This is how you answer that R10m question
To rent or buy? This is a very broad and potentially multifaceted question. Factors that influence this decision often include financial circumstances: individuals decide to rent because they cannot afford to buy. In addition, there may be other personal influencers such as employment status and prospects, family composition, lifestyle preferences, hobbies and activities that play a role. This is according to Dr Andrew Golding, CE of the Pam Golding Property group.
“Generally speaking, within South Africa, there is a strong culture of owning and the desire to own one’s home both from an investment as well as a lifestyle perspective, and so this continues to be the dominant trend,” he says. “However, in recent years the rental market has benefitted from the ever-increasing number of people who are unable to buy homes and this market is particularly strong at present, fuelling a buoyant rental market characterised by stock shortages around the country.
“Other perceived advantages of renting include the flexibility that renting offers, in being ‘locked into’ a property for a relatively short period of time. It is easier to extricate oneself from a lease and relocate – than having to sell before being able to move. This makes the rental option ideal for contract workers relocating nationally or internationally.
Laurie Wener, MD for Pam Golding Properties in the Western Cape Metro Region agrees, saying it’s essentially a question of one’s own financial situation and requirements rather than a case of one versus the other. “If you can afford it then it is certainly preferable to purchase your own home as this has always proven to be a sound medium to long-term investment, and remains so,” she says. “This is despite the fact that there may be some dips in the capital growth of the property along the way, depending on economic trends. Added to this you would immediately be able to start enjoying all the lifestyle and other benefits of owning your own home, even if it really only starts to appreciate in value in six months to a year from an investment perspective.”
Interest rates a factor
With interest rates historically still low, despite a modest increase, is now the time to buy? Carol Reynolds, PGP’s area manager for Durban Coastal says she believes buying is first prize and the sooner one can get into the property market the better. “One option to consider is to rent your family home, but then invest in a more affordable entry-level apartment which can then be rented out as an investment in order to get your foot into the market,” she says. “In this way you will enjoy a monthly income stream as well as capital growth on your investment over the longer term.
“If you compare the costs of a rental property with monthly repayments on a loan, on average, rental returns are about 0.5% of the purchase price. So if you require a bond of greater than 50%, your bond instalments will be higher than the rent you would pay for the same property. The ultimate reward is that your monthly bond repayments translate into ownership of your own home, which will appreciate in value in the medium to long term. My advice would be to secure a small investment and earn rental income from that, and perhaps rent a larger home as a dwelling.”
Advantages of renting
From a tenant’s perspective there are various reasons why one may choose to rent as opposed to buy, and not related only to affordability, says Dexter Leite, rental manager for Pam Golding Properties in the Western Cape Metro Region. “Many people want the flexibility that renting offers – a good example being expatriates who have been out of the country for an extended period during which their specific needs may have changed considerably (financial or marital status, or place of employment),” he says. “They may also find that the South African cities they lived in previously have changed substantially with new infrastructure affecting commuting options, or new business hubs being developed where they may wish to work. For these returning expats it can be beneficial to first rent for a term while they assess what their new requirements are, consider different suburbs where they may wish to settle and gain a feel for commuting times etc. Renting affords them the flexibility to make such decisions without pressure.”
Leite says renting is also a good longer-term option for those who may be returning to the country but unsure regarding what they are going to do or where they are going to work. For example, if there is a possibility that your career path may take you to another city, then it makes sense to first rent until you have a clearer idea of where you are going to settle. This also applies to those relocating to different cities within South Africa’s borders.
“Buying a property is a major, costly and long-term exercise with many factors affecting the type of property one buys and its location,” Leite says. “If you get a key element such as location wrong, it can be a difficult, expensive and time-consuming mistake to remedy – which is not the case with a rental property. When you consider it renting a home is cheaper than buying as you don’t have to tie up your capital in deposits, costs, transfer duties and bond repayments. This capital can then be employed in other opportunities, such as business or other investment opportunities. Rates and other property taxes and insurance of the property are also for the owner’s account, as well as for the most part, ongoing maintenance and repairs.
“For the owner or landlord the benefits are having an asset that appreciates over the medium to long term. The cost of the investment can be leveraged, enabling a larger investment with only a deposit required. It is of course essential to do one’s sums take into account all costs, the type of property in demand in a specific area, vacancies and so on.”
Leite says to ensure you have a written lease in place covering the period, the conditions of a possible extension, the rental and escalation, the landlord and the tenant’s responsibilities and obligations. Ensure that all material aspects are negotiated, agreed and enshrined in the lease – you have one chance at this, so if anything is agreed, such as that the premises be repainted prior to tenancy, have it recorded in the lease. Keep the property in good condition and honour all tenant obligations, including paying the rent timeously.