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BUSINESS NEWS - The debate rages on – is it better to buy or rent your home? 

By home, we are referring to your primary residence. For many years this was never really in doubt. 

People strived to buy a home as soon as possible, it was a priority. A home provided a sense of security as their “primary asset”.

After some time they had a bit of equity in the property and possibly an increase or two along the way. 

Often they would later upgrade to something bigger and better, perhaps in a better neighbourhood. 

They generally stayed in the house for some time, normally settling the bond. 

These properties were often passed down to their children when they passed away. 

This longstanding belief is now being challenged by many and both sides of the debate make good arguments to support their belief. 

The truth is, there is no absolute answer and much depends on your financial goals, specific requirements, lifestyle, personal circumstances, the property and rental market and a number of other variables. 

What is good for one person is not necessarily going to work as well for someone with different circumstances.

Part of what makes the decision challenging is that many of the variables such as future interest rates that influences your home loan repayments and property market performance are difficult to determine with any accuracy over the medium to long term.

 One also has to factor all costs into the equation including the purchase price, additional upfront costs such as transfer fees, bond registration fees, etc.) rates, insurance, renovations and maintenance, capital appreciation and interest rates, to name just some of them. 

Inflation is another important factor that is difficult to predict over the medium term. 

There are also the costs involved when you wish to realize your investment and sell the property. 

Capital gains tax, electrical and entomology certificates, legal fees and estate agent commission are just some of the expenses associated with selling your home. 

These costs are also significant. 

Timing is another critical factor and if you are forced to sell your property at a time when the market is experiencing a slump, this could have a seriously negative effect on your perceived investment. 

The concept of viewing a property as an investment means that you expect to get a greater return on the money spent on buying and maintaining the property versus the return you could achieve by renting and investing the difference that you save by doing this. 

This introduces yet another variable as you can not predict the return you can expect from the alternate investment.

Investments in any form always have an element of risk and uncertainty. 

Sure, some are less volatile and provide a more predictable return but this is generally at a lower rate than slightly higher risk options.

Holding on to your property
One of the single most important factors in deciding whether to rent or buy is how long you expect to remain in the property. 

It will take a good number of years for the capital appreciation to exceed the initial additional expenses associated with the property purchase. 

The other issue that runs in tandem with this is that rental expenses generally increase annually at a rate that exceeds inflation. 

Staying in a rental property for a long period will eventually mean that the cost could well exceed the cost of property ownership.

With such a volatile property market at the moment, people often find themselves needing to relocate to find employment. 

The general consensus is that it is necessary to hold onto a property for a minimum of eight years in order to cover the initials costs and perhaps realize a small gain. 

If you believe that it is unlikely, it would be better to rent until such time as you have more certainty. 

Other factors also come into play such as a growing family or taking in elderly parents.

Saving the difference
Crucial to the whole concept of renting instead of buying property is that you diligently invest the money you save by going for the rental option. 

You want to be able to save a significant deposit, keep debts to a minimum and maintain a good credit profile. 

This will put you in a position of strength when you do come to make your purchase and save you a significant amount of money. 

The bottom line
As I said at the beginning, there is no easy answer. There are many unknown variables. 

The right decision will come down to your personal circumstances and various external factors over which you have no control. 

Your best bet is to do as much homework as possible and enter into any decision you make with your eyes wide open.

If you would like to compare home loans and find the best interest rate then go to homeloans-sa.co.za to apply for your bond online.

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