As young adults navigate financial independence, the question of whether to invest in a home often becomes pertinent.

Most buyers aged 35 years and younger are new entrants to the property market – 70% to 71% of first-time buyers fall within this age group, according to Lightstone information solutions*.

Owning a home can bring a sense of stability and security, in knowing that you have a place where you can put down roots, possibly with a partner, and raise a family.

The opportunity to personalise your living space and have greater control over your lifestyle is appealing, especially if you’ve spent years renting from a landlord. Owning a home can be a significant investment opportunity, too, provided that the property appreciates in value.

Ahead of taking this step, however, it’s crucial to understand the long-term financial commitment and responsibilities related to buying a home, says Sarah Nicholson, operations manager of JustMoney.co.za, a platform that helps South Africans make good money choices. It’s essential to weigh up the benefits of buying a home against other financial priorities.

“You need a stable income to save for a deposit and make repayments, and a solid credit score to secure a favourable interest rate. You should also understand the obligations of home ownership, such as paying for insurance and maintenance,” advises Nicholson.

“This involves assessing your financial health, including your income, savings, and existing debts, to decide on a realistic budget for buying and owning a home.”

• Read a JustMoney article on managing debt as a couple.

Some lenders will not extend a home loan to clients under 35 years of age, making careful planning even more crucial. If your heart is set on buying a property, saving for a deposit can work to your advantage and increase the possibility of getting your home loan application approved.

Nicholson offers the following tips for young adults to boost their deposit savings and increase the likelihood of obtaining a home of their own:

• Create a detailed budget and savings plan
• Set achievable savings goals and milestones
• Automate savings transfers to a dedicated account
• Cut unnecessary expenses
• Increase your income through side hustles or freelance work
• Invest any windfalls you receive, such as a tax repayment or work bonus
• Explore government assistance and incentive initiatives
• Monitor and maintain a good credit score for better home loan terms
• Consider low-risk investment options – these may offer higher returns than a term deposit.

Navigating complex legal and administrative property-transaction processes can be daunting, so it’s advisable to seek guidance and support. Tools such as home loan calculators, and consulting a reputable bond originator and financial adviser, can help you make an informed decision.

Lifestyle choices

Examine your lifestyle preferences before you buy a property. It may be worth paying more for a home that suits your needs in terms of location, size, and proximity to amenities, rather than opting for a cheaper property without those benefits.

Lightstone notes that the number of South Africans aged 35 or younger who are buying houses has declined since 2018. However, those who do invest in property pay more for it. Purchases by young adults aged 26 to 35 decreased by 25% from 2018 to 2023, but 36% of those buyers paid R1m to R3m in 2023, compared to 29% in 2018.

Lifestyle factors to consider when choosing your new home include:

• Interior space for current living needs and future growth, such as a home office or starting a family
• Outdoor space for pets or outdoor activities
• Proximity to work, friends, and family
• Access to major roads to reduce commuting time and costs
• Amenities such as gyms, parks, and shopping centres in the vicinity
• Safety and crime statistics in the area
• Plans for future developments that might affect the neighbourhood.

It’s also worth checking market trends and resale values, to ensure the investment aligns with your long-term financial goals. Housing prices have dropped in many South African suburbs, but this can be due to factors such as deteriorating infrastructure, potholes, load shedding, and water cuts. It’s essential to do your homework.

“Reduced property prices may offer a more affordable entry point into the housing market, allowing buyers to get a larger or better-located property than was previously possible,” says Nicholson.

Lower prices also mean lower bond repayments and potentially reduced property taxes, offering immediate savings. Moreover, buying when the market is down positions buyers to benefit from property appreciation when market conditions stabilise or improve. This offers potential long-term investment gains.

Nonetheless, a declining market could indicate broader challenges, such as municipal mismanagement and stagnating economic growth, which may further affect property values.

Furthermore, reduced demand and oversupply of housing could make it harder to sell your property. Decreased property values might also affect your overall return on investment.

• Read a JustMoney article on whether banks can reject your home loan because of undesirable location.

 “It’s crucial for young buyers to conduct thorough research into local market conditions, seek professional advice, and ensure financial stability before making an offer on a home,” counsels Nicholson.

“Despite the challenges, home ownership remains a valuable goal for many young South Africans. With careful planning, financial readiness, and a clear understanding of personal needs and market trends, young adults can navigate the complexities of buying a home and secure a more stable future.”

JustMoney.co.za is a trusted voice within the personal finance sector. The JustMoney platform offers articles, money management tools, and various financial products and services. More than 450,000 South Africans subscribe to the free credit score platform to stay informed and become financially savvy. Subscribe here.

*Source: Lightstone Property Newsletter, May 2024