RATE CUT STRENGTHENS BUY-RATHER-THAN-RENT DEBATE
Category Residential Property News
We all know that, from Day One, nothing beats owning your own home. Myles Wakefield, CEO of Wakefields Real Estate, says that "This decrease in the interest rate narrows even further the gap between a home loan repayment and a rental...which makes buying a home by far the smarter thing to do.
Myles Wakefield, CEO of Wakefields Real Estate, believes that, "From a fundamentals perspective, when buying becomes cheaper than renting from Day One, it's a potential signal we've reached the bottom of the market. Historically, when this happens, it could be the precursor for market improvement. When it's cheaper to buy than rent, it's only one indicator that that could be the case, but it's not to be ignored. Seasoned investors certainly don't ignore it."
Let's set the scene. Our home loan interest rate has been reduced by ,25 basis points - that's a saving of almost R40 000 on a R1m home loan over 20 years. In addition, banks are granting far more home loans than previously, and in many qualifying cases, they're approving 100 percent home loans.
Bottom line, depending on suburb/area/property type, it's becoming cheaper from Day One to be buying than renting.
That's the theory - what about the practice? How do the figures match up, in particular, your monthly payments?
We took three average areas within suburbs, and compared rentals to purchase prices. As Wakefield says, "When the cash flow between buying and renting is similar from Day One, it's even more reason to buy than rent. Certainly, it's impossible to predict capital appreciation on a property you own, but it will come. When you're paying much the same to own your own home, as you would to rent, as an owner, you don't need to give that appreciation much thought. You just sit and wait for it."
Note:
Our examples below use the prime interest rate - that is, 10 percent - but you may well qualify for less than prime, then you're really in the pound seats; or in a few cases, you might have to pay prime plus.
There is no transfer duty on a property under R900 000. You will, however, always have to pay bond registration costs and attorneys charges.
WESTVILLE
To buy: a three-and-a-half bedroomed home in the suburb of Dawncliff, you'll pay around R1,780m.
A ten percent deposit of R178,000, means a home loan of R1,602m.
Your monthly repayment (over 30 years) is R14,356.00.
Factor in your monthly rates of R1450 per month.
Your total monthly commitment is R15,806.00
To rent: Existing tenant pays R15,500 a month.
Note: To buy, you will have R108,884 payable for upfront costs of bond registration and transfer costs.
THE BEREA
To buy: a one-bedroomed sectional title flat, you'll pay around R650,000.
With a 10 percent deposit (R65 000), your home loan is R585,000.
The monthly repayment on that bond over 30 years, is R5,242 per month.
Add to that a monthly levy of R900 and rates of R495.
The total monthly payment is R6,486.
To rent: around R6,000 a month, for the same flat.
Note: To buy, you will have R39,419 payable for upfront costs of bond registration and transfer costs.
PINETOWN
To buy: a two bedroomed sectional title flat, you're likely to pay R650,000.
With a 10 percent deposit (R65 000), the bond you'll need is R585,000.
The monthly repayment on that bond, over 30 years, is R5,091.
Add to that, a monthly levy of around R900 and rates of R495, and the monthly commitment is around R6,485.00
To rent: around R6,000 a month, for the same flat.
Note: R39,419 payable for upfront costs of bond registration and transfer costs.
*If you qualify for a 100 percent bond, the monthly repayment over 30 years is R5,825.
Add to that monthly bond repayment figure, a monthly levy of around R900 and rates of R495, and the monthly commitment is around R7,220.00
To rent: around R6,000 a month.
Note: R41 190 is payable for upfront costs of bond registration and transfer costs.
PROS AND CONS
In the three areas and property types examined, the monthly outlay between renting and buying certainly makes one think. It's not a substantial difference.
When you rent, a landlord will increase his rental annually - that's a given.
When you buy, the interest rate on your home loan can go down - as has just happened. We've been in a relatively stable interest rate cycle for a while, and - if nothing untoward happens - no one is predicting a massive jump in our interest rate. In fact, the prediction is the reverse.
Owning a home gives you security of tenure. You're the master of your own destiny. And you have an investment which historically, appreciates in value. If you improve the property wisely, you can substantially increase that value.
You have a real asset.
Author: Anne Schauffer
