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Should I carry on renting or buy a home?

Although the property market has seen many more buyers stepping onto the first rung of the homeownership ladder over the last few years, many are still reluctant to take the plunge towards purchasing property and are currently content with remaining on the side-lines and renting a while longer.
 
According to Adrian Goslett, CEO of RE/MAX of Southern Africa, while some consumers are purposefully remaining in the rental market for either financial reasons or the freedom it allows them, for others it is far less of a choice. “We have seen the number of home buyers in the market increase over the past few years, particularly since 2010 with the market turning around and showing signs of recovery.  However, that said, there are still consumers who are eager to purchase a home but who don’t have the affordability levels required for loan approval or a deposit saved up. These consumers have little choice but to remain in the rental market until their circumstances change,” says Goslett. “Personal debt is still very much a factor that is holding many South African’s back from their home-buying dreams. Those wanting to increase their property purchasing chances will need to focus on reducing debt levels and starting a savings plan to ensure that they reach their homeownership goal.”
 
He notes that with just over half of home loan applications granted, demand within the rental market continues to remain as strong as ever. “Banks have had very strict lending criteria since the introduction of the Consumer Protection Act (CPA) and with the new Credit Amnesty bill now in play, it is likely that they will continue to keep a tight ship when it comes to assessing their financial risk and granting bonds,” says Goslett. “The rental market will continue to thrive and see a range of tenants wanting rental properties at market related prices - welcome news for investors with rental portfolios. The consistent demand within the rental market makes it easier for investors to find tenants in today’s market. Buy-to-let investors who have financed their properties have also had the advantage of the interest rates remaining low for the past few years and are only now seeing rates increase. This could have a knock-on effect on the price of rentals in the near future.”
 
Goslett says that due to the nature of purchasing property, it is sometimes more viable for consumers to stay in the rental market until they are sure of what their plans will be over the next five to ten years. He adds that buying a home is a long-term commitment and if a consumer is not sure of where they want to settle or want the freedom to relocate to another city, whether it is for employment reasons or a lifestyle change, it may be best to continue renting. Depending on the circumstances a tenant may also find that they could rent a better property than what they could afford to buy currently. 
 
“If a consumer is in the situation that affords them the opportunity to save because they are renting, the money saved could be put away for the deposit or other costs involved in buying a home. It advisable to keep living standards at a level that allows the consumer to pay down their debt and put themselves into a better financial position,” advises Goslett. “Living within one’s means is the crux of the matter when it comes to preparing to purchase a property.”
 
He points out that the advantage of buying a home rather than renting one is that it is a kind of forced saving. “Paying money into the bond every month is a way to ensure that the homeowner has an asset they can use later on in life. South Africans generally have a poor savings culture, so purchasing a home is a way to put money aside for the golden years. Selling the property once it has been paid off and downscaling will no doubt offer welcome financial relief when it is needed most. South Africans that have rented for their entire lives will have no asset to sell,” says Goslett.
 
Offering advice, Goslett says that the secret to making the most out of a property purchase is to get into the market as early as possible. “It may be financially challenging initially, however assuming there are no drastic changes, a 20-year bond will decrease in real terms as the buyer’s salary increases, making the bond more affordable as time passes. Essentially this means that the sooner a buyer gets into the market, the better off they will be,” he says. 
 
Regardless of whether a consumer chooses to rent or buy, both options have their own pros and cons. Each consumer needs to evaluate their circumstances and make the decision that best meets their needs. “Renting offers the tenant a certain amount of flexibility before they make the 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,” Goslett concludes.


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