Homeowners and buyers should use their bonus wisely and put it towards their property asset. Picture: Pixabay
Many South Africans will not have the luxury of being paid an annual bonus this year, but if you are one of the lucky ones to be rewarded for your hard work, you should consider investing in property.
This has been a year of significant financial pressure on South Africans as a result of ballooning consumer inflation and homeowners, in particular, have grappled with the added challenge of elevated interest rates thereby increasing their monthly loan repayments.
But it has not been all doom and gloom as data from ooba Home Loans shows a 28.8 percent increase in the average monthly gross salaries of home loan applicants between 2020 and 2023 – resulting in an average gross salary of R56,773 a month.
This sizeable average salary amount, says chief executive Rhys Dyer, is especially advantageous when applied to a year-end bonus, also known as a 13th cheque. While not a legal requirement, a bonus is common practice in South Africa and seen as a gesture of goodwill from employers to their staff as recognition of their hard work over the year.
While the year-end bonus amount is at the discretion of the employer, the South African Payroll Association (SAPA) says it is usually an additional month’s salary or 8.33 percent of the employee’s annual salary.
“As a bonus is subject to tax, when applied to the average ooba Home Loan applicant’s gross salary for 2023, this bonus could amount to an extra R42,834 in your pocket.”
He strongly advises homeowners to use their bonus wisely and illustrates how far this money can go when put towards their property asset. Using the Q3 ’23 oobarometer average purchase price figure of R1.42 million at the current interest rate, your bonus could cover almost three months’ worth of repayments.
In addition to covering several monthly repayments, Dyer shares other financially savvy ways that your bonus can be used in the property context:
1. Make a lump sum repayment on your home loan
The interest rate forecast is always unpredictable and it’s therefore wise to ‘make hay when the sun shines.’
“If you have a bit of extra money in your pocket, say in the form of a bonus, you can use it to make a once-off overpayment on your home loan, protecting you from unexpected rate hikes and financial challenges in the new year.
“This not only gives you the immediate benefit of increasing your equity in your home, it also reduces the outstanding balance on which interest is charged, thereby reducing your monthly repayments and allowing you to pay off your bond faster.”
If you have an access bond, you can always withdraw this money again if you need it later in an emergency, he adds.
2. Put it towards your deposit
Those who are considering buying their first property in 2024 should keep in mind that putting down a deposit decreases your monthly repayments and helps secure a more favourable interest rate from the banks.
“We’ve seen a 6.6 percent year-on-year increase in the size of deposits, bringing the current average deposit amount to R137 891.”
This “significant increase”, Dyer says, is a sign of smart financial planning and strongly encourages aspiring buyers to use their bonus to offset some of their future repayment costs.
Putting your bonus towards your deposit could cover as much as a third of the cost – a sizeable dent with major financial rewards in both the short and long term.
3. Use it to cover some of your property transfer costs
The transfer costs of a property are calculated on a sliding scale and for freehold properties priced at over R1,100,000 (the threshold whereby transfer duty is applicable), these can run into the hundreds of thousands. Here too, your bonus can be put to good use.
“The transfer costs on the average purchase price of R1,423,633 are calculated at R89,730...Using the average applicant net income figure of R42,834, your bonus could cover just under half of your transfer costs.”
4. Use it for refurbishments to increase the value of your home
Whether you want to fix-up your property for the purposes of increased living comfort or to ensure that it will reach a higher price when the time comes to sell, smart renovations can help your home to stand out in a buyer’s market.
To use your year-end bonus strategically to avoid overcapitalising, the general rule of thumb is to spend no more than five percent to 10 percent of the value of your home on upgrades.
“Cosmetic fixes like a fresh coat of paint or modern finishes in your bathroom and kitchen can often have a major impact while being relatively cost-effective. Investing in a solar system can also add as much as four percent to the value of your home, with financing available as an add-on to a new or existing home loan.”
While it can be tempting to spend your bonus on luxuries such as expensive holidays and lavish Christmas presents during a period that is all about enjoyment, Dyer urges homeowners to rather make the short-term sacrifice of re-investing their extra income back into their properties and reap long-term financial rewards.
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