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But for many, this has come at a staggering cost.
Those who bought at the height of the boom have seen the value of their homes drop – sometimes to below the purchase price. Many received easy credit and 100% home loans, but now struggle to repay their bonds amid retrenchments and rocketing personal debt.
And after having their credit records wrecked and spending a fortune on transfer fees, interest and other charges, many ended up losing their homes anyway.
The global credit crunch and housing market meltdowns have ended the love affair many nations have had with property ownership.
In countries like the UK, the percentage of people who rent instead of buy is expected to rise by 20% over the next 10 years and already, more than two-thirds of Germans do not own their homes.
Many South Africans, of course, now don't have a choice between buying and renting. Banks' credit taps are still pretty tight, with only two-thirds of mortgage applications approved and considerable deposits required.
However, the benefits of renting – particularly in this economic climate - are becoming increasingly clear. Here are some of them:
- Lower risk
A recent survey by Deloitte shows that half of the SA labour force fear losing their jobs (compared to almost 90% who felt secure in their positions three years ago).
If you lose your income or struggle with debts and can't afford your monthly mortgage payments, you risk losing your property and going through a forced sale. In the current struggling property market, selling a house is difficult enough.
In the end – after estate agent commission, penalties and interest – you may end up with a paltry sum, or even owing the bank more money. This could wreck your finances for many years.
Renting is much less risky – if you can't afford the rent, you can downgrade to a cheaper property. You also don't have the risk of damage to your property (flooding for instance, or a major maintenance issue like a burst geyser).
- More flexibility
Not owning a house gives you the opportunity to move quickly to take up a new job in a different city.
- Better living conditions
You can probably afford to rent a much nicer place than what you would be able to buy.
- Your money can work harder
This is the key argument against buying your own place: you can probably grow your money much faster if you invest it elsewhere. Traditionally, an investment in shares will perform better.
Property is also an expensive investment.
There are significant costs involved in buying a property. These include transfer duty, bond registration fees and other legal fees which need to be taken into account when considering the total cost of the property, says Cameron McCallum, a wealth manager at Netto Financial Services.
Interest on a R1m property, with a 10% deposit and at prime, comes to more than R840 000 over 20 years.
The proponents of renting argue that if you invest the difference between your rent and what you would have spent on your mortgage instalment, you will build up a fat nest egg that could allow you to buy a house - in cash, or at least with a large deposit – in a couple of years.
An individual looking at a specific property with an option to rent or buy it, assuming to finance it with a mortgage bond, would normally find that renting it would cost far less on a monthly basis - possibly as much as 50% when including all the levies, rates and other costs, says McCallum.
"If that person was disciplined enough to invest the difference between the bond repayment and the rent cost, this could prove to be a more profitable strategy."
This would have been particularly lucrative if you invested that money in property unit trusts over the past couple of years, says Suzette van Niekerk, financial planner at Exceed Private Clients.
Property funds have yielded almost 18% per year over the past five years and 22% over the past 10 years (with costs amounting to between 2% and 3% per year).
If you invested the difference between your rent and what you would have paid for your mortgage in property funds, you probably would have had enough money to pay for a house after 10 years, she adds.
But it usually doesn't work out that way.
Unfortunately, most people do not have this type of restraint, although a certified financial planner can assist in setting up monthly investments that can help you follow this more disciplined approach, says McCallum.
"I've been in the industry for 20 years and have only seen a handful of people who really did invest the difference between their rent and the supposed mortgage amount. That money usually just disappeared into food, clothes and cars," adds Van Niekerk. This option is for very disciplined investors.
The big argument for buying your own home is that it is forces you to put money away, effectively securing a more comfortable retirement.
The reality is that many people don't have enough savings when they reach 70. Owning a property has given many a life-saving reprieve, says Van Niekerk.
"What would have happened if 20 years ago they decided to rent instead?"
Her advice to young clients is to enter the property market as soon as possible. This will force them to save over the long term.
The other benefit of buying rather than renting is that, over time, the bond repayment can come down in real terms as your salary increases with inflation (assuming no change in interest rates). In other words, the bond repayments tend to become more affordable over time as your salary increases, while the rent cost tends to increase in line with inflation each year, says McCallum.
"We generally recommend that individuals make use of their tax breaks as far as possible, and then focus on paying off their bonds."
By voluntarily increasing one's bond repayment by just 10%, for example, the term of the bond can be significantly reduced.
"Getting into the habit of paying more than the minimum amount can also help you when interest rates rise, as you are already paying a higher amount so won't need to adjust your lifestyle as much."
Buying also means avoiding renting drawback – like dealing with shark-like landlords, who kick you out on a whim and cheat you out of a deposit.
But this does not mean you should buy at all costs.
The key is to buy only what you can afford - and to stay for at least three to six years so that the property will hopefully recoup the initial costs.
- Fin24
