Should you buy or remain renting?

© Julia Sudnitskaya – 123RF.com

“There will be consumers who will remain within the rental market because they are worried about the country’s economy and how the factors surrounding the market will impact their financial wellbeing. There will also be those that simply enjoy the freedom of being able to stay in different areas without having to sell a property to relocate. 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,” says Goslett. “Many consumers are eager to buy property, but don’t have the affordability levels or savings to get their foot in the door. With the increased cost of living and interest rate hikes that consumers have endured over the last while, many prospective buyers have been forced to stay within the rental market until their financial situation improves.”

Reduce debt-to-income ratio

According to statistics from bond originator BetterLife, the average deposit requirement by banks for first-time buyers this year is around 17% of the purchase price of the property. Given the fact that the average purchase price of a home bought by a first-time buyer is around R850,000, consumers have to save between R110,000 and R180,000 just for a deposit, not to mention the other costs associated with buying a home. “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,” says Goslett.

He notes that while the bond approval rate is up to around 74%, there are still large numbers of consumers who are unable to meet bond approval requirements. “The constraints placed on consumers by the increased cost of living will see to it that the rental market continues to thrive. However, if the interest rate continues to increase it will have a knock-on effect on the price of rentals as investors will have to pay more for any credit they may have,” says Goslett.

Due to the fact that property should be viewed as a long-term investment, some consumers may find it a more viable option to stay within the rental market until they are settled and ready to commit to a particular home and area for the next five to ten years. According to Goslett, 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.

Forced saving

He adds that 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. “According to Reserve Bank figures 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 to work with,” says Goslett.

Irrespective of whether a consumer continues to stay in the rental market or decides to rather purchase a home, there are advantages and disadvantages to both options. Each consumer needs to evaluate their circumstances and make the best decision that meets their personal needs. “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,” Goslett concludes.