Why buying a home is better than renting - even when the economy is down and interest rates are high
Category Advice
Changing lifestyles and increasing needs for flexibility in a world that gets smaller as technology advances, gives many people reason to believe that renting a property is better than buying one.
And while there are many arguments in favour of renting in this new age of living, property experts say there are good reasons why you should see owning a home as the better option.
Having said that though, Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says that those who have entered homeownership for the first time within the past three years have had a rough introduction to what it is like to own a home.
"Interest rates do change over time, but very seldomly as dramatically as they have since the pandemic hit in 2020, ranging from the record lows of around 7 percent to where they are today at around 11.75 percent (prime).
"Typically, interest rates stay relatively stable and only move by about 0.25 percent up or down a few times a year. In fact, interest rates lingered around 10 percent (prime) from 2016 to 2019."
When interest rates are more stable, it will become easier to keep up with the repayments on a home loan because the repayment amount does not fluctuate too greatly each month.
"While interest rates have been on a sharp incline for some time now, we are hopeful that we will soon be entering a period where interest rates will remain a bit more stable, which should make it easier for homeowners to adjust to the higher bond repayment amounts."
With this in mind, Goslett says people are encouraged to focus on the many benefits homeownership offers them.
"When you buy a home, each monthly repayment acts as an investment towards an appreciating asset. Paying rent, on the other hand, can only be viewed as a monthly expense and will not be adding to your future wealth."
In addition to the financial aspects of homeownership, owning a home also provides you with the freedom and autonomy to make the space entirely your own. Homeowners do not have to adhere to the rules and regulations imposed by landlords either, and are free to make any alterations they wish.
As a bonus, alterations can also be viewed as investments if they have the potential to increase the resale value of the home. Therefore, as a homeowner, your home improvement projects can be viewed as an investment rather than an expense.
Owning a home also often comes with a sense of accomplishment and can be seen as a milestone and a source of pride for many individuals and families.
"Homeownership can provide a valuable asset to pass on to future generations. Beyond this, once the bond is paid off, it can provide a much more affordable living arrangement for when you reach your retirement years. If you have extra space in your home, you could even rent it out to generate additional income to supplement your income."
Overall, he says, owning real estate is a great long-term investment strategy.
"Although it might be tough to keep up with the bond repayments over this time, interest rates will stabilise again soon and the sacrifices you make today to help you continue to afford the home will pay off greatly in the future."
Why you should consider buying a home now
The economy is down and interest rates are up, but Gerhard van der Linde, managing director for Seeff Pretoria East, says buying a property right now is a good idea. This is because purchasing in a buyer's market offers considerable benefits.
Buy low, sell high is always the ideal when it comes to investing in property, and given that property price growth has just about stalled, buyers are able to find properties often at similar prices compared to last year, depending on the price category and area.
Bear in mind, he says, if you wait for the interest rate to come down before you buy, property prices will start rising again.
"There is also usually an increase in the number of properties listed on the market which means buyers have more stock to choose from. Properties which might not otherwise have been up for sale might suddenly become available as sellers will now look to offload their properties for various reasons."
When property markets slow down and stock levels increase, van der Linde says sellers usually become more negotiable on asking prices as they look to sacrifice some profit for a speedy sale. Prices then become more favourable. Any property investor will want to buy when prices are more advantageous as it will enable better profits once the market takes an upturn.
That said, even in a buyer's market, it is strongly recommended that buyers make their offers as 'clean' as possible; the less restrictive conditions there are the better the chance of it being accepted.
"If the transaction is subject to the approval of a bond, make every effort to obtain a pre-approval before you start looking. Do not take the chance of making an unreasonably low offer. Sellers are not that desperate as yet."
While price growth has flattened, prices are not falling through the floo, adds Tiaan Pretorius, manager for Seeff Centurion. Thisprice resilience also offers protection for buyers in the long run. Thus, while it is the right of a buyer to make an offer that they are comfortable with, it is also the seller's right to accept or reject the offer.
"If you are a serious buyer, do not waste your time. There is always the risk of another offer being accepted while a low offer is being put forward. Make sure your property is sold before you make the offer. Bear in mind that if you are waiting for prices to come down, your own property's price will also come down."
Echoing Goslett, Seeff Property Group chairman Samuel Seeff says property remains an excellent investment and sales data has shown that if you buy at the right time and hold onto it for long enough, you could benefit from excellent capital appreciation - how long that period is depends on factors such as location and the economy.
"It is especially still a great time for first-time homebuyers as the banks are still granting full bonds."
When buying though, he cautions you to ensure you can afford the property at the current interest rate and consider what might happen if your financial position deteriorates or another interest rate hike takes effect.
Author: IOL Business