Property ownership versus life-long rental a ‘no brainer’

A leading property group has dismissed as totally inadvisable the renewed debate surrounding property ownership versus rental.

“Right now the pendulum favours rental more out of economic necessity than choice. But long term, there’s no question that property ownership makes more sense financially and in many others ways,” says Gerhard Kotzé, CEO of the ERA South Africa property group.

“The property market, like all other markets, goes through cycles and invariably when there is a downtrend commentators emerge from the woodwork suggesting that rental-for-life is a better option than ownership of property.

“Essentially their argument is that if you re-direct the monies you would have channeled into a homeloan towards other investments such as the stock exchange for example, your ultimate returns would be better.

“However no evidence other than theoretical calculations is provided by these pundits to back up this theory, whereas historically, solid research proves that, over time, property outperforms other major assets including the stock exchange, gold and bank deposits.”

Moreover, he says, the benefits of property ownership include:

* Capital gains – it’s widely accepted that home ownership is the best form of wealth creation for the average South African;

* Financial discipline – the contractual obligation the home owner has towards the lending institution ensures that bond payments receive priority at month end as opposed to a voluntary savings or investment plan.

For many therefore, property is essentially their best form of “pension” as it can be parlayed into a retirement nest egg at the end of their working life, typically by downsizing and investing the balance or renting out a portion of a large home to generate income, says Kotzé.

There are also numerous peripheral benefits – the ability to borrow against the equity built up in a property, the improved creditworthiness of the owner and security of tenure arguably being uppermost.

“The downsides of property ownership, if there really are any, include higher bond repayments when interest rates go up; the possibility of ‘negative equity’ where the market value of a property is less than the outstanding bond for a while; the ongoing costs of maintaining the property in good repair and the relative illiquidity of home ownership compared with readily saleable investments such as shares.

“Ultimately, however, who would wish to reach retirement age without security of tenure and at the mercy of landlords and ever increasing rentals while your income level at best remains static? Therein lies the real fallacy of the pro rental-for-lfe lobby.”

Article by: www.era.co.za