STAY IN THE RENTAL MARKET OR BUY?
Whether a consumer continues to stay in the rental market or decides rather to purchase a home, there are advantages and disadvantages to both options. Renting offers the tenant a certain amount of flexibility before they make a long-term commitment while buying a home can provide the owner with an asset to their name that will certainly show good returns in time to come. Each consumer needs to evaluate their circumstances and make the best decision that meets their personal needs.
Reasons to Rent
1. Freedom to Move
There will be those that simply enjoy the freedom of being able to stay in different areas without having to sell a property to relocate. Because property should be viewed as a long-term investment, some consumers may find it a more viable option to stay in the rental market until they are settled and ready to commit to a particular home and area for the next five to ten years. If a consumer is undecided about where it is that they would ultimately like to live or want the freedom to be able to relocate to another city unencumbered by the responsibility of homeownership, it is best that they continue to rent.
2. Lack of finances
Another group of consumers will stay in the rental market because they financially cannot afford to buy a property that offers them the same features as their rental property. Many consumers are eager to buy property but don’t have the affordability levels or savings to get their foot in the door. There are large numbers of consumers who are unable to meet banks’ loan requirements. With so many South African’s struggling with personal debt, it can make it extremely difficult to save up the required deposit and costs required for a property transaction. Those who wish to improve their chances of getting into the market will need to try and reduce their debt-to-income ratio and start putting money aside as soon as possible.
Reasons to Buy
1. Financial Asset
On the flipside, an advantage of buying a property is that it is a kind of forced saving, in that the homeowner is placing money into an asset they can sell at a later stage. South Africa has one of the lowest savings rates in the world and it is getting worse. Purchasing a home is a way for consumers to put money aside for the golden years. Selling the property once it has been paid off and downscaling will no doubt offer welcomed financial relief when it is needed most. South Africans that have rented for their entire lives will have no asset to sell. Ideally, if a consumer decides that they are going to purchase a home, it is best to get into the market as soon as possible. The sooner they do, the sooner they will have a paid-off asset.
2. Avoid Annual Escalations
Where property increases in value over time, rental amounts escalate each year. So, while you could be paying R8,000 for a home in year 1, you could end up paying as much as R17,000 on the same home in ten years’ time if we assume a 9% annual increase. This becomes difficult when you reach retirement and have to live off a fixed income every month. If you have paid off your home loan by the time you retire, you have the security of knowing that you can afford to continue living in your property on your fixed retirement income.
Still not sure what to do?
Deciding what is the best option for you is not always easy. Get in touch with a trusted real estate advisor to explore what you can afford.