Categories: NewsReal Estate
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2024-01-29 8:09 AM

South African Wealth: Buying Homes vs. Renting Reveals Surprises

  • Dawie Roodt's Contrarian View: Renowned economist Dawie Roodt challenges the conventional wisdom that buying property in South Africa is a sound investment. While acknowledging potential benefits, he highlights significant downsides such as transaction costs, rates, taxes, levies, and maintenance expenses.
  • Financial Analysis Case Study: BusinessTech conducted a detailed 20-year financial analysis, comparing the return on investment for buying a luxury 2-bedroom apartment in Gauteng to renting and investing the difference in the S&P 500. The study involved assumptions, such as a fixed prime rate, inflation adjustments, and an estimated 8% annual increase in house prices.
  • Buyer vs. Renter Financial Outcome: The analysis revealed that, despite initial higher monthly costs for buyers, the final wealth after 20 years was 16.63% higher than that of renters. The buyer's strategy involved a smaller S&P 500 investment, contributing to a total wealth of R15.40 million, showcasing the long-term financial advantage of property ownership in the South African context.
By Miriam Matoma


In recent times, the debate over whether buying or renting a property is a more lucrative investment has gained significant traction. While many believe in the traditional wisdom that homeownership leads to wealth generation, renowned economist Dawie Roodt challenges this notion, particularly in the South African context. This analysis delves into the intricacies of the South African property market, considering factors such as transaction costs, rates, taxes, and maintenance. By comparing the long-term return on investment for buying a property versus renting and investing the difference in the S&P 500, we aim to provide valuable insights for South Africans contemplating their investment choices.

The South African Property Landscape:

Before delving into the financial analysis, it’s crucial to understand the unique dynamics of the South African property market. While property ownership is often viewed as a hedge against inflation, Dawie Roodt emphasizes the potential downsides, including transaction costs, rates, taxes, levies, and maintenance expenses. Roodt suggests an alternative approach: considering listed property stocks, unless a compelling opportunity arises in the housing market.

Financial Analysis: Buying vs. Renting

To assess the long-term financial implications of buying versus renting, BusinessTech conducted a detailed analysis using a luxury 2-bedroom Ascend to a Midstream apartment in Midstream Estates, Gauteng, as a case study. The property could be purchased for R3.09 million or rented for R22,000 monthly. The analysis covered a 20-year period, assuming a fixed prime rate of 10.1% for the buyer.

Assumptions and Methodology:

The analysis made several assumptions, including a 20-year bond payment period, a fixed prime rate, estimated transfer and bond registration costs, monthly levies, rates, taxes, and maintenance costs. FNB’s Property Barometer, estimating an 8% annual increase in house prices, was used to project future values. Monthly costs were adjusted for inflation using the South African Reserve Bank’s target inflation rate of 4.5%.

Results:

The analysis revealed that around 15 years into the payments, the renter’s monthly costs exceeded the buyer’s costs. However, during the initial 15 years, the renter benefited from lower monthly expenses. The difference was invested in the S&P 500, resulting in a final value of R13.21 million for the renter’s investments. In comparison, the final value of the apartment after 20 years was R15.19 million. The buyer, with a smaller S&P 500 investment totaling R214,683, had a total wealth of R15.40 million, making them the clear winner with a final wealth 16.63% higher than the renter.

Conclusion:

While the results favor buying a property in the South African context, it is essential to note that these findings are based on various assumptions. Real estate markets are dynamic, and individual circumstances may differ. South Africans considering their long-term wealth-building strategies should carefully weigh the pros and cons of buying versus renting, taking into account factors such as market conditions, personal financial goals, and potential investment opportunities. As the property market continues to evolve, informed decision-making becomes increasingly crucial for those seeking financial prosperity in the South African real estate landscape.

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Miriam Matoma

Miriam is a freelance writer, she covers economics and government news for Rateweb. You can contact her on: Email: miriam@rateweb.co.za Twitter: @MatomaMiriam