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We are taking this thing too lightly, people keep asking about the property market,I don’t know what the answer is but I know for us to survive we need to change dramatically and I fear we are not even trying to change, let me lay out what’s about to happen
Before Covid-19 hit, the real estate cycle was already on a downward fall, repossessions had already grown by 40% over 3 years, auctions were closing at 60% of reserve prices after its 4-6th cycle
Household income has not grown on 10 years, yet electricity, water, food and fuel had grown significantly over the same period.
Let me explain how that affects real estate so significantly, in Botswana it is rare to find a house/home funded through cash, it’s mostly debt debt debt, from foundation to furniture. Debt has been comparatively cheap and available
In 2016 many people were using a tool meant for debt relief to increase their debt, if you still remember when all the banks were promoting refinancing for your car, business, holiday or school fees.
There are people who released equity every year to finance holidays and school fees FACT.
So our national household income is highly stretched with more than 40% of it allocated to an asset which is currently falling in value, let me tell you why?
If you only buy a house at the price you do because you qualify for that price then you are the buyer are not fundamentally interested it’s intrinsic value, you are interested in whether you can get debt against it. So just at the beginning of your
transaction you are not interested in the value for money. The bank will finance it anyway right?! Anyway so when banks start tightening their lending criteria you afford less and less, eg if in 2016 you could buy a house for P1.8m no deposit no costs
the bank got you covered, you’ll find that in 2019 you need at least 10% deposit sometimes 25% , and the bank covering some costs you now afford a P900 000 house you get me?
Cool, so guess what if your friend you bought the house in 2016 defaults today, you who used to qualify to buy it, no longer can. Now follow me closely ... This is pre COVID-19.
Now the past 4 months businesses have significantly lost income and literally some depending on the wage subsidy to pay staff. Wage subsidy is gone. So this month reality in each organization sets, as to what can we really afford to pay our people.
So yes expect more strikes. In the past 4 months households have gotten moratoriums, grace periods etc to manage their debt, guess what? Those are running out too.
In August since we do get back to work 2nd half of the month let’s recognize no invoices will be paid by any client cause we been trying to recover in July. So businesses have one week to find business deliver and/ or perform invoice and get paid to pay you
This is where it’s starts getting tricky every business including your client is reviewing if they need to be open for the rest of the year. Is it better to close shop and start something else next year or see what happens. We all know that festive starts
In September right! Let’s come back to property, more and more households will now be sitting at more than 6 months of unpaid installments, if they are lucky, they’ll be on half salary. So what must can happen now!
We all in this together, banks need to start looking realistically at how much people can afford and when because no one will choose paying a mortgage over buying food and by December this will be the choice for most households.
Landlords need to also calm down a bit and negotiate fairly. Then again just like the business one can choose to rather keep my house empty let my sister live in it till I can figure it out.
Tenants need to play their part too, be upfront and real about how much you can pay and be fair and pay it.
It’s about to light up guys! Let’s buckle up! And if you have a steady solid income, it is time to buy, but extend your hand cause your first couple years will be bumpy!
