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October 12th, 2016 by


Like most weighty financial decisions, the choice between whether to rent or buy a house is primarily a psychological one. The reasons for taking the plunge into the homeowners circle could be motivated by a desire to leave an inheritance for your children, or simply because the title ‘homeowner’ just makes you feel good.

There are countless debates favouring both sides of the ‘rent versus buy’ argument. Most of them are concerned with the fact that renting a house in the suburbs costs much less, on a monthly basis, than buying that same house. But, when it comes to buying a home, the cost is seldom the driving motivator. We take a look at when to rent, and when to buy a home in South Africa.

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When Renting a House is Better Than Buying

Dr Andrew Golding, CEO of the Pam Golding Property group, said earlier this year that a well-selected property can outperform inflation and generate a better return than equities. This is as true for a sectional title in Mouille Point as it is for a freehold property in Soweto.

Over the five year period from 2010 to 2015, the price of sectional title properties in Mouille Point went up by 79.4%. In Soweto, the rise in freehold property prices was even greater at 87.4%. In both cases, the rise in property value exceeded the increase in the consumer price index (30% for the same period) and the FTSE/JSE Top 40 Index (60%).

With numbers like these, it’s hard to make the rent argument. As Dr Golding said, “Not surprisingly, property remains an investment asset of choice for South Africans”.

But don’t start getting anxious about all the years you’ve missed out on this incredible growth just yet. Consider what Rawson Property Group’s, Wayne Albutt, told Business Tech: “Buying a home involves many expenses other than the purchase price”. Most first-time homeowners don’t consider this, and buy before they’re financially ready to do so.

Rent to Save

As we mentioned earlier, renting is cheaper than buying for multiple reasons. One of which is the fact that most of the (monthly) residual costs of ownership is absorbed by the owner. While owning a home is considered a type of savings vehicle, it’s an expensive and long-term investment that often results in tighter belts in the short-term. So, if you’re renting, you have a real opportunity to save money in the short-term.

The mistake most renters make, however, is spending their ‘savings’. A more prudent renter would start getting accustomed to the price of a bond by putting away the difference of what a house would cost and what they’re paying on rent. You’re saving for a rainy day, so to speak, but it’s not going to be yours.

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When Buying a House is Better Than Renting

In a persistently slow economy, losses are being recovered by raising interest rates, inflation, and other costs that affect the cost of living. According to the latest BankservAfrica disposable salary index, in August this year, South African workers took home 2.5% less disposable cash than they did a year ago. On top of that, the inflation rate accelerated from 4.6%, year on year, to 5.9% in the same period.

While the property market is experiencing robust growth, many homeowners are struggling under the weight of rising instalments on home mortgage bonds. Since the beginning of the interest rate hiking cycle in 2014, interest rates have risen by 200 basis points. This has made it difficult for households to afford their bond repayments.

Barclays Africa’s impairments on its home loans have already seen a 77% spike. This is due to consumer strains and a 10.3% decline in new home loans in the six months ending June 2016.

Samuel Seeff, Chairman of the Seeff property group, says the decision by the Monetary Policy Committee of the South African Reserve Bank to keep the repo rate at 7% and the base home loan rate at 10.5% is good news for buyers.

“The flat rate combined with the slower price growth makes for positive buying conditions. We do not foresee anything in the short-term that will bring prices down any further. So, it is indeed a good time to buy.”

“There is not much positive price growth taking place outside of the Cape areas. So sellers need to now be more conservative with their price expectations if they hope to conclude a successful sale,” says Seeff.

Homeowners who haven’t planned to keep up with the rising cost of living, coupled with a sluggish economy, will be eager to sell homes they can no longer afford. Tenants, if you’re considering whether to rent or buy a house, now’s the time to buy.

“During periods of economic uncertainty and financial market volatility, individuals often become more cautious about their investments. Often turning to more stable, ‘real’ assets like bricks and mortar,” concludes Dr Golding.