Renting more affordable than buying – report

Many South Africans are better off renting and saving the difference between the rent and what the bond instalments would have been than buying in the country’s high interest rate environment.

This is according to Rode’s Report on the SA Property Market for the first quarter of 2024. The report said the decline in national vacancy rates since their Covid peak has supported rental growth.

Official data from Stats SA shows that in the first quarter of 2024, nominal flat rentals in South Africa increased by 3.6% compared to a year earlier. 

The latest PayProp growth figure was for the fourth quarter of 2023, when rentals for housing – including flats – grew by 4.6%.

The nominal growth rate of rentals in South Africa was on a slowing path between 2015 and 2021, in line with a stalling economy. 

A tiny recovery was seen in 2022, with growth picking up further to 2.4% in 2023 versus 2022. However, rentals are still declining in real terms. 

“This suggests that property owners or their managers have generally kept rental increases below inflation to prevent losing tenants,” the report said.

A positive factor for the rental market over the short term is South Africa’s elevated interest rates, which will continue to sway some potential buyers to rather rent. 

The South African Reserve Bank (SARB) started its current hiking cycle in November 2021 to get South Africa’s inflation within its target band of 3% to 6%.

This has pushed the prime lending rate to a 15-year high of 11.75% and the repo rate to 8.25%.

South Africa’s rising interest rates have put many homeowners under pressure, as they face higher bond payments and lower disposable income.

Although interest rates will decline, they will likely not drop again to the ultra-low pandemic levels. 

In addition to high interest rates, prospects for the South African economy over the next few years are not bright, with low growth expected in household incomes.

“Thus, it will remain cheaper to rent than to buy over the short term, and it would make sense − purely from a financial point of view − to rent and religiously save the difference between the rent and what the bond instalments would have been,” the report said. 

“After a few years of saving, a buyer could use the savings for a higher deposit to buy a home, which by then will probably be lower priced in real terms than now.” 

“The catch is that few households have the iron will to religiously save the difference between the rent and the instalment.”