Is a home an asset?

Every so often, the media revisits the debate regarding whether a home is an asset. Some say that given the maintenance costs, taxes, interest payments on a bond, and the constrained rate of property price growth, a home is not a great investment.

"However, this can only be true from a limited buy-and-sell perspective - the perspective of those who focus solely on potential capital growth, when property ownership offers so much more," notes Dr Koos du Toit, CEO of P3 Investment Group.

When comparing homeownership to renting, it is clear that a home is indeed an asset. When renting, a home is simply an ever-growing expense, as rentals increase each year. While tenants may not pay rates and taxes and levies separately, these costs are often factored into rentals. And, when the lease expires, the tenant walks away with nothing, except perhaps the portion of the deposit not withheld for damages to the property.

Dr du Toit explains that if you buy a home, the bond repayments remain static, barring interest rate fluctuations, which means that in 10 years' time, your bond repayments will still be roughly the same as they are today, but rentals will be at least double of what they are today, thanks to inflation. "Given that accommodation costs are the biggest expense for most salary-earning individuals, the savings achieved in monthly accommodation costs are significant. These cost savings become even more pronounced after 20 years, when the bond is paid off and the property owner has a fully-paid up property in which to live during retirement. The homeowner could also choose to rent out the property to create an additional income during retirement while renting a smaller property, or to sell the property in order to buy a smaller retirement home with a substantial deposit or even cash."

In addition to the massive monthly saving in accommodation costs, homeowners will also build up equity (the difference between the value of the property and the outstanding bond amount) over time. "This is because property is an asset that increases in value over the long term, as property prices increase - at an average of 10.5% over the last 20 years," says Dr du Toit. "But this growth in the capital value of the property is not the only way in which homeowners can build equity. If homeowners pay a little extra - even just R200 - each month into the bond, the equity can grow substantially as the outstanding bond amount is reduced rapidly. Homeowners can also upgrade their properties over time, for example, by extending the buildings, upgrading the kitchen or bathrooms, or installing water- and energy-saving devices, all of which will require little investment but add significantly to the value of the property, and therefore the equity available in future."

Homeowners also do not have to sell the property to access this equity - it can also be accessed by, for example, taking a second bond, providing cash to start a business or fund your children's university education. So, if nothing else, owning a home is a way of saving up for a better financial future. You can also use your own property to generate an income, for example, by renting out a portion or running a business from home.

Your home could also become the foundation for acquiring a second property, which could be rented out, providing capital growth which will build up further equity, but also an ongoing, inflation-linked monthly income. As such, your home can become a solid foundation from which to build up a small but profitable portfolio of buy-to-let properties.

"To participate in the property debate regarding whether a home is an asset, a new perspective is required - a perspective that considers capital growth as only one part of the property equation, and therefore also considers the fact that a home is an asset that provides accommodation not only now, but also provides cost-free accommodation in retirement or the capital to buy a retirement home, while also building equity that can be used to start a business, fund children's education or start a portfolio of buy-to-let properties," notes Dr du Toit. "Focussing only on the potential capital growth that a home could generate obscures all these reasons why owning a property is a solid foundation for creating a financially-independent future."

"Property is such a unique investment that those who choose to learn how to use property to create wealth, employ good risk management practices and manage their property assets properly, will increase their wealth so rapidly, it will make any other investment seem mediocre. Doing so does not require qualifications or experience, or much time, training or effort. All that is required is a new, clear and rational perspective about the power of property to create a financially-independent future," concludes Dr du Toit. "Over the last 10 years, the P3 Investment Group has helped thousands of ordinary salary-earning South Africans to use their properties to secure a comfortable retirement by implementing the simple and practical steps the world's wealthiest have used for generations to create wealth.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 16 Feb 2018
      Whether you own a property in a sectional title complex or are looking to invest in one, the financial standing of the body corporate is the single most important thing that can affect your investment or your buying decision.
    • 15 Feb 2018
      One positive consequence of the financial crash in 2008 was the rise in consumerism, especially in the property market, where buyers have steadily become more knowledgeable and more value conscious.
    • 15 Feb 2018
      While most homeowners will take the agent’s commission into consideration when they are trying to determine what the will get out from the sale of their property, many often forget to factor in the other costs involved in a home sale, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      The forecast for the national rental market in 2018 remains a mixed bag of good news and bad news. Although rentals are expected to rise slowly as the challenges of home affordability and tighter lending criteria tighten their grip, it’s a double-edged sword as the market also will come under increasing pressure from factors like declining disposable income levels.
    • 14 Feb 2018
      While you may not have intended to place your home on the market, what do you do if you receive an unexpected offer on your home? In areas where demand outweighs the current supply of homes available to buyers, it is not unheard of to have buyers make offers on homes that aren’t on the market, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      If you are looking to sell your home this year, Debbie Justus-Ferns, divisional manager of Renprop Residential Sales, says that there are five crucial things to do before the ‘for sale’ sign goes up.
    • 01 Feb 2018
      February is the month of love and to celebrate we will be posting about all the things we love this month. Follow the #MyPropertyLoves hashtag to keep up with our favourite things.
    • 01 Feb 2018
      After saving up and months of searching for the right home, applying for a bond and patiently waiting for the keys to the front door, it is finally time to cross the threshold and move into your new home. Now what?
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us