The debate on buying vs renting rages on as historic low interest rates are credited for the current home buying frenzy.
It’s not just first-time buyers entering the market, but others are upgrading to more expensive homes thanks to cheap finance. Property prices have also come down, making buying a home more accessible to most people.
Read also: First-time buyers dominate home buying activity, with Free State outstripping Gauteng
Estate agents say now is a good time to buy property, perhaps the best opportunity in years. Meanwhile, data on investment property shows many people will continue renting for the foreseeable future.
Properties priced below R1.5 million are sought after with increasing demand within this price bracket. Although finance is cheaper, buying is still a dream for many without jobs, or cannot afford to buy right now.
For those who can afford to buy property, home ownership has financial implications, says Grant Smee, Only Realty managing director.
“Despite low interest rates, there are growing concerns around the high rates of unemployment and consumer’s affordability levels. Added to this is the substantial amount of payment holidays and an associated rise in credit balances,” he says.
Knowing the financial implications of buying vs renting property should be research consumers need to undertake before making a decision.
Smee gives his expert advice on the pros and cons of buying vs renting below.
Buying
When buying property, it is better to finance your home over a 20-year period than 30 years. Interest rates are lower on 20-year bond with higher monthly repayments. Rates are higher on a 30-year bond with a lower monthly repayment, says Smee.
“A 30-year bond is better suited to an investor with a tenant to cover their monthly bond repayments. In this case, there is a higher chance of achieving a positive cashflow.”
It is better to pay off your bond sooner, and also pay extra towards the bond repayment.
| Pros | Cons |
| Ownership and equity – If a property is well looked after, and bond repayments made quicker, a return on investment can be made. Still, it is better than paying someone else’s bond.
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Hidden costs – it is a good idea to download a home loan calculator prior to putting in an Offer to Purchase. This way, you know the costs associated with attorney and the transfer fees. Properties priced over R1 million attract transfer attorneys and bond registration attorneys.
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| Freedom – as an owner, you have the power to decorate, renovate and revamp as you please.
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Less mobility – unlike renting, it requires a bit of time to pack up and go, or relocate for work.
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| Rental income as an additional revenue stream – for buy-to-let investors, tenants can cover the bond and other bills where possible.
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| Benefit to your credit score and finances – the mortgage account is a good place for your savings. It accumulates interests, and rates are low should you wish to borrow against it in future. Paying your monthly bond on time improves credit record.
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Returns not guaranteed – these are not set in stone. It’s possible to invest over time and still not make a profit.
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Renting
Lured by low interest rates and falling house prices, tenants across the country are turning into homeowners.
However, a TPN survey shows that 45% of cannot afford to buy property, resulting in them renting. Although they will not rent forever, for the next five years, buy-to-let investors can be rest assured of steady income.
Read also: Is buy-to-let investing in SA still a good idea? Here’s what the data says about tenants
| Pros | Cons |
| Flexibility – until you’ve decided on where to invest, renting is the best option.
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No return on investment – as you pay for an asset you do not own.
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| Not responsible for added costs – such as maintenance, levies, rates and taxes, and home insurance.
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| Less responsibility – renting a small lock-up-and-go appeals to those who want as little maintenance as possible. If one were to be retrenched or needed to move quickly, it would be simpler.
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Bound by rules and regulations – rental agreements are rigid and tenants are bound by these. Failure to comply can result in fines and further legal action (in a worst-case scenario).
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Smee settling on buying vs renting requires homework which looks at the advantages and disadvantages of each choice.
Whether buying or renting, research is an empowerment tool to making the right decision and sealing the deal. “It gives you bargaining power through your knowledge of the area and the market in general,” he adds.
