Homeownership – Rent or buy?

Estate agent principals, says Tony Clarke, MD of Rawson Properties, have always emphasised the sense of self-worth and stability that owning a home gives to a family, especially one for which this is a new experience - and this, he says, is a wholly valid concept.

“I have time and again seen homeownership put a family on a new footing socially, psychologically and economically. Homeownership provides a stabilising influence and serves as an anchor for which all members of the family will be prepared to make sacrifices and endure hardship.”

However, said Clarke, in today’s market he and other Rawson leaders are frequently asked if this is not a good time to rent.

“It has to be admitted,” said Clarke, “that right now there are some good reasons why perhaps certain families, young couples or individuals might consider renting rather than buying. There is, firstly, abundant rental stock on the market because hard-pressed owners are opting for dual living, i.e. moving in with their families and renting out their own property to come out financially. Developers are also making whole developments that cannot right now find buyers available on the rental market, further increasing competition in the market and ensuring that current rents are low.

“The decision to buy or rent has to be decided by the individual, taking into account such factors as:

· his income and job security: can he be sure that he will not be redundant within the next few years? If he works for the state, a parastatal or an NGO the chances of being laid off are not high, but if he is in a business affected by market competition and economic fluctuations can he be confident that he will always have a job?

· his ability to qualify for a home loan and the fact that, although interest rates right now are low, they should easily rise by 2% within the next 12 months. This should be taken into account by those who would find an additional monthly payment difficult.

· the state of the local housing market, recognising that some areas are more affected by the cash shortage than others.

Those debating the virtues of renting, added Clarke, should apply the ‘Clarke test’.

“I offer this simple calculation to all - free of charge,” he said with a smile.

“Take the house you wish to rent and find one for sale in the same area of a roughly the same size, with the same attributes and qualities - then divide its achievable - not listed - sale price by the annual rent you expect to pay on the rented unit. If the resultant figure is above 20 you can rest assured that the price of the property is likely to fall and it would, therefore, be wise to rent the alternative unit for the time being. If it is below 20 the chances are that you could be paying too much in the current market.”

Asked to give an example, Clarke said,

“Supposing a house of the type you, the buyer, want, is for sale at R1,5 million and the prospective landlord on another similar unit is asking a rent of R8 500 per month, i.e. R102 000 per annum. Dividing the R102 000 into R1,5 million would give you a figure of 14,7. This figure, being below 20, would probably indicate that you should consider buying this property.”

Asked if he foresees renting replacing buying, Clarke said,

“Definitely not. As I have indicated, the advantages of homeownership have been proved worldwide throughout the last 200 or 300 years, i.e. since the ordinary man-in-the-street has been able to afford a property of his own. As our Chairman, Bill Rawson, has so often said, it is the government’s duty to promote and foster homeownership and we as estate agents can do a very useful job in reinforcing the undoubted benefits that homeownership can almost always confer.”

Article from: www.rawsonproperties.com