With interest rates rising to near pre-COVID levels, many might be contemplating whether it is better to purchase or to rent. One way to decide what best suits you is to compare the possible monthly bond repayments with the corresponding rental prices.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, explains that there are advantages to both options. “Renting offers the tenant a certain amount of flexibility while buying a home can provide the owner with an asset that will earn him/her a substantial return on investment. Each individual needs to evaluate their circumstances and make the decision that meets their needs,” he advises.
To help individuals get an idea of what their money can buy them, RE/MAX of Southern Africa shares a few examples of rental prices compared to house prices across the country.
On an R1.5 million bond, the repayment is roughly R12 000 p/m. For that amount, Nadia Aucamp, Broker/Manager of RE/MAX All Stars, explains that a buyer can purchase a standard (possibly not modern) three-bedroom, two-bathroom house in areas such as Verwoerdpark, Raceview, Florentia; or a three-bedroom, two-bathroom townhouse in Meyersdal, New Redruth, or Brackenhurst.
For the same monthly repayment, she suggests that a tenant can rent a three-bedroom, two-bathroom townhouse that is roughly 150sqm with a single garage in areas such as New Redruth, Meyersdal, Randhart in Alberton. In Germiston, tenants might be able to get more value for their money on a 200sqm, three-bedroom, two-bathroom house in Lambton, Albemarle, and Dinwiddie.
Cindy Brits, Broker/Owner of RE/MAX Dazzle adds that there are currently 31 properties for sale in Kempton Park in the R1.5 million price bracket of which 29 are free-standing houses, one is a cluster and one is a townhouse. In Benoni in the same price bracket, there are significantly fewer properties available; nine in total of which five are free-standing houses, one is a cluster and two are townhouses.
For the same monthly cost of a bond repayment on these homes, Brits explains that a tenant will be able to rent decent accommodation in this rental bracket.
“In a suburb like Glen Marais, for R12 000 p/m in rent, the expected home will be in the region of 250sqm will have three bedrooms, two bathrooms, a double garage and quite a substantial size garden. Another option at this amount will be a 83sqm, two-bedroom apartment within an estate such as Serengeti Golf & Wildlife Estate,” says Brits.
“Since the hard lockdown, we noticed more buyers than sellers in the market owing to the low interest rates. After the 0.75% interest rate increase, our prediction is that the market will slowly turn, more properties will be placed on the market and there will be fewer buyers due to affordability and the rising costs of living. This will ultimately make rentals a much more attractive option,” says Brits.
Aucamp agrees, adding that with the recent interest rate increase, the market is shifting back to the earlier position of rentals being more affordable to bond repayments.
Find out what home loan amount you qualify for
A newly built, three-bedroom, two-bathroom, double garage, 165sqm freestanding home in Salisbury Park could set you back R10 500 p/m in rent. Or, for just an additional R1 500 on monthly repayments, you could purchase a similar home for around R 1.55 million.
If you up your budget to around R17 500 p/m, you could rent a free-standing home in Lovemore Heights with three bedrooms, two bathrooms, and a double garage or you could purchase a similar home for R2.1 million and spend the same amount on monthly instalments on the home loan.
“From a rental perspective, we find that the demand for residential property in the R10 000 to R 12 000 p/m is in high demand. Properties in this price range are rarely vacant. In the R 17 000 p/m bracket we find mostly professional and corporate tenants relocating from other provinces. That being said, even though we have experienced a rise in the cost of living and even the repo rate, we find that people are still purchasing in the R 1.5 million to R 2 million bracket,” says Jade Darlow, Rental Office Manager at RE/MAX Independent Properties.
For under R1.5 million, a buyer can purchase a one- or two-bedroom townhouse or apartment in Parklands. For R12 000 per month, tenants can rent a slightly bigger two- or three-bedroom townhouse or apartment in the area. In this price range in this area, there is not too much difference between renting and buying.
However, in areas closer to the city center such Rondebosch and Claremont, buyers can afford a one-bedroom apartment of roughly 50sqm or less for around R1.5 million; while rent on a similar home is roughly R8 000 p/m. For R12 000 p/m in rent, you could afford a place possibly double in size.
Finally
As a final consideration, Goslett compares house price appreciation against annual rental escalations.
“While you could be paying R8 000 for a home in year one, you could end up paying as much as R17 000 on the same home in ten years’ time if we assume a 9% annual increase," he says.
"This is compared to annual house price appreciation which is currently sitting at roughly 4.46%, which means that you can sell the property for much more than you originally bought it for. Deciding what is the best option for you is not always easy. If you’re grappling with this decision, get in touch with a trusted real estate advisor to explore what you can afford.”
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