While current conditions have opened up the property market to many buyers that may not have been able to purchase property during the boom period, some consumers are still hesitant to dip their toe in the property ownership pool and would rather continue to rent, says Adrian Goslett, the CEO of RE/MAX of Southern Africa.
"For certain buyers, it is a question of whether they feel it is currently more financially sensible to buy their own property or to just rent one until they see more drastic improvements in the market," says Goslett. "However, for others there is far less choice in the matter. While the number of South African homeowners has risen over the past 10 years, many are still struggling to show the necessary affordability levels required by financial institutions and have no choice but to rent. The South African personal debt-to-income ratios remain relatively high and many aspiring homeowners are working on reducing debt levels in order to take advantage of the opportunities available for buyers in the present market."
With banks' lending criteria still strict and approximately 51% of home loan applications being approved, demand for rental property has increased dramatically over the last few years. The rental market continues to see an influx of tenants looking for rental property at reasonable prices. "The increased momentum in the rental market has been greatly welcomed by investors that have a buy-to-let portfolio. There is a constant demand for rental property and it is relatively easy to find tenants.
"From an investment perspective the low interest rates have meant that investors who have financed their purchases will be paying less on their monthly bond repayments and seeing a greater return on their investment," says Goslett. "The market conditions are also primed for investors that have the access to finance to purchase additional property and to build their portfolio."
According to Goslett, in some cases it is more feasible for consumers to rent, particularly if they are unsure of their future plans or where they want to be in the next five to ten years. "Purchasing property is a long term commitment, while some consumers may want the freedom to relocate to a different city for employment reasons or a change in lifestyle. Sometimes tenants can also find property that they can afford to rent, that they probably would not be able to afford to buy," he says.
Goslett says the money saved by renting could be put towards buying property at a later stage or could be used to bring down household debt levels. "However," he says, "many consumers end up increasing their living standards rather than saving that money and paying off debt." Therein lies the crux of the matter. Many consumers lack the restraint to withhold on living above their means so they can save. Goslett says the big argument for buying a home instead of renting one is that owning your own home is in fact a kind of forced saving. "The reality of the matter is that most South Africans do not save enough money for their retirement. The country's current household saving rate is around 16%, which is relatively low when compared to other emerging markets.
"However, being able to sell your home that you paid off over 20 years, and downsizing will no doubt offer welcome financial relief when it is needed most. South African's that have rented for their entire lives will have no asset to sell." To make the most out of property investment, the secret is to get into the market as early as possible, advises Goslett. "While a buyer may have to initially tighten their belt to meet the monthly repayments, assuming there are no drastic changes, a 20 year bond will decrease in real terms as the buyer's salary increases, making the bond more affordable as time passes. This means that the earlier a buyer gets into the market, the better off they will be," he says. "If possible, homeowners should also try and put any extra money into their bond to reduce the terms and save on the interest paid on the loan."
Whether renting or buying, each option has its own advantages and disadvantages. "Each consumer is at different stages of their lives which involve different needs and levels of affordability. Renting can give a tenant the flexibility they may require before they make a long term commitment, while buying can provide a homeowner with an asset to their name that will certainly show good returns in time to come," Goslett says.
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