{"id":745721,"date":"2024-01-27T17:00:00","date_gmt":"2024-01-27T15:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=745721"},"modified":"2024-01-27T07:28:52","modified_gmt":"2024-01-27T05:28:52","slug":"buying-property-vs-renting-and-investing-in-the-sp-500-heres-the-winner","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/property\/745721\/buying-property-vs-renting-and-investing-in-the-sp-500-heres-the-winner\/","title":{"rendered":"Buying property vs renting and investing in the S&P 500 \u2013 Here\u2019s the winner"},"content":{"rendered":"\n

An analysis by BusinessTech found that buying a house produces a better return on investment over 20 years than renting and investing the difference in the S&P 500.<\/p>\n\n\n\n

Many people think that buying and owning property is a great way to generate wealth.<\/p>\n\n\n\n

However, renowned economist Dawie Roodt recently said property in South Africa is not a good option<\/a> from an investment point of view.<\/p>\n\n\n\n

Roodt said that although there are good reasons to buy property in South Africa, such as hedging against inflation, there are also many negatives.<\/p>\n\n\n\n

These include the transaction costs of buying property, rates and taxes, levies, and maintenance costs.<\/p>\n\n\n\n

He suggested that South Africans rather invest their money in a listed property stock but highlighted that a big bargain on a house may change the picture.<\/p>\n\n\n\n

To compare the return on investment over two decades, BusinessTech used a luxury 2-bedroom Ascend to a Midstream apartment in Midstream Estates, Gauteng.<\/p>\n\n\n\n

The apartment can be bought for R3.09 million or rented for R22,000 monthly. We had to make several assumptions to determine the final cost, which we outline below.<\/p>\n\n\n\n

\"\"<\/a><\/figure>\n\n\n\n

Buying vs renting assumptions<\/strong><\/h2>\n\n\n\n

We assumed a 20-year bond payment period and a fixed prime rate of 10.1% over that same period for the buyer.<\/p>\n\n\n\n

BetterBond\u2019s calculator then provided an estimated transfer cost and bond registration cost of R200,123 for the apartment.<\/p>\n\n\n\n

For the renter, this amount was treated as an initial lump sum investment made in the S&P 500.<\/p>\n\n\n\n

Levies, rates, and taxes totalled another R5,444 per month for the buyer, and we added an additional R1,000 each month to account for general maintenance.<\/p>\n\n\n\n

These figures were adjusted for inflation over the 20-year period using the South African Reserve Bank’s (SARB) target inflation rate of 4.5%, too.<\/p>\n\n\n\n

Combined with the bond of R30,024.18, the monthly payments for the apartment started at R36,468.18 (R14,468.18 more than the monthly rent).<\/p>\n\n\n\n

According to FNB\u2019s Property Barometer (FNB Repeat Sales House Price Index), we estimated house prices would increase by 8% per year.<\/p>\n\n\n\n

The results<\/strong><\/h2>\n\n\n\n

Around 15 years into the payments, the rent payment amount begins to exceed the buyer\u2019s monthly payments (bond, rates, taxes, levies, and maintenance). This is because the bond payment is a fixed amount, while the R22,000 initial rental amount rises with inflation, reaching R50,772.93 after 20 years.<\/p>\n\n\n\n

At this point, the buyers\u2019 monthly costs are lower than the renter\u2019s payments, and the difference is invested into the S&P 500 \u2013 amounting to a final value of R214,683 after five years \u2013 counting in the buyer\u2019s favour.<\/p>\n\n\n\n

However, in the 15 years prior to this, the monthly costs for the renter were lower than the monthly costs for the buyer.<\/p>\n\n\n\n

This difference was invested into the S&P 500 every month at a compounded annual growth rate of 13.37% (based on the actual rand return of the S&P 500 over the last 20 years), counting in the renter\u2019s favour.<\/p>\n\n\n\n

Our calculations showed that the final value of the renter\u2019s S&P 500 investments was R13.21 million, while the final value of the apartment after 20 years was R15.19 million.<\/p>\n\n\n\n

The buyer also benefitted from their smaller S&P 500 investment, totalling R214,683 and putting their total wealth at R15.40 million.<\/p>\n\n\n\n

The buyer was the clear winner, with a final wealth 16.63% higher<\/strong> than the renter.<\/p>\n\n\n\n

It is worth noting that these results are estimates based on several reasonable assumptions.<\/p>\n\n\n\n

Buying option<\/strong><\/th>Renting option<\/strong><\/th><\/tr><\/thead>
Total bond costs<\/td>R7 205 804<\/td>Total renting costs<\/td>R8 282 055<\/td><\/tr>
Other monthly costs (rates, taxes, etc.)<\/td>R2 425 889<\/td>Total S&P 500 investment payments<\/td>R1 723 702<\/td><\/tr>
Buyer’s final wealth<\/td>R15 403 760<\/strong><\/td>Renter’s final wealth<\/td>R13 207 711<\/strong><\/td><\/tr><\/tbody><\/table><\/div><\/figure>\n\n\n\n

Data compiled by Drikus Greyling<\/em><\/p>\n\n\n\n

\n\n\n\n

Read: Where to invest in South Africa in 2024<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Renowned economist Dawie Roodt says property in South Africa is not a good option from an investment point of view. BusinessTech put this to the test.<\/p>\n","protected":false},"author":90,"featured_media":745727,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12755],"tags":[3987,17847,4038,18410,18542],"class_list":["post-745721","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-property","tag-investing","tag-midstream-estate","tag-property","tag-rental-prices","tag-sp-500"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/745721","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/90"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=745721"}],"version-history":[{"count":7,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/745721\/revisions"}],"predecessor-version":[{"id":745945,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/745721\/revisions\/745945"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/745727"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=745721"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=745721"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=745721"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}