Buying versus renting in South Africa

South Africa’s high interest rates have pushed many South Africans to rent rather than buy, but there are advantages and disadvantages to both that must be considered.

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, slowing demand for property. 

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 SARB has raised rates by a cumulative 475 basis points, bringing the repo rate to 8.25% and the prime lending rate to 11.75%.

Real Estate Services CEO Giovanni Gaggia told Daily Investor that the decision to buy or rent in South Africa’s current economic climate depends on individual circumstances and financial goals. 

He explained there are several factors to consider when choosing between renting or buying –

• Interest rates: The SARB has been raising interest rates to combat inflation, making borrowing more expensive. This could make buying a property less affordable for some and create opportunities for others.
• Property prices: Property prices have been relatively stagnant in recent years, which could be an opportunity for buyers. However, rising interest rates could put ongoing pressure on prices.
• Economic outlook: The South African economy is facing several challenges, including high unemployment, load-shedding, and political uncertainty. These factors could impact the property market in the short to medium term.

“Considering these factors, renting might be a more attractive option for some South Africans, especially those who are unsure about their financial future or who are not planning to stay in the same area for a long time,” Gaggia said.

“Renting provides more flexibility and less financial risk than buying.”

However, he said buying is always still a good option for those who are financially secure and who are looking for a long-term investment. 

This is because property can be a hedge against inflation and can provide a sense of security and stability.

Gaggia listed the benefits of buying property:

• Potential for capital appreciation: Over the long term, property values tend to increase, which can provide a return on investment.
• Building equity: Mortgage payments gradually build equity in the property, which can be used as collateral for future loans or investments.
• Stability and control: Homeowners have more control over their living space and are not subject to rent increases or eviction.

He also listed the benefits of renting property:

• Flexibility: Renters can move more easily if their circumstances change, such as a job relocation or a change in family size.
• Lower upfront costs: Renting typically requires a lower initial financial outlay than buying.
• Less financial risk: Renters are not responsible for property taxes, maintenance costs, or fluctuations in property values.

Ultimately, Gaggia said it’s important to weigh the pros and cons of each option carefully and to consult with a financial advisor if needed. 

“Additionally, staying informed about the latest developments in the South African economy and property market can help make informed decisions,” he said.

Waiting for the cut

Gaggia told Daily Investor that if South Africans are interested in buying, waiting for interest rates to come down could be a good strategy for buyers.

This is because lower interest rates could make borrowing more affordable and potentially lead to lower property prices. 

“However, predicting when interest rates will decrease is difficult, and waiting too long could mean missing out on opportunities,” he cautioned. 

“The key is to ensure that the property is priced correctly in the current market conditions.”

For sellers, he said delaying until interest rates decrease could attract more buyers due to increased affordability. 

However, if property prices decline due to higher interest rates, waiting might not yield the desired sale price.

Currently, interest rates could be cut sooner than expected as inflation steadily falls below the Reserve Bank’s target, fuel prices fall, and positivity surrounding the Government of National Unity (GNU) boosts the rand.

Standard Bank’s head of macroeconomic research, Dr Elna Moolman, said the SARB’s hiking cycle has ended, with rates remaining unchanged for the past six Monetary Policy Committee (MPC) meetings. 

Uncertainty remains about when the Reserve Bank will cut interest rates, and volatility and uncertainty in the aftermath of South Africa’s election may delay relief. 

Moolman explained that financial market volatility and uncertainty are temporary and should not be a factor when the MPC meets again at the end of July. 

By then, the country’s political situation should have stabilised, and greater certainty around government policy will give financial markets a relative sense of calm. 

This will make hard economic data the MPC’s focus, with the country’s steadily declining inflation and lacklustre growth taking centre stage.

“If we are right that consumer inflation should continue to drift sideways and be around the midpoint of the target range towards the fourth quarter of this year, then this should provide scope for the Reserve Bank to cut interest rates,” Moolman said.