At the current interest rate of 11.25%, the repayment on a 20-year home loan of R1 500 000 will amount to just over R15 700 per month. In many areas, a tenant will end up paying a comparable amount in rent for a home of similar value. While it is often possible to rent a home for somewhat less than it would cost to purchase a home, it is important to remember that renting is purely an expense. Owning a home, on the other hand, provides you with an appreciating asset that can provide greater long-term financial security.
The decision of whether to own or to rent will differ from person to person depending on lifestyle needs and preferences. Affordability is only one of several factors that people consider when weighing up this decision. In some areas and within certain price brackets, you will find similar value for money for both renting and buying. But, in other areas and price brackets, renting might be more affordable than buying a comparable home.
In Germiston, for example, you will be able to buy a house for R1.5 million in Albemarle or Dinwiddie. These houses will offer three bedrooms with two bathrooms and two living areas. When looking at the rental side, you will find a similar house in Lambton, Albemarle and Dinwiddie for around R15 000 p/m. You will also have the option to buy a modern townhouse inside the Stone Arch Complex – possibly a three-bedroom, two-bathroom unit or a two-bedroom, two-bathroom unit on the ground floor for up to R1.5 million. The rentals for these units will be only slightly cheaper than your monthly bond repayment if you’re 100% bonded.
In the Alberton area, you might find a freestanding house for R1.5 million, a 100m2 to 150m2 two- or three-bedroom townhouse in this price bracket. On the rental side, you can rent a slightly bigger 120m2 – 200m2 townhouse or home for roughly R15,000 p/m. The houses will be in Mayberry Park, Brackendowns, Verwoerdpark or General Alberts Park area.
Within the Western Cape, it all depends on the area. For example, R15k in rent can get you a one-bed apartment at The Herschel in Claremont Upper but could afford you a 2-bed or even 3-bed house in Plumstead; semi-detached home in Harfield Village; or bachelor flat in the CBD. In general, you can expect to get at least a 2-bed rental unit for that price, be it in the form of an apartment, a house, or townhouse.
When it comes to purchasing a home for R1.500 000, buyers could find a two-bedroom townhouse in Kenilworth or a bachelor flat in Claremont. The difference between renting and buying starts to get more noticeable when moving into the higher price brackets. For example, in the Western Cape, average property prices are around R2 500 000. The monthly repayment on a R2 500 000 home loan at the current interest rate amounts to just over R26 000 per month. For a home of similar value, it is possible to pay around R18 000 per month in rent (depending on the suburb).
The reason somebody chooses to rent rather than to buy or vice versa will be different for everyone. Affordability will not be the only factor. While renting will offer more flexibility than buying, owning a home will provide greater financial returns and will offer greater stability. Many renters might not even realize that they can afford to purchase a home simply because they have not yet explored the option of buying. Keep in mind that the sooner you can enter the property market, the greater your long-term returns will be.