It’s always a good time to buy

“90% Of all millionaires become so by owning real estate”, the words of Andrew Carnegie, at the time one of the richest people in the world. Even when acknowledging that the credit crunch and other factors have made home ownership more challenging, the gist of this quote is still true. Property ownership is crucial for creating wealth.

The only problem these days is the global economic crisis which does make one beg the question: is it a good idea to buy property now?

The media is inundated with comments by economists, analysts and property experts giving excellent advice to investors. Erwin Rode of Rode and Associates advises consumers to rent instead of buy, correctly indicating that over the next few years that might be the cheaper option; arguing that the mortgage payment will be higher than the rental paid. Other arguments show that better returns are available in property funds and such like.

Investors therefore should think twice; buying a second home to let might only be a better option down the line. To the bulk of South Africans who have historically been very proud to own their own homes, I don’t think this applies.

Owning property over the medium and long term always has been, and currently still is, one of the few, if not only, means through which wealth can be accumulated by the general public.  If you opt to rent for now you may save some money. However, most consumers will very rarely manage to save for a future investment and same will probably go towards debt reduction or to the accumulation of consumer items. 

Normal homeowners look for several things: their own home to which they can make improvements and which they know will create long term wealth.
Stability in terms of not having to move around. Psychologists rate the psychological impact of relocating just below divorce and death. It’s also expensive to move with removal costs adding up.

The average consumer rarely spends the time, and normally doesn’t have the acumen, to monitor the market regularly so as to be fully aware of when the next boom starts – which is inevitable.  Should they now go for the rental option and miss the boat the consequences could be dire.  Many stories can be told in this regard from previous upswings.

The advice from the experts is even more problematic for current homeowners. The normal reasons to move apply – transfers, promotions, divorce, deaths, etc.  This does not present a problem because while the market is rather subdued and you sell for less you of course buy for less.  Should you wait to get more for your property of course you will pay more.

Should current homeowners in this position take the advice of Erwin Rode and his colleagues they would now rent in the interim, face all the normal consequences and go through all the turmoil again in a couple of years when they buy again, hoping to catch the upswing from the start.

One must also not forget that most of the mortgage repayments over the first five years go towards interest; only after that period does capital reduction really apply.  Homeowners will therefore eventually start paying off their mortgages whereas tenants waiting for an opportunity to buy always start anew.

According to the theory proposed by Rode the following will happen: prospective buyers will rent instead of buy, rental prices will go up and property prices will go down – equilibrium will be restored. Unfortunately this works in laboratories, not in real life.  Ultimately Mark Twain gave the best advice: “Buy land, they’re not making it anymore.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 20 Nov 2017
      Since 2012, sectional title complexes have been leading the South African property market, not only in terms of price growth, but sales volumes as well. Remaining relatively strong, even in the face of 2017’s political and economic turmoil, experts say this market segment could offer valuable insight into South Africans’ property purchase priorities.
    • 20 Nov 2017
      Regardless of whether you are purchasing your first start-up home, downsizing or moving in with roommates, finding ways to maximise small spaces can be a big advantage, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 20 Nov 2017
      Property valued at approximately R1 billion is on High Street Auctions’ sales floor during the month of November, including the much-anticipated sale of the Tshwane Mayoral Residence and the land occupied by one of South Africa’s oldest operating gold mines.
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us