Rent or buy - which is better?

Is it better to buy a residential property or rent at the moment? Well, it depends on your personal circumstances, say the agents.

Laurie Wener, MD of Pam Golding Properties (PGP) in the Western Cape's Cape Town metropolitan areas, says: "It's essentially a question of your own financial situation and requirements rather than a case of one versus the other. If you can afford it then it is preferable to buy your own home as this has always proven to be a sound medium to long-term investment, and remains so.

"This is despite the fact that there may be some dips in the capital growth of the property along the way, depending on economic trends. At present, interest rates are relatively low and there are some good buys to be had. As no-one can be entirely sure when the market reaches the lowest point, if you are in the market to buy and have the finance available, then now is a very good time," she says.

Ronald Ennik, PGP's MD for the Gauteng region, concurs: "Even if the market has not quite reached its lowest point, this is still an excellent time to buy because you will be benefiting from reduced prices which have been discounted by about 20 percent. Buyers realise that with the lower interest rates they can afford to take up such opportunities and as a result there are more visitors on show days.

"If you wait to try and catch the very bottom of the market, you could miss out. So, right now for serious buyers it's more a question of deciding whether the property is suitable for your personal accommodation needs, if you can afford it and have ready access to finance. You should research properties and prices in the areas you are interested in - ask plenty of questions and find out by how much prices have reduced."

Ennik says if you want to buy a home but think you should rent first and then buy, the chances are that you may miss the best buying opportunity by being committed to a six-month or one-year lease.

"When prices are down as at present, it's relevant to compare what you would be paying in rental with the monthly repayments of a home loan. With reduced prices and lower interest rates, and the fact that you would own the property, it's undoubtedly better to buy as the repayments of the home loan should compare favourably with the rental of such a property. An additional factor is that you would immediately be able to start enjoying all the lifestyle and other benefits of owning your own home - even if it really only starts to appreciate in value in six months to a year," says Ennik.

From a tenant's perspective there are various good reasons for renting rather than buying, not related to what you can afford, says Dexter Leite, rental manager for PGP in the Cape Town metropolitan areas.

"Many people want the flexibility that renting offers, such as only being 'locked into' a property for a relatively short period of time. It's also easier to extricate yourself from a lease and relocate than having to sell before you can move, which makes the rental option ideal for contract workers.

"Many expatriates have been out of the country for extended periods, and their needs may have changed considerably. For instance, their financial or marital status or place of employment. They may also find the South African cities they lived in before have changed substantially with new infrastructure affecting commuting options, or new business hubs being developed where they may wish to work. For returning expatriates, it can be beneficial to rent while they assess their new requirements, consider different suburbs where they may wish to settle and gain a feel for commuting times. Renting offers flexibility to make decisions without pressure."

Leite says renting is also a good longer-term option for those who may be returning to the country but are unsure about what they are going to do or where they are going to work. For example, if your career path could take you to another city, it makes sense to rent until you have a clearer idea of where you are going to settle. This also applies to those relocating to different cities.

"Buying a property is a major, costly and long-term exercise with many factors affecting the type of property you buy and its location. If you get a key element such as location wrong, it can be difficult, expensive and time-consuming to remedy the mistake, which is not the case with a rental property. Renting a home is cheaper than buying as you don't have to tie up your capital in deposits, costs, transfer duties and bond repayments. Rates and other property taxes and insurance of the property are also for the owner's account as well as, for the most part, ongoing maintenance and repairs. For owners or landlords the benefits are having assets that appreciate over the medium to long term. The cost of the investment can be leveraged, enabling a larger investment with only a deposit required. With good buys available, it is of course essential to do your sums, taking into account all costs, type of property in demand in a specific area, vacancies and so on," says Leite.

Annien Borg, MD of PGP's Boland and Overberg regions says whether you rent or buy is definitely related to your current financial situation and how long you intend staying in the specific town or city.

"At present, obtaining finance is a problem which has affected the entry of first time buyers, for whom rental would now be the best option. However, if you have cash you could pick up a property in a good area at a very reasonable price. At any time, you have to take a longer term view - at least five years or more if you wish to achieve good returns. There are advantages to renting, but if you've done your homework and considered key aspects when buying a property such as location, condition of the property and possible costs of upkeep, and only buy what you can afford even allowing for deteriorating market conditions, it is more than likely that you will see a good return on your investment."

Saturday Argus

Posted at 10:28AM Jul 20, 2009 by Editor in Market  |