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- When weighing up the pros and cons of buying a property versus renting, the usual argument is that it doesn't make sense to rent for years on end.
- But is this really the case - even in the current low interest rate environment?
- The key difference between buying and renting is the type of mobility and stability that each option offers.
When weighing up the pros and cons of buying a property versus renting, the usual argument is that it doesn't make sense to rent for years on end when all you're doing is paying off your landlord's bond.
But is this really the case - even in the current low interest rate environment?
The common thinking is that property is a good investment, so it should be better to buy, but Abdallah Moosa, a planner and qualified actuary at Fiscal Private Client Services, questions if this is always the case.
"When you sell the property and take into account all the costs related to buying, maintaining and selling, as well as the interest paid in financing the property, it may end up not being the 'best investment' when considering the return achieved," says Moosa.
"The key difference between buying and renting is the type of mobility and stability that each option offers. Buying should be seen as a long-term option as it is difficult to recover the costs related to purchasing when selling soon after buying, especially when factoring in the costs of selling a property."
Costs for the seller include a commission to an estate agent; conveyancer's fees to cancel any bond over the property; clearance certificates for municipal rates, taxes, building levies and electricity; and electrical compliance certificates. The cost of moving also needs to be factored in, especially when moving between cities or countries.
On purchasing, once-off costs for a buyer could include: transfer duties; bond registration fees; conveyancing fees for bond registration; conveyancing fees for property transfer; home loan initiation fee.
Costs after ownership of the property and monthly budget items could include: municipal rates and taxes; building levy (if sectional title); maintenance and repair costs; ongoing home loan administration fees; insurance for the property, contents and potentially a life policy to cover the outstanding loan. Furthermore, the older the property the more expensive the upkeep. A pool, and a garden also take a lot of money to keep looking good.
"While there is no one answer for everybody, there are aspects to take into account before deciding either way," says Moosa.
The biggest risk for financing property now is the uncertainty of how long current low interest rates will remain, in his view. Should rates return to pre-Covid-19 levels or climb higher, home loan repayments that are linked to prime will increase. This means bond repayments can increase to a point where one might not be able to afford the monthly payment anymore.
"Then you are stuck with a property you can't afford in a market that is tough to sell in. The other thing to remember is, while the purchase price may be attractive, over the lifetime of the loan what you have actually paid (including interest) can total to significantly more," says Moosa.
"At the same time, buying can offer a stable environment and there is no threat of the landlord taking the property off the rental market and giving you notice to leave. You also have more freedom to make changes to the property, upgrades, renovations and adapting it to better suit your needs."
