When deciding whether to purchase a home or rent for the foreseeable future, it often pays to evaluate one’s full lifestyle and finances carefully, as you might find that one is wholly better for a particular person, says Richard Blignaut, Chief Operations Officer of City&Suburbs Realty.
“The old adage is that owning a home is investing in one’s future instead of paying off someone else’s bond, thereby creating a stable living environment and putting cash into a solid investment. This might have been true until the late 2000’s but is property still a prudent investment choice, and will you not be better of renting,” asks Blignaut.
“It is important to note that in many instances, renting gets you ‘a lot more house for your money’. From our portfolio we have calculated the average rent works out to 80% of what a bond repayment would be on properties over R1mil. The tenant is then in a position to use the money towards other investment instruments such as shares,” says Blignaut, who manages a substantial portfolio of properties in the Ekurhuleni area.
A drawback of renting is that your continuous occupation of the property might be ended if the owner decides to sell or not renew the lease, which then forces the tenant to move, even if they have been a good tenant and have the intention of staying on.
“Owning one’s own home ensures consistency. You can live in it for as long as you pay your bond and can afford the upkeep. Many who buy a home look to live in it for the long term, possibly while their children are at school and university, and would possibly even leave it to their heirs,” says Blignaut.
At present in South Africa, property is increasing in value at an average of 4.1% per annum, according to a recent Lightstone report, but some areas are better investment options than others.
The same report states that: “Over the past couple of months the market activity has stabilised in the 3% to 8% range following a slowdown in recent months as shown by the provincial indices. The inland municipalities Ekurhuleni, City of Tshwane and City of Johannesburg metros are growing stably at rates between 2% and 5% whereas the coastal municipalities are generally performing above this range.”
If one were to rent and invest in shares or funds, the growth might be significantly more on riskier investments and less on the more stable funds, but there is also a risk of losing much if there is a bad investment, or in the case of offshore funds if the exchange rate changes dramatically. The total return of the JSE over the past 5 years has been 9.8% in total and therefore investment in property may have given you better returns with less risk.
A point in favour of buying instead of renting is that monthly bond repayments will not increase yearly, the only increase is if there is a rise interest rates, as one’s rent often does – often by 10% or at least the inflation rate. Again, all this money will be going towards someone else’s investment, and not one’s own, says Blignaut.
“Whichever is chosen, buying or renting, the crux is to choose something within the proper budget range, and not overextend your finances in any way. It is better to live in a smaller home with low maintenance costs than run a household with high overheads and be burdened financially,” he advises.