financial dependents, and have a gross income between R3 501 – R22 000.00 and have never owned a property before. De Waal suggests buying the first property in your own name to use the FLISP subsidy and later renting it out as an investment.

Comparison with Traditional Bank Loans

According to De Waal, the interest rates for alternative financing choices are comparable to regular bank loans, depending on the buyer's credit score, loan-to-value ratio, income, and debt ratio.

Impact of High-Interest Rates on Alternative Financing Options

De Waal notes that the present climate of high interest rates has resulted in an increase in inquiries, as many applicants for normal house loans have been denied and seek other financing options.

Tips for Saving on Home Loans

De Waal urges investors to look into their current interest rates and use the switch my home loan calculator to figure out how much they could save if they could save 1% of their current interest rate. He also suggests using online platforms to check if they can qualify for better or lower home loan rates. Lastly, he notes that new homeowners can save thousands of rands by applying late for a FLISP subsidy into their home loan account.

Rent2Buy and FLISP subsidies, according to De Waal, are useful options for real estate investors wanting to acquire finance and save money on bond repayments in the present high-interest-rate climate. These alternative financing solutions provide a lifeline to anybody wishing to engage in the real estate market during these difficult times.

If you want to take your property investments to the next level, be sure to download our guide on investing in inner city properties. Don't miss out on this valuable information – start building your wealth today!

Disclaimer : None of the information contained here constitutes an offer (or solicitation of an offer) to make any investment, or to participate in any particular investment strategy. investRand does not take into account of your personal investment objectives, specific investment goals, specific needs or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here.

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