In light of our current economic climate – rising interest and inflation rates, sluggish economic growth and a decline in expendable income – it’s no wonder the rental market has become the more attractive option, whether voluntarily or not, when the economy is in such a poor state.
Johannesburg in particular has marked a notable increase in demand for rental property. Generally speaking, the higher salaries and lower rentals typical of the City of Gold make renting a favourable and comfortable choice. Unfortunately for many buying has simply become unaffordable. South African consumers are grappling with the financial repercussions of high debt, low disposable income and impaired credit scores. These have a large impact on the outcome of a home loan application.
For the majority of South Africans this means that the rental market is no longer seen as a short-term solution or a means to an end. Rather, consumers are choosing to remain in the rental market for its flexibility and affordability.
It’s easier for a tenant to vacate a rental property at the end of the lease period or after fulfilling their notice period (should they wish to change jobs, suburbs or cities) than it is for an owner to sell their property for the same reason. Renting offers considerably more flexibility and mobility than owning a property does.
There are also notable financial benefits to renting.
Monthly rentals are only subject to increase once a year whereas bond repayments are at the mercy of interest rate hikes. Homeowners are made particularly vulnerable by the current rate hiking cycle imposed by the SA Reserve Bank in an attempt to prevent any further rise in inflation.
Rentals are oftentimes considerably cheaper than the high costs involved in homeownership. The landlord is financially responsible for paying insurance, rates, taxes and levies on the property, and any maintenance or repairs costs. The tenant is liable for the fixed monthly rental amount and in most cases the water and lights, leaving them able to budget more efficiently with more exposable income to spend or save as they wish. Simply put, consumers prefer to have more readily available money after expenses are paid, especially considering the poor economy, to save or invest with that rainy day in mind.
The rental deposit, usually equal to one month’s rent, is much less than the standard deposit accepted on a property for sale, which is on average 10% of the purchase price. Unfortunately many aspirant homebuyers are forced to remain in the rental market for this very reason. They are unable to come up with a large enough deposit to meet the bank’s deposit requirement or aid in their homeloan application.
The most notable downside to renting is that the tenant is not accumulating wealth and lacks the long-term value and security of owning a property. Renting has until recently been seen as a means to an end, with the ultimate goal being homeownership. However, whether it’s a long-term or short-term solution, renting is a cost-effective option when the economy is under pressure.
Aspirant homebuyers should realistically and seriously consider the large financial responsibility of homeownership before making any lasting decisions.