Property Myths Exposed - To Buy or Rent?

Should You Rent or Buy?

In the current property market climate, investors are understandably shy and there are many potential buyers who are choosing to rent and rather bide their time until the market improves. However, there are experts who believe that the property market is set to hit rock bottom in the coming months and this is in fact the ideal time to make that investment.

In an article for Realestateweb, Jackie Cameron asks the question, “Is it really better to be a landlord than a tenant?” This was inspired by an American article called ‘Rent vs Buy Myths that Ruined the Housing Market’, which discussed some of the so-called myths that made people justify buying houses that they probably could not afford during the property boom in the US.

Myth 1: Renting is like throwing your money away.
Those who believe that renting is the way forward seem to think that buyers pay money to the bank for the first 5 years for the privilege of borrowing money. In contrast, renters pay for one thing each month: shelter – they don’t pay interest, tax and other property-related costs.

Myth 2: It doesn’t cost more to buy than it does to rent.
Those who decide to rent pay a deposit, while those who own spend loads of money on the initial costs, with the home needing to appreciate in value considerably before these costs become insignificant, is the argument here.

Myth 3: Buyers have assets; renters do not.
Those in favour of renting say that while they may not co-own a home with a lender, this doesn’t mean that they don’t have assets. In fact, they have extra cash to pay for these other assets.

Myth 4: Houses are a good investment.
There are some renters who believe that housing is “not an investment” and that although home prices can rise, the rate of appreciation on housing does not extend beyond inflation levels. The American article cites an annual real return on US housing gauged between 1890 and 2005 as a “pathetic 0.4% per year”. It also indicated that the gain in new prices over the last 20 years in the US is just a fraction of what the average investor in stocks would have made.

While some of these arguments may reflect sentiment currently holding force in our own country and may make for interesting reading, there seems to be a flaw in the assumption that those who rent are actually saving the money that might be going towards a bond payment. The reality is that South Africa’s relatively dismal national savings rate puts paid to that idea.

There are certainly plenty of good reasons to rent rather than buy a property, particularly in light of the limited overhead costs each month and the peace of mind that comes with knowing that your hands aren’t tied financially for the foreseeable future. However, if you manage your property carefully then it is possible for ordinary income earners to create substantial wealth through ownership.

There are plenty of people who will attest to the fact that their financial independence began with an investment in simple bricks and mortar. In the long run, at the very least you should own the roof over your head, as it may just be shelter, but it is your shelter and no one can take that away from you.

The information in this article is courtesy of Jackie Cameron (“Renting vs buying: 4 property myths”, Realestateweb, 18 April 2008).

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