Buying vs renting – best option for South Africans

With interest rates set to be higher for longer, South Africans are better off renting rather than buying property as the bond repayments are likely to be higher. However, this is not true in all parts of South Africa. 

Buying or renting has long been debated in the South African property sector. Both have clear benefits and disadvantages. 

Renting offers great flexibility, enabling you to drastically change your lifestyle and home location with just a month’s notice. Furthermore, you do not have to carry regular maintenance costs.

Buying your own home also has attractive benefits, giving you stability and security along with any upside on the investment in the property. 

As a homeowner, you also have the freedom to make any changes to the property and potentially create your dream home. 

There are short-term factors to consider, particularly South Africa’s high interest rates, which increase the cost of home loan repayments.

According to Rode’s Report on the SA Property Market for the first quarter of 2024, South Africans should rent and save the difference between their rent and what a bond repayment would have been rather than buy a house. 

Stats SA’s data showed that in the first quarter of 2024, apartment rentals in South Africa grew by 3.6%, while data from PayProp shows that property rentals grew by 4.6%.

This continued a trend of slowing rental growth since 2015 as the country’s economy stagnated, and thus, demand for property slowed. 

Rode’s report said this indicated that property owners have kept rental price increased below inflation to keep tenants and maintain low vacancy rates. 

TPN Credit Bureau’s Waldo Marcus said that high interest rates have helped propel the rental market above its pre-pandemic levels. 

He explained that residential rental vacancies have steadily declined since the end of lockdowns, and demand has grown since the Reserve Bank began hiking interest rates in November 2021. 

Since then, the bank has hiked rates ten times by a cumulative 475 basis points, bringing the repo rate to a 14-year high of 8.25% and the prime lending rate to 11.75%. 

This has put immense financial pressure on South Africans in general and made home ownership significantly more costly. 

The effect of high interest rates has been compounded by persistently high inflation, rates and taxes, and increased tariffs on electricity and water. 

Thus, renting has become more attractive as an alternative to homeownership. 

Furthermore, property investors are also benefiting from strong demand for rental properties, as lower vacancy rates allow them to withstand the tough economic environment. 

While the room to raise rental prices is limited, investors can gradually increase prices given the sustained demand for rental properties. 

Standard Bank’s renting versus buying tool

Standard Bank, South Africa’s largest home loan provider, offers prospective homeowners a useful tool for comparing the benefits and disadvantages of renting or buying a home. 

The bank’s summary of the differences between renting and buying a property is shown in the table below.