You’re paying off someone else’s bond
“Typically, rent is around 0,75% of the value of a property,” says Brian van Wijk of Just Property. “If you find a property priced at a point where your bond repayments would be close to what the market-related rent would be, you should seriously consider buying rather than renting. Make a list of the advantages and disadvantages of committing to long-term bond repayments, considering affordability, costs, impact on your flexibility etc.” This will help you identify your readiness to make this big commitment.
You are incurring upfront and recurring costs
Rental costs include security deposits / non-refundable deposits, rent and utilities (none of which gives you any return on investment). The only time this makes sense, says Shaun du Bois, Principal of Just Property, is if you are on a short-term contract in a new city. “In such cases, it would be best to rent: the cost of finance and transfer fees make purchasing a property unwise in almost all such cases. Buying and selling every few years makes little sense once you factor in all the costs. For many years, most of your bond repayment is interest and it is only far down the line that the capital starts to be repaid in any meaningful way.”
You have little/no creative freedom to renovate and decorate
As a tenant, you need to get permission if you want to paint the cupboards of that depressing pine kitchen in your rental home. Even if you want to install rainwater tanks, you need to get approval. The landlord may well agree to the improvements you want to make but you will only benefit as long as you live there. Just remember that every beautiful curtain rod you install to replace the cheap ones there when you moved in, every plant you plant and every cupboard you paint improves the home of the owner – you have to leave it all behind when you go. It’s a much better idea to buy a home and make it yours. Any improvements to a home you own equate to long-term investments. Any improvements you make on someone else’s home offer very short-term gains for you, but long-term benefits for the owner.
You have no control over annual rent increases
Rentals increase annually and are usually set at 10%; way above inflation. “If you wait for the perfect time to buy you may wait forever,” says du Bois. Don’t stay out of the property market because you are worried about the future; your concern is the best reason to get into the market. “One must be careful of becoming too fearful because of temporary political or economic issues,” du Bois warns. “Property will always give good returns in the long run. At Just Property we are optimistic that interest rates will be lowered again in the next cycle. Another decline will take some of the pressure off consumers. And already we see consumer confidence returning.”
The property you are letting may be sold out from under you
Renting is insecure by its very nature. It can be very stressful when you expect your lease to be renewed, to instead be given one or two months’ notice that you need to pack up and find somewhere new. And not all tenant-landlord relationships are friendly. If you get into a disagreement, you could find your "security" threatened, and you may even face eviction proceedings if you and your landlord are in serious dispute.
You can't put down roots/ settle into responsible "adulting"
The longer you put off entering the property market, the harder it will be to do so. Most middle-class tenants are renting properties that they couldn’t afford to buy, considering that rentals are usually only 75% of bond repayments. One gets used to a certain standard of living, and every year it is harder to make the sacrifices needed to buy a property. Paul Stevens, CEO of Just Property, says right now there is a great opportunity for buyers. Interest rates are likely to fall very soon but the property market is under pressure and buyers can take advantage of current market conditions. “The market should recover when interest rates fall, giving buyers lower interest rates on their bonds and a healthy profit when they sell. Yes, it’s a long-term view. But one only needs to look at what properties sold for 20 years ago to know that the sooner one purchases the better.”
Issued by Just Property