Personal Finance

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Do you know why there is no decisive winner in the argument between buying or renting the property you live in? It is because there are pros and cons on both sides and the considerations that will swing it one way or the other for you, are based on your personal preferences. If you ask Artificial Intelligence for an answer, you will get a very vanilla answer, leaning toward buying rather than renting. Do yourself a favour and go try it. Go to your X app (Twitter) and on the bottom menu click on “XiGrok”, or go to your Google Search and type in the question. You will be surprised at how detailed the answer is; but be specific and ask about property in South Africa, because we are special.

You will get an answer that goes something like this:

• In South Africa, whether to buy or rent depends on your individual circumstances, financial situation, and long-term goals. Buying offers the potential for long-term financial benefits and equity building, while renting provides flexibility and lower initial costs.

If you want some more detailed number crunching, you should check out the following article in Daily Investor dated 28 January 2025: Their conclusion is that it is much better to buy than to rent but they do make a lot of assumptions that might differ from your personal circumstances. It is important to consider the following points before you make a decision:

• If you are not sure about how long you will be able to stay in the property, rather rent. There are a lot of costs involved in buying and selling properties.
• Buying property in the Western Cape has been a much better investment than buying property in the rest of the country, resulting in house prices as well as rental prices escalating dramatically. If this trend is to continue, it would be better to get into the property market by buying, even if the property is a bit smaller than you would have liked.
• If you pay attention, you will realise that points one and two are contradictory. This is where you will have to evaluate your circumstances very carefully.
• Property prices are cyclical. You might have to wait a year or two before you can sell your property at a fair price again if the cycle is against you.
• Be very careful if your reasoning is that you are going to buy a property and if you have to move somewhere else due to work or other personal requirements, you will rent out the property to avoid the costs associated with selling. Renting out a property comes with a whole host of other costs and risks, such as tenants damaging your property; legal costs to evict non-paying tenants; the constant admin hassle of micro-managing difficult tenants; etc.
• Something that will give the buying side of the argument some bonus points, is if you can convert a portion of the house into something that can create an income. It is astonishing to see how much people are prepared to pay for a small granny flat or a small workspace and because you are living in the house, maintenance is much easier.
• Most of us are houseproud and want to do a bit of renovating wherever we are living. If you own the house, those renovation costs will increase the value of the property (to a certain extent), and can be added to the base cost for future capital gains tax calculations. Only the first R2 million of any capital gain is tax-free when selling a residential property.
• Usually there will be a difference between the rental and mortgage payments. If you are renting but do not invest that difference in growth assets like shares, you will forfeit one of the strongest benefits of renting rather than buying. Paying a mortgage is a forced way of saving. It is very difficult to have the discipline to put that extra money into an investment, especially when you are young and have a flamboyant lifestyle.
• Do not consider your residential property an investment that you will be able to sell at a profit and downscale to something smaller when you grow older. Unless you move from the Western Cape to Gauteng, you will most likely make very little clean profit after costs and potential taxes, with which you can buy something smaller later in life. The point is: if you do decide to buy, then buy a home, not a house with future investment potential.

There are so many other factors to consider but personally I would encourage people to get into the property market with something small. Get your foot in the door. Buy something that you can perhaps fix up a little or create a space for some passive income. As you start getting more financially secure, upgrade without increasing your bond too much. Keep your property expenses the same percentage of your nett income as before. It will be important to start with an investment portfolio as soon as possible to get the benefit of diversification and compounding returns. Remember that property in South Africa will be your highest risk South African investment. If things go wrong, there will be no buyers.