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Renting proves better than buying

Apr 17 2011 15:52 Elma Kloppers

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Johannesburg - The high cost of home ownership is making many wealthy South Africans shell out R10 000 to R25 000 a month to hire a roof over their heads, instead of buying a house.

For this type of money a tenant can rent a R4m house for R20 000 a month, instead of paying off R40 000 a month on a mortgage, said Helen Henning, principal of Seeff Pretoria East’s letting division.

If one adds the savings in property tax and maintenance, tenants can save a fortune each month, she said.
 
First National Bank (FNB) analyst John Loos said this shows that upper-income groups are also experiencing financial pressure.

According to FNB agents' research report for the first quarter of this year, owners in the upper segment of the housing market (around R3m) who have downscaled because of financial pressure represent 19% of all transactions, coming from an average of 15%-odd last year.
 
He said that for people with means it makes financial sense to sell their houses and rent similar dwellings, thus retaining their living standards in the short term.
 
Henning said this meant that these people did not need to drop their standards in adjusting to smaller budgets.
 
But it is not only upper-income groups who prefer to rent their dwellings for financial reasons.

High indebtedness and banks' strict lending criteria as a consequence of the National Credit Act make it impossible for many anxious homebuyers to enter the market.

They therefore have no choice but to rent.

Loos said this was good news for the rental market because the demand for rental accommodation for households under pressure would increase in the short term.
 
In 2010, he said, the improvement in rental growth had already been evident.
 
Statistics South Africa's consumer price index research indicates that rental growth in December was 5.4% year-on-year, compared with 4.5% in June.
 
Rental growth in the flats category was however considerably higher at 8.1%, largely owing to affordability, a significant criterion in difficult financial times.
 
But improved rentals are still not attracting investors to the buy-to-let market.

In the first quarter of this year these investors represented only 8% of total purchases. Loos said that in 2004 they had comprised 25% of all buyers.

He believed this was positive news for the rental market because rental stock was limited, which would consequently be good for growth in rental income.

 - Sake24
 
property  |  house prices
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