Johannesburg, 23 October 2017 - When considering whether to rent or to purchase a property, the traditional view is that it is better to purchase the property, after all, why should you pay off someone else’s bond? “In some cases this may be true - however it is certainly not always the case” says Jonathan Kohler, CEO of Landsdowne Property Group. Below are some factors to consider before you make that decision:-
Firstly, it is advisable to do a simple calculation to determine if the rental amount that you are paying is similar to the bond repayment that you would be making each month if you took out a bond over the property. This could be a good indication that it would be better to buy the property, than rent it. This is usually true in the instance of the first time home owner market. Kohler gives the example of if you were purchasing a 1 bedroom 1 bathroom garden apartment in Fourways for R750 000 and you financed the entire amount at the prime lending rate of 10.25% over 20 years, your bond repayment would be R 7 362.33 per month. However, if you rented the same property, the rental repayment per month would be approximately R 7 000.00 per month.
In comparison to the above, for example a 4 bedroom 4 bathroom cluster home in Bryanston (the higher end of the market), would typically sell for R 5.5 million. If you financed the entire amount at the prime lending rate of 10.25% over 20 years, your bond repayment would be R 53 990.39 per month. However, if you rented the same property, the rental repayment per month would be approximately R30 000 per month. The difference between the bond repayment and the rental amount is significant at R 23 990.39 per month.
Capital appreciation, or simply put, how much your property will increase in value on a yearly basis is vital when making the decision to rent or buy. When deciding where to purchase your property, apart from the convenience of location, it is important that you purchase in an area where there will be a lot of development in the next few of years.
Having considered the above examples, the Fourways area is set to become Johannesburg’s next major development hub. This will be as a result of the redevelopment of Fourways Mall, an estimated R 270 Million to be spent on adjacent road infrastructure, the prominent estate Steyn City less than 2 kilometres away from Fourways and the Gautrain which is planned to stop at Fourways. “Capital appreciation should be guaranteed in the area, especially in the R 750 000.00 property price range” says Kohler.
Looking at the Bryanston area for example, although this is a great area, capital appreciation has been somewhat non-existent in R 5.5 million property price range over the last couple of years. “In fact, most of the Northern suburbs, which are traditionally good areas to have a property, have had little capital appreciation in the R 5 million – R 10 million property price range” advises Kohler.
When purchasing a property, the additional costs that require consideration are: rates and taxes, and levies (if you are purchasing in a development). Your rates and taxes for the abovementioned Fourways property would be approximately R 360.00 per month and the levy would be approximately R977.00 month. The difference between the bond repayment and the rental amount is R 362.33 (i.e. R 7 362.33 bond repayment versus R 7 000.00 rental repayment). Therefore the total additional cost to own this property would be R 1 699.33 per month. If the difference in the above example between renting a property and owning it is a mere R 1699.33 month, especially considering the development and projected growth in the area, it would be a “no brainer” to own rather than rent says Kohler.
Looking at the example of the Bryanston property, the estimated rates and taxes would be R 2 221.00 per month and the levy would be R2 500.00 per month. The difference between the bond repayment and the rental amount is R 23 990.39 (i.e. R 53 990.39 bond repayment versus R 30 000.00 rental repayment). Therefore the total additional cost to own this property would be R 28 711.39 per month. To own this property, it would cost almost double than what it would cost to rent it. “Not to mention the monthly maintenance costs, which would be for your account as the property is freehold. Couple this with the fact that there is little to no capital appreciation in that price range, I would most definitely rather rent than buy this property” says Kohler.
Due to the recently increased threshold there would be no transfer duty when purchasing the property in Fourways for R 750 000.00, as there is no transfer duty payable for properties which are purchased for less than R 900 000.00. The conveyancing fees would be approximately R 18 884.00.
The transfer duty on the property in Bryanston for R 5.5 million would be R 438 000.00 and the conveyancing fees would be approximately R 55 176.00. This is a total of R493 176.00, which means that the actual purchase price of the property is in effect closer to R 6 million.
Kohler advises that in this market, if he was looking to buy property he would most certainly be looking to purchase properties under the R 1 million mark as the rental income is very similar to the bond repayment, and the market is still buoyant when the property is purchased in the correct areas. “If you are considering buying a property in the R5 million – R10 million range, I would definitely recommend renting, as the cost is on a monthly basis is literally half of that to purchasing, with little to no capital appreciation” concludes Kohler.