Rent or buy?

Making sense of property investment

South Africans are often posed with the dilemma (due to our tumultuous economy and increasing interest rates) as to whether buying a property is really a good financial decision.

Traditionally, financial experts and the like have encouraged home ownership as a safe investment, low risk with medium return, provided you live in your house for an extended period of time. But what really are the pros and cons of homeownership versus renting a property and investing your surplus income elsewhere?

Renting property is great in that you can often find a property to rent for cheaper than what it would cost you monthly to buy, resulting in you being able to live in a better area or house than you would be able to afford if you had to purchase the same property.

South Africans are often posed with the dilemma (due to our tumultuous economy and increasing interest rates) as to whether buying a property is really a good financial decision.

Another positive to renting is that you merely have an obligation to maintain the property to the standard in which it was handed to you (taking into account reasonable wear and tear). If there are any major repairs needed or damages due to a burst geyser or a hail storm, it is the Landlord’s duty to fit the bill

When renting, your major expense will be saving up the standard one month deposit which is generally paid to the Landlord prior to occupation of the property. However even so, the Landlord is legally obliged to invest your deposit in a low risk interest bearing account and if you have maintained the property as legally required, you are entitled to your deposit back with the interest earned thereon.

You will also save yourself transfer duty (tax payable to SARS) as well as transfer costs if you rent a home, which funds could be invested elsewhere.

The downside to renting a property is that you end up paying towards a property (or various properties) for years without ever owning the asset. There is accordingly no wealth creation when renting a property. Renting property also limits your freedom when changing things the way you would like them and making alterations to best suit your needs.

When renting property you are also not guaranteed that your lease will be renewed which may result in you having to move around often which can cause uncertainty and anxiety when you are trying to settle down and create a home.
Buying property also has many pros, many of which juxtapose the cons of renting a property; when owning your own home you are afforded freedom (obviously within the constraints of the municipal by-laws) to do with your home as you want.
Owning property will usually create wealth as property prices do generally increase and if you remain in a property for many years and your salary increases annually, the bond repayments should become more affordable (obviously taking into account the increase in the interest rate) as opposed to rental that commonly increases at 10% per annum.

I am still a firm believer that owning a home allows the “common man” an opportunity to create wealth and better “his” standard of living with little risk. It is imperative to ensure that you do not over extend yourself and are realistic about what you can truly afford when purchasing a home. Make investigations as to the real cost of paying for and maintaining your own home, and keep some extra change in the bank that can be utilised for a rainy day.

Should you be interested in buying or selling your home, please do not hesitate to contact us.

Taryn Murphy
Attorney, Conveyancer & Notary
Malherbe Rigg & Ranwell Inc.
011 918 4116
taryn@mrr.co.za