Author: Rhys Dyer
CEO of Ooba Group
12 August 2021
Buying vs Renting – What you need to consider right now
Whether you plan to buy or rent is largely dependent on your personal profile and preference – but there are specific market conditions to consider right now.
Low interest rates, coupled with bank lending reaching an all-time high and a notable shift in consumer buying behaviours, makes now the perfect time for buying a home.
This is according to Rhys Dyer, CEO of ooba Group who says, “Despite lockdown and a turbulent economy, there has never been a better time to own a home. In fact, people are investing more in their homes than before.”
“Interestingly, our latest statistics for quarter 2 of 2021 indicate a 16.6% growth in the average purchase price of a home – R1,407,071 and R1,104,351 – up by 10.9% – for first-time buyers.”
This indicates that people are ‘buying up’, says Dyer.
“They’re increasing their spend due to low interest rates and the need for more space whilst working from home.”
Tenants feeling financially vulnerable
A recent TPN Tenant Survey conducted at the beginning of 2021, however, has found that 53% of tenants rent because they cannot afford to buy. This figure was 46% in the same period in 2020. A further five percent of tenants say they are renting because it is cheaper than owning property.
Michelle Dickens, TPN CEO says the fact is that tenants are feeling financially vulnerable. Some 75% of tenants surveyed reported a loss of income during the lockdown. Nearly one in ten tenants confirmed a permanent loss of income, while 12% of tenants received no income for a limited period but are now back to earning their full salary, and 50% of tenants received only partial pay for a temporary period. Only 25% of tenants confirmed their income was unaffected during lockdown.
At the same time, the TPN Vacancy Survey shows that vacancy rates are trending upwards to 12.9% as tenants retreat to family and friends to recover financially.
Although debt became cheaper as the prime interest rate plummeted to seven percent, with millions of jobs lost and the reality of temporary or permanent loss of income for millions, consumers are poorer overall.
Buying puts pressure on the rental market
Regardless of the economic uncertainty, “people are still investing in homes,” says Dyers.
As home buying continues its upward trajectory, Dyer notes that first-time homebuyers have put significant pressure on the rental market.
“We are seeing a positive uptake in home loans by first-time buyers – at an average age of 35. They’re now opting to terminate their lease agreements and invest in a home, and this is putting on pressure on landlords.”
Speaking to the shift, Dyer cites affordability, poor credit scores, lifestyle, and flexibility as some of the key drawbacks for those who have not yet taken the plunge.
Weighing up the pros and cons of home buying
If you are thinking about investing in your own home, your financial situation and overall monthly costs are the key things to consider.
A monthly bond repayment on an amount of R1 million has dropped from R9 650 to R7 752. Three rate cuts in quick succession have reduced the prime interest rate to 7%, the lowest level since 1973 at.
However, with homeowneship comes unexpected costs, beyond just your monthly untilities and rental payment.
Pros of buying a home include:
Reduced monthly repayments: If the interest rate goes down, so does your monthly home loan repayment. “On the other hand, a rental agreement is generally fixed so there is a chance that you’re paying inflated rental prices at this stage,” says Dyer.
First-time buyers have the upper hand: “First-time buyers are privy to low interest rates and zero-deposit home loans (in many cases).” Currently, 60% of ooba Group’s first-time homebuyers acquire property without access to a deposit.
Bargaining power: “The excess supply of homes on the market makes now a good time to start negotiating a great deal on your dream home.”
However, negative rental growth seen over 2020, means tenants also have the upper hand when it comes to negotiating their rental rates.
The power of owning an asset: “Your property is likely to be an appreciating asset, especially over the long-term, and it could even be used as an investment property in the future. If the value of the property rises, the value of your personal wealth should also increase and you’re more likely to make a profit if you sell it.”
Take charge: “Generally you can do anything you like with the decor and outdoor areas (subject to council or body corporate approval), and any improvements are likely to enhance your lifestyle and increase the value of your home.”
Some of the cons include:
Added costs: When renting, maintenance and repairs are generally the responsibility of the landlord. When you buy a home, however, the onus is on you. It’s important that you set funds aside and maintain your home so that it holds (and increases) in value. “Also keep in mind costs such as levies (and special levies), rates, taxes and insurance.”
Repayments can fluctuate: “Your monthly home loan repayment is subject to interest rate hikes. When budgeting for a home, do the math over various interest rates and be sure to buy within your means.”
Is it time to escape the rental trap?
Dyer strongly recommends paying off your own home loan rather than someone else’s.
“It’s recommended not fall into the comfort zone of renting, and for first-time buyers to take advantage of the current market conditions. For those who aren’t sure if they qualify for a home loan, work with industry experts to check your credit score, receive a pre-approval and ultimately apply for a home loan.”
“Finally, if you intend to buy-to-let, the income from rent can be used to pay off your home loan.”
The original article can be viewed here: