Buying a property is perhaps one’s most significant expense in life. For most people owning a home is one of the most important goals.
Others, on the other hand, view property investment as a way of generating wealth through buying with the possibility of selling at a higher price in the future or earning monthly payments through renting.
Throughout the years, low-interest rates on bank deposits encouraged people to seek alternative ways to generate income on their dormant money. They considered buying other properties as one of the safest and easiest investments.
The transaction involves the buyer giving the seller money for a property. The parties involved are a notary and an architect to safeguard the buyer’s interest.
Prospective property buyers might not have all the money required to purchase a property. Therefore they turned to banks to provide the money to finance the purchase.
As the demand for property increased, their prices increased too. The price increases got transferred onto the buyers, causing banks to issue higher mortgages for comparable properties that were cheaper in the previous years.
Even though property prices increased significantly, people kept buying and buying, and banks kept lending more money.
The buyer can’t increase his offer because his bank restrains him. On the other hand, the seller has wages to pay and loans too. Sellers wouldn’t want to get caught up with many properties they can’t sell.
The buyer will shop around for a better deal from other sellers, flipping the property market from a seller’s market to a buyer’s one.
The seller may sell the property at a loss or with little or no profits.
- Are you able to pay your loan? The bank will take your property if you don’t pay your loan. One must distinguish between not paying a loan and being unable. The first implies a choice, while the second doesn’t.
- Unlike property, salaries and wages tend to remain fixed over a long time or increase at a slow rate.
- Higher inflation and interest rates mean you’ll have less money to spend on wants and luxuries, as your needs and loan would have already taken a bigger bite from your salary.
- If sellers know that buyers are buying their properties at any price, they’ll keep increasing their prices as they know they’ll sell them at a higher price.
- Central banks try to control inflation by increasing interest rates. The higher the inflation, the higher the interest rates; this means that the interest rate on loans will increase, and one will have to pay higher monthly loan payments.
- Given the low-interest rates on loans during the past few years and the high prices of properties, banks are already lending money to people at the maximum they can borrow.
- When investing, one must always assume that there’s always someone willing to buy your investment at a higher price than you bought it, or else you’ll end up selling it at a loss.
- There will come a time when buyers will not afford a home because banks will not provide them with money to do so. On the other hand, sellers can’t sell their property at the buyer’s price because they’ll sell it at a loss.