To buy or rent? Experts weigh in

IF YOU can find a home you love and can afford to buy it for cash, then maybe owning property is a good bet right now, says property economist, Erwin Rode, the CEO of Rode & Associates.

If not, forget about it, he says. Rode’s advice that property is currently not a great asset flies in the face of what some other experts say: owning a home is a good investment, even in 2022, amid rising interest rates and cashstrapped consumers.

South Africa has emerged from a “home-buying frenzy”, when the Covid years of 2020 and 2021 saw the lowest interest rates in almost five decades and offered a window to get on the property ladder.

This was especially true for firsttime home buyers, many taking up to 30-year bonds, according to the ooba Group. For many, this was a no-brainer as it became cheaper to buy a home than rent one.

“The Covid-19 pandemic period was positive for the local property market, triggering an acceleration in house price inflation and a rebound in activity levels,” says Rhys Dyer, the CEO of ooba Group.

However, as interest rates return to “normal”, many who bought on the edge of their affordability scale are beginning to get a gnawing feeling that perhaps they bought too quickly, thinking the interest rate honeymoon would last forever.

Even those thinking of buying are having second thoughts. However, experts seem to, on the whole, think buying and owning a home remains a good idea. Not Rode.

“The housing market is in a down-swing phase and has been for the past seven years. This means that the myth that it’s a solid investment to buy a property falls short as it is based on capital growth which is zero. So, you will find many young people buying a house as one of the first things they do, because they believe the value will keep on rising.

“This myth, however, is only valid if you buy a home for cash, not take out a mortgage; or when you buy during the upswing of the long property phase.

“The problem with a mortgage at today’s interest rates is that you get negative financial gearing, which means your total return (income yield plus capital return combined) is negative. This principle also applies to owner-occupiers, not just buy-to-rent investors.”

However, your returns will be better if you are buying in the below-R700 000 segment as your income returns in the lower-priced suburbs are better, Rode says.

“The more expensive the home, the less likely your rental will cover the interest on your bond. Purely from a financial point of view, over the next few years, you can expect a poor and negative return from a property with a 90% plus bond.”

Rode advises to rent and save the difference between your rent and what you would have paid on a bond.

FNB property economist John Loos believes, however, that the market can be good to invest in as sellers may be ready to accept lower offers.

Samuel Seeff, the chairperson of the Seeff Property Group, agrees.

Loos, like the regional director and CEO of Re/Max of Southern Africa, Adrian Goslett, says renting and owning a home have their pros and cons.

“In some instances, it may be the cheaper option to rent in the short term, given the big transfer costs involved with buying a home,” says Loos. Renting can also give people more certainty over home-related cash flows, because many of the maintenance costs are the responsibility of the landlord. It also allows greater mobility if you are uncertain about where you are going to be working or living.”

Goslett, who believes buying a property will provide you with “an asset that will earn you a substantial return on investment”, adds that it’s up to the individual to decide.

Renting, he says, offers the tenant flexibility. Each individual needs to evaluate their circumstances and make the decision that meets their needs.”

Rental rates are unpredictable, however, so if you have a fixed rate on your bond, it may be easier to predict your monthly spend.

Waldo Marcus, the head of marketing and sales at TPN Credit Bureau, says the higher interest rates and a reduced ability to save could mean “some higher-income tenants decide to keep renting instead of buying their own properties”.

ooba’s Dyer suggests homeowners and home buyers take a longterm view. First, “homeowners can breathe a temporary sigh of relief as early indicators suggest GDP recovery over the third and fourth quarter of this year”, he says.

However, “while economic activity is expected to rebound… the recent bout of stage 6 load shedding – if protracted – could stifle the extent of the recovery.”

Dyer adds that on the home loan front, applicants will benefit from interest rate discounts – spurred on by competition among the banks, longer home loan repayment periods and the more realistic pricing of homes for sale.

In terms of the impact of the interest rate hiking cycle on the property market, Seeff says we are beginning to see a two-paced market emerge. “While demand is high on the one side, buyer hesitancy is increasing.”