To rent or to buy – the 411 on what to consider when weighing your options

It's one of the most important financial decisions you’ll make as an adult – and chances are you’ll make it more than once over the years.

If you’ve been thinking about whether to rent or buy your next home, you’ve probably heard that it’s a buyer’s market right now.

The pandemic has brought down interest rates and it’s an especially good time for first-time buyers to get into the property market.

“The interest rate is at a 50-year low,” says Samuel Seeff, chairman of Seeff Property Group.

“Banks are still keen to lend and qualifying first-time buyers can find favourable terms, sometimes full bonds.” 

But there are several factors to think about before making the decision to rent or buy, and even the experts can’t offer a simple answer because it depends so much on your unique circumstances. Here’s what you need to consider. 

Low interest rates come and go

“Interest rates are pretty low and accessibility to finance is relatively easy to come by,” says Rowan Alexander of real-estate company Alexander Swart Property Group.

“In circumstances where we find ourselves at the moment, banks are offering 100% bonds at good interest rates.”

It’s definitely a good time to make that offer on your dream home, says Ross Levin, managing director for Seeff Atlantic Seaboard and City Bowl in Cape Town.

“We are currently in one of the best buyer’s markets because property prices are more negotiable than in previous years [due to the effects of Covid-19] along with the low interest rates the banks are lending at.

“Currently the interest rate is exceptionally low, about 2% below what it was a year ago,” he adds.

“But it will not remain at this low level beyond this year.”

The ideal time to buy property is when you’re financially in a position to afford it and when the property climate offers good value, says Lance Cohen, CEO of Lance Real Estate.

“Otherwise people might find themselves in a situation where they commit to purchasing and then interest rates go up and they fall short every month and get themselves into trouble,” Cohen says.

Property investor and personal finance blogger Louis Barnard advises against buying property solely for low interest rates.

“It does make sense to buy rather than rent at the moment, but the problem is the interest rate could go up drastically if the economic climate changes.

”You should rather buy property because you’re getting a good deal, not because interest rates are low, he says.

“The economy is shrinking, which means we’re looking at retrenchments and people taking pay cuts. I don’t think we can expect good economic growth for the next two years,” Barnard adds.

If you can’t afford a 10% deposit on a property, you should rather not buy it, he says.

Before making the decisio to buy a house, consider factors like affordibility in the long run. (PHOTO: GALLO IMAGES)

Buying gives you a cash-intensive long-term asset

The biggest benefit of buying is that you’re investing in an asset that gives you security and that will not only retain its value but hopefully grow in value, Levin says.

Alexander points out that capital appreciation is a major plus.

“The capital appreciation you will have over time is sort of a passive income and eventually when you sell, that capital can be unlocked,” he explains.

But it’s an expensive purchase to make. Buyers incur transfer costs, bond registration costs and a deposit, if the bank doesn’t give you a 100% mortgage.

“It’s a pretty cash-intensive acquisition,” Alexander says.

Then there’s the cost of maintaining the property, as well as the costs involved when you want to sell your property, such as paying an estate agent. 

“So it’s pretty expensive to come by and to dispose of,” he adds.

“If you find yourself in financial difficulty, it’s not easy to just sell it overnight. So you should ensure you don’t overcapitalise or overburden yourself with a bond that’s much higher than what you can sell the property for. That way you can have a bit of a financial buffer.”

There’s a flipside to the flexibility of renting

Renting is often more affordable as you’re not burdened with monthly rates and taxes and the maintenance costs of owning a property, Levin says. 

Renting also offers flexibility and less of a commitment as opposed to buying.

Lease agreements aside, renters can more easily get up and go as they have no vested interest in the property, Alexander says.

“It can also allow you to have a lifestyle which wouldn’t be possible if you purchased property if your rental is a lot less than your bond payment would be,” he adds.

But renting isn’t lucrative in the long run.

“It’s a pure expense – you get absolutely nothing back for your cash expense. There’s no capital growth, there’s a lack of permanent stability and there’s no tenure of ownership,” Alexander says.

“You’re only as secure as the length of your lease.” 

Also, renting could keep you out of the market, Cohen says.

Property prices tend to skyrocket and you could get left behind and find that the market has gone up way higher than what you’ve managed to save for a deposit. 

“Then you’re in a position where you can’t afford to buy what you would have been able to buy at the time you started renting,” Cohen says.

Also, the longer you wait the more difficult it’s likely to be to get into the property market because advanced age could hinder your ability to buy. 

“Very often age can count against you,” Alexander says.

“Your term of repayment is affected because you can’t get a 20-year bond at the age of 60.”