or buy? Complex web of factors involved
Decision usually not based purely on market conditions
● Residential rentals in South Africa have nose-dived and tenants are sitting pretty, but the decision to rent or to buy is often driven by factors other than the market.
“Generally speaking, within South Africa, there is a strong culture of owning and the desire to own one’s own home both from an investment as well as a lifestyle perspective, and so this continues to be the dominant trend,” says Andrew Golding, CEO of the Pam Golding Property group.
“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 proved to be a sound medium- to long-term investment — and remains so.
“This is despite the fact that there may be some valleys as well as peaks in the capital growth of the property along the way, depending on economic trends, the desirability of the property and its location, and so on.
“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 or more from an investment perspective.”
Samuel Seeff, chairman of the Seeff Property Group, says buying property gives some degree of financial security. Except for the odd interest rate movement, bond repayments will remain at a fixed rate for the duration of a home loan and, over time, it will become cheaper, while rental rates will continue going up.
With interest rates historically still low, Carol Reynolds, Pam Golding Properties’ area manager for Durban Coastal, says buying is first prize, and the sooner you get into the property market the better.
One option is to rent your family home but invest in a more affordable entry-level apartment which can be rented out as an investment to get your foot in the market. 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.
“My advice would be to secure a small investment and earn rental income from that, and perhaps rent a larger home as a dwelling,” Reynolds says.
But Seeff sounds awarning about buy-tolet properties.
For landlords, rental properties hold many risks. It is not a passive investment, but one that requires involvement and careful management. It is a significant financial risk if you have thewrong tenants in place, so investing in a rental should always be done with care, especially if you are a novice investor, he says.
Dexter Leite, the rental manager for Pam Golding Properties in the Western Cape metro region, says buying a property is a major, costly and long-term exercise with many factors involved.
“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,” he says.
Seeff says when you buy a property, you can only dispose of your asset if you can find a buyer willing to meet your price, and you are responsible for the security, maintenance and upkeep, although you can mitigate this by buying a sectional-title property.
From a tenant’s perspective, there are various reasons you may choose to rent as opposed to buy, and they are not related only to affordability, Leite says.
“Many want the flexibility that renting offers. For returning expats or for South Africans moving cities, 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 get a feel for commuting times.
“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,” he says.
“This capital can then be employed in other opportunities, such as business or other investment opportunities.”
A rental property is not a passive investment, but one that requires involvement and careful management Samuel Seef
Chairman of the Seef Property Group