The question of whether renting or buying is the best is almost always in circulation in the real estate industry. While one is affordable in the short term, the other holds more benefits in the long run. In 2020, however, things took a turn, and the answer to the question may be a bit clearer than usual.
Historically low interest rates and an increase in 100% home loan approvals have created an ongoing buyer’s market. Consequently, first time buyers could enter the echelons of homeownership sooner than they could in previous decades. This is supported by ooba’s 2020statistics, according to which both first time homeowners and buyers, in general, are aged one year younger than in 2019. This trend may prove to have a far-reaching effect on housing inequality, closing the gap between homeowners and tenants.
Calculated on the current prime interest rate of 7%, the table below will offer you an idea of how much a bond repayment will cost you at the start of 2021:
|Bond Amount:||Monthly Repayment|
|R750 000:||R5 815|
|R1 000 000:||R7 753|
|R1 250 000:||R9 691|
|R1 500 000:||R11 629|
|R2 000 000:||R15 506|
|R3 000 000:||R23 259|
|R4 000 000:||R31 012|
Note that the interest rate, which has remained favourable for longer than many expected, can increase again at any time.
While it is true that banks are awarding a higher number of home loans without deposits, these numbers can also help you understand how big a difference a deposit can make. When a 10% deposit is put down on a home loan, a R7 700 repayment will go down by R775. This may seem like a trivial amount when seen in isolation, but adding up the savings over the average 20-year span of a home loan equals roughly R186 000 – not a small sum at all. The benefit of putting down a deposit is clear.
Though property purchases have increased, the buy-to-rent corner of the market is still suffering, due largely to the pandemic’s influence on tenant income security. Subsequently, the rental price growth rate reached an all-time low in 2020. This has obliged many landlords to lower their requested rent, just to get occupants for vacant properties. Conversely, this has had a positive impact on tenants themselves, who were able to afford homes they may not have been able to afford previously.
The same warning regarding the interest rate applies here, however. Tenants should be aware of the fact that the market will recover, and that rental rates could revert to what they were expected to have been.
Renting may be more affordable to some at the moment, but the benefits of purchasing a home have never been this clear (and affordable). If it is within their means, the time for prospective buyers to act is now, as no one knows when the market will regain its momentum and revert to a less favourable buying realm. Until then, get a professional’s guidance when embarking on your real estate journey. And make the most of this unprecedented opportunity!
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE)