It’s best to buy rather than rent

IT MAKES sense to buy instead of to rent – despite the fact that rents are still well below what the bond repayments on the same homes would be and capital appreciation on homes in the next few years is expected to be slow.

This was said recently by Mike van Alphen, national manager for Rawson Finance, the Rawson Property Group’s bond originator.

He believes people who commit themselves to cash savings rather than bond payments often fail to live up to their commitments

“A tenant in an R800 000 home would probably pay R5 000 a month in rent. If he was buying the home on a 100 percent bond at prime over 20 years, he would be paying in the region of R6 900 a month. If he then saved the R1 900 a month difference, he would be putting away R22 800 a year. In a 5 percent-a-year fixed deposit account this would increase to roughly R300 000 over 10 years.

“In theory, this would put him in a position to put down a substantial deposit on a new home. However, the R800 000 home would probably cost him about R1.6 million after 10 years, so his deposit would be only 18 percent of the total, leaving him to pay R11 000 or R12 000 a month on his bond. This is almost double what he would have been paying if he had bought the house 10 years earlier.

“Admittedly, our capital appreciation rate in this example is higher than the rate that the more pessimistic analysts would work on,” said Van Alphen.

“But whichever way you look at it, unless you have access to fast- appreciating shares or another source of quick revenue, you are going to lose out by delaying your decision to buy a home.”