Here’s one for every person who is also amongst the last in their friendship group to own property – I feel you.
The rent versus buy debate has been going on for as long as we can remember, but given how property prices in the Mother City seem to be out of control the choice seems obvious.
The regular answer trotted out is that you should rent only if you can’t afford to buy, but that’s not always true.
The Mail and Guardian have asked a few experts to weigh in:
“The short answer is buying incurs a lot more costs than people factor into the equation,” said Simon Brown, personal finance commentator and founder of JustOneLap.com. “For example, they see a house go from R1-million to R1.5-million and think it a great return. But over what period? And at what cost? Both buying and selling incur significant costs. Upkeep on the house incurs further heavy costs over the period of ownership. Bonds are also very expensive in terms of fees and ownership.”
When you take all the costs into account, buying a property — even when you can afford to — is not actually the no-brainer that many believe it to be. “If one were to rent and save the difference into a simple exchange-traded-fund investment the numbers come out as doing better renting and investing [than buying property],” said Brown.
Deep breath, homeowners, because if you’re in for the long haul then you may well have made a very wise life choice.
Experts say there’s an “inflection point when buying eventually becomes cheaper than the costs incurred by rental”, but that point is seldom reached these days.
Here’s Warren Ingram, personal finance adviser at Galileo Capital:
“Most of us start working and are told by our parents and friends to buy a small home rather than pay off the landlord’s bond…Conventional wisdom says that we should then sell our starter home when we get married and buy a larger home more suitable for raising children. Once we get older, we then sell the large family home and downscale to a more manageable property.
“This might seem like a sensible strategy until you take into account the buying, holding and selling costs of your home. It is worth remembering that you pay a significant amount of money in agents’ fees, legal fees and potentially transfer duties. In addition, you need to cover the costs of property maintenance and rates or levies.”
Ingram says the tipping point is around eight years, which is when those additional costs above become a better option than rental.
Anyway you just do you, whilst the rest of us stare cross-eyed at property prices.
How about R1 195 000 for 20 square metres in Sea Point?
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