Dear diary: I’m 35 and still renting. What’s wrong with me?
Dear perpetual tenant, nothing.
According to Payprop’s Q1 2017 Rental Index the average age of tenants have increased to 39, while the average age of first-time buyers have now increased to between 41 and 45 across South Africa’s provinces. The income of the average, 39-year old tenant has decreased, with a deterioration of debt-to-income ratio to 43%. Considering this, it is fair to say that Mr or Ms Average will be renting for a while still, and won’t be alone.
The next time you’re at a get-together with old friends, take a moment to look at the people around the table once the conversation inevitably turns to: “So where are you staying now?”
Some will seem prouder, seemingly having waited the whole evening for the opportunity to announce that they are now thinking of buying a second home to rent out, in the same estate as their primary residence because it’s such a great estate with agents who really know what they are doing.
Another friend, in my case the successful single friend with a demanding, fulfilling job, will announce, in muted tones, that he is almost 35 with a landlord looking to sell so will probably need to buy now. “Do you know of any bargains?” he asks.
If you are at a farewell there will almost most definitely be the friend emigrating to Canada or the land Down Under wanting to sell their two-bedroom, cookie-cutter sectional title unit in the next two weeks (making a clean break, you know) with no clue that they will still need to pay for clearance certificates, lawyers’ fees and municipal accounts before the sale can go through…*cue blank look when you mention this*
In fact, it doesn’t even have to be an event with old friends. Just this past weekend I found myself saying, “They’re waiting to buy their home first” after I was asked when a reasonably successful young married couple would be having their first baby.
Why do we place this much importance on becoming homeowners? Is it that we are just blindly following the rhetoric of dads telling us, “You need a home before you get married/have a baby/buy a goldfish”?
Is it that we care what our friends think and feel about having kids and dogs while…gasp!…still renting? Or is it just a genuine desire to have a home, some place to call yours, where you don’t need to ask permission to drill a hole in the wall to hang a family photo?
Regardless of your reason for buying a home, and whether it’s your first or second home, you need to do your best to ensure that you are buying an asset (just ask me about the uncle who, with two homes in a part of Krugersdorp where the market has literally fallen on its nose, was sure he was set up for retirement).
The fact is that property ownership should not be taken lightly. If it is a risk-averse, long-term retirement investment you are looking for, you are probably better off investing in an annuity where you can be reasonably sure of capital protection with some return. A primary residence should not be the focal point of your retirement planning; granted it is a vital component but in my view should not be thought of as much more than a home to live in and make happy memories and then eventually sell as life stages change.
Even then, there is some level of homework you need to do to, where possible, avoid making a detrimental financial mistake. Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, says when looking at a primary residence, the home being an asset will be determined by whether the value of the property is appreciating or depreciating. Regarding a second or investment property, whether or not it is an asset will be based on whether it is generating a profit from the income it receives.
Top Tip: “While some people may perceive higher-end homes as assets, it is less about price and more about growth in value. Regardless of what end of the scale the home is on if the value of the home is showing growth, it is an asset.” – Adrian Goslett
Do the research
When selecting a property, there are some aspects that need to be taken into consideration, such as location, which is a key element in the home’s potential for growth in value. Buyers also need to look at the price of homes in the area and how they have grown over the last few years, as well as any future development plans that may be happening in the area that could have an impact on the property’s value.
Take a history lesson
Another great way to assess the future potential for appreciation of a property is by looking at the past and the history of the area. By looking back it is a fairly safe bet to gauge the future appreciation potential of an area based on its past performance.
Investigate planned developments and investment in the area
Upgrades to infrastructure or the development of new amenities will positively impact the appreciation potential of homes in the area. A mall (depending on the facility of course) can boost property values, if managed properly and attracts the right foot traffic. However, a school planned for an area will almost certainly boost the property values. But again, this is also dependant on the school: A sought-after school will almost certainly push up property prices.
Before buying a property you need to do your homework; as Goslett states, the success of a property investment hinges on the decisions made when buying the property not when it is sold.