Home ownership is once again looking much more attractive than renting

In the last few months the arguments in favour of renting rather buying the residential property in which you live have grown a great deal weaker, says Bill Rawson, Chairman of the Rawson Property Group.

“In the first half of 2013 anyone following the trends in the South African property world would have become aware that there was a growing lobby very much in favour of renting rather than buying.”

“In the second quarter issue of the respected magazine “Personal Finance” for example, Irwin Rode, the property economist, produced a table that showed that on his calculations, an investor buying a R1 million home in which to live would, on a 100% bond, pay out R651,832 in five years. If after that period he then sold, he would make a profit of only R46,532.”

“If, on the other hand, the investor had rented a house of similar value, his rental outlay would have been only R349,969, which, in theory, would have left him with a R374,139 saving which could have been invested profitably elsewhere.”

“There was, of course, much truth in Mr Rode’s view at that time and we all acknowledged it. However, we now have to accept is that in a few short months the pendulum has begun to swing back in favour of home ownership in a very big way.”

The swing back, said Rawson, is due to several factors, but the two most relevant, in his view, are:

1.    Most urban property rents are now rising far faster than they did in the past and the rent today can rise as much as 20%, especially if in the lower income group; and

2.    Price rises are now not in the region 3%, as they were when the Rode’s calculations were made, but are at around 9% and are likely to stay at that level.

From a purely practical side, said Rawson, it has to be recognised, too, that the experience of every single person who has been in property for some years has shown that a commitment to a bond tends to be irrevocable and almost always maintained, whereas the commitment to a saving of so much per month can be, and often is, shelved when financial pressure is felt.

“For this reason alone,” said Rawson, “I will always encourage a young couple to knuckle down and commit themselves to home ownership, especially if it is to be for a longer period than five years – any calculations based on less than a five year period are far too short term to be taken seriously by dedicated property investors.”

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