What it costs to buy vs rent in South Africa right now

Despite the lockdown and turbulent economy, owning a home has become increasingly more affordable and attractive in South Africa right now, says ooba Home Loans chief executive Rhys Dyer,

Defying the status quo, and spurred on by the low-interest rate, there’s currently huge buzz around whether it is cheaper to buy or rent a home, he said.

“Unlike other ‘flash in the pan’ trends, the time to purchase a home is right now. For those with leases coming up for renewal, I’d strongly urge you to do the math and weigh up whether it truly is cheaper to rent than to buy.”

Dyer said that the culmination of record-low interest rates, more 100% home loan application approvals and an increase in motivated sellers has resulted in a prolonged buyer’s market.

Interestingly, this trend has removed the barriers to entry for many first-time buyers, which may have a knock-on socio-economic effect in reducing housing inequality and access to homes in sought-after areas, he said.

“Prospective home buyers can also breathe a sigh of relief knowing that there are no transfer duties on properties purchased below R1 million.”

A shift from renting to buying is set to continue in 2021

An all-time low prime interest rate of 7% is driving tenants to become property owners. “

This is evident in the average age of ooba home loan applicants for Q3 of 2020. On average buyers are one-year younger from 38 to 37 years of age, while the age of first-time buyers has dropped from 35 to 34 years compared to Q3 2019”, said Dyer.

“Monthly bond repayments are at an unprecedented low and we anticipate that the current interest rate will remain in place for majority of 2021.

“In saying this, we still urge potential buyers to factor in rising interest rates over the years to make sure that they are covered for every eventuality.”

Dyer provided a brief overview aimed at helping prospective buyers assess their monthly bond repayments against what they are currently paying in rent.

Bond amount Monthly repayment*
R750 000 R5 815
R1 000 000 R7 753
R1 250 000 R9 691
R1 500 000 R11 629
R2 000 000 R15 506
R3 000 000 R23 259
R4 000 000 R31 012

*At an interest rate of prime, currently 7%.

While banks are increasingly approving 100% home loans (AKA zero deposit bonds), Dyer urges prospective buyers to take the time to calculate how much their initial deposit could help to reduce their monthly repayments, thereby saving them money in the long-term.

“Taking out a 100% home loan will not only result in higher monthly repayments, but it could also mean higher interest rates,” he said.

“If you look at a 0% versus a 10% deposit on a R1 million house, the repayment will be R7,753 a month versus R6,978 with a 10% deposit. This may not sound like a big difference now, but over 20 years at an interest rate of 7%, those without a deposit will have paid R186,071 more than those who put down an initial 10% deposit.”

Dyer said that putting down a deposit shows both the property seller and bond lender that you’re committed to the purchase, improving your chances of having your offer accepted.

“While we are seeing an increase in 100% home loans, we still strongly encourage prospective buyers to save up for and put down a deposit. Your future self will thank you, and by saving up and performing these calculations you’ve proven to yourself and to your lender that you are truly able to afford to purchase a home.”

Rental market

PayProp latest rental index, published in November shows that for the second consecutive quarter, year-on-year (YoY) property rental price growth hit an all-time low in Q3 2020.

This follows a general downward trend for the year, with May and September being the worst months, data from the property group shows.

“Lacklustre growth continued even after most South Africans returned to work,” PayProp said.

“Because so many households suffered a partial or total loss of income this year, many are worse off financially compared to the beginning of the year, when economic pressures were already in effect.

“In the circumstances, affordability continues to be a major factor in persistent low rental growth.

“With many short-term lets reallocated to the long-term rental market. To avoid standing empty while travel restrictions were in place, the market has essentially been flooded with supply, adding to existing downward pressure on rental growth.”

This has been compounded by inflation which has rebounded after the hard lockdown and is now in the 3% range. The latest provincial rental data for each province is outlined below.

Province Average rental cost
Western Cape R9 041
Gauteng R8 432
KZN R8 123
Northern Cape R7 979
Mpumalanga R7 442
Limpopo R6 881
Free State R6 455
Eastern Cape R6 213
North West R5 147

Read: Here’s what’s happening in South Africa’s residential property market right now

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What it costs to buy vs rent in South Africa right now