Sep
2012
The debate – whether it is more financially sensible to rent or buy a house – is an ongoing one. South Africa’s current economic condition has created a doorway for many new buyers to enter the property market. Those that could not previously afford to buy property because of the higher listing prices are now able to do so.
What makes many people hesitant to pierce the mysterious veil of property ownership are the financial implications. Some prospective buyers believe that the market is still likely to change drastically and create an even more favourable environment in which to buy property, and would prefer to rent homes until that time comes.
South Africa’s national debt-to-income percentage remains fairly high, and accordingly many would-be homeowners are attempting to reduce their debt-levels in order to take advantage of the current buyer-friendly market.
While banks have relaxed in certain terms of loan approvals, the rental market continues to see a flood of tenants looking for reasonably priced rental homes. On the other side of the coin, of course, is the fact that those who own rental properties are in a financial sweet spot. This rising demand for rental properties has been welcomed by investors who buy-to-let homes, as there is persistent need and tenants are fairly easy to find. Further, the low interest rates mean that those who have financed their properties will be paying less on the monthly bond and therefore will be taking advantage of a greater return on their investment.
While it may initially be cheaper to rent than to buy, even with the low interest rate, the increased demand for rental property will gradually push these monthly rental costs up to a point where the reverse will be true. It is already evident in certain South African metropolitan areas like Vereeniging, Pretoria and Johannesburg where owning is currently cheaper than renting property.
Another key advantage to buying rather than renting property is that owning your own home is in fact a forced way of saving, according to experts. It appears that many people who choose to rent rather than buy their home tend to live above their means and do not have any real assets or plans in place for retirement. Those with a bond to pay tend to be more frugal and restrained financially as they will suffer penalties should they miss a bond repayment.
Being able to live in the knowledge that one has a home – a largely valuable asset – to pass on to one’s children or to sell and down-size to a smaller home when one retires, is a comfort not to be belittled. Experts recommend paying off your home before or by the time you require as this will inevitably provide much-needed financial relief.
Whether buying or renting, each situation has its own advantages and disadvantages. Depending on the stage of their life an individual is in, as well as their financial situation and goals. Renting may give you the flexibility and freedom to assess your needs before making the significant commitment of buying a home, whereas owning your own home provides you with a useful asset and long-term financial benefits.
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