RE/MAX PA
RENTAL
Stay in the rental market or buy?
W
ith 2016 touted as a
financially challenging
year, many buyers
may be hesitant to
take the step towards
homeownership and are quite content to
stay within the rental market for the time
being.
Source: RE/MAX SA
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. 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.
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.
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.
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. 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.
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.
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.
89 Roodebloem Road, Woodstock, Cape Town, 7925
PO Box 30358, Tokai, 7966
[email protected]
T +27 (0) 21 447 3840 | F +27 (0) 21 447 2457
www.galbraithrushby.co.za
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