It’s best to buy rather than rent

Weekend Argus (Saturday Edition) - - PROPERTY -

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.”

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