When renting is smarter than buying: debunking the property ownership myth

Owning property has long been regarded as the ultimate financial milestone. For many, it’s a symbol of stability and success: a tangible representation of hard work and accomplishments. But is this belief truly grounded in financial reality? For those willing to think differently, renting can offer a smarter, more flexible, and often financially advantageous alternative to buying - provided you save or invest the difference wisely.

Is property really the investment we think it is?

While it’s true that property values tend to rise over the long term, this is far from guaranteed. Real estate markets are subject to ups and downs, and neighbourhood desirability can change quickly. Economic downturns, shifts in local infrastructure, or oversupply can all lead to depreciation. Even when property values do increase, the net gain can be eroded by the hidden costs of ownership, such as:

• Maintenance and repairs
  Owning a property means taking on the full responsibility for its upkeep. Roof leaks, plumbing issues, or electrical faults can result in unexpected and significant expenses. These costs are not optional, and over time, they can add up to tens or even hundreds of thousands of rands.
  
  
• Transaction costs
  Buying property isn’t just about paying the asking price. Transfer costs, bond registration fees, and taxes are part of the equation. When it’s time to sell, agent commissions - often a percentage of the sale price - can cut into your profits significantly.
  
  
• Monthly expenses
  Owning a home comes with recurring costs such as levies in complexes or estates, insurance, and property management fees for those who rent out their properties. These expenses are often more than what most people plan for when calculating the cost of homeownership.

Renting vs. owning: a quick comparison

To calculate how much you could potentially save by renting a house instead of buying it, follow these steps:

1. Estimate your buying potential: Use a home loan calculator to determine the bond amount that you qualify for. Websites like ooba offer free-to-use bond calculators, which estimate your affordability based on your income and expenses.
   
   Let’s say for the purpose of this example that you do the calculation and determine that your salary can support a R3 million bond.

2. Assess property options: Investigate what type of property you can afford within this bond limit. You can do this by searching property listings on websites like Property24. Try to establish the specifics of the properties that you can afford (amount of bedrooms and bathrooms, extras like a pool or braai area, etc) as well as areas where you can find these kinds of properties in your price range.
   
   As per our example, a R3 million bond may buy you a one-bedroom apartment in an area close to a central hub like a city, or a three bedroom house with a pool and a garden in a neighbouring suburb.
   
   
3. Work out your monthly bond repayment: ooba and Property24 both offer calculators that allow you to work out what your monthly repayment would be, based on your bond.
   
   Continuing with our example, if you were to get a R3 million bond at prime (the interest rate that commercial banks charge their most creditworthy corporate customers - currently 11.25%) over 20 years with no deposit, you could expect a monthly bond repayment of around R31,500. This estimation excludes any rates and levies that you may still have to pay, so keep that in mind.
   
   
4. Compare rental prices: Keeping in mind the property specifics and area that you already established to be inside your affordability, do a search for rental properties that match that description. In all likelihood, you will find that the monthly rental for these kinds of properties is less than the estimated bond repayment.
   
   Based on market-related rentals, we can safely assume that you would pay R20,000 per month in rent for this R3 million property.
   
   Example: You’ve established that your R3 million bond could buy you a three-bedroom house with a pool in a particular suburb. You calculate that your bond repayment for this property would be R31,500 per month. When you do a rental search for three-bedroom houses with pools in the same suburb, you find that the average monthly rental for these kinds of properties is around R20,000, which is in line with typical rental yields.

5. Beware of temptation: Based on this calculation, the difference between buying and renting the same kind of property in a specific neighbourhood could be as much as R11,500 per month - and that’s before we take into account home ownership costs. The obvious temptation here is to think you can afford R31,500 a month for a bond repayment, so you could be renting a bigger and fancier house for R31,500 per month.
   
   This kind of thinking should be avoided at all costs. It is essential to save or invest the difference between your bond potential and your rental repayment, otherwise you are erasing an opportunity to build equity in a property with no hope of building up other savings.

What to do with the savings

Here are some of the things that you could (and should) do with your property savings, in order of importance:

• Pay off debt. Work out how much you owe to which creditors and arrange your outstanding debts from smallest to largest according to outstanding balances, and then again according to interest rates. You can choose to pay off the debt with the smallest amount owed first, then move on to the next one until you have cleared them all. This is known as the snowball approach. Alternatively, you can pay off the debt with the highest interest rate first before moving on to the second highest - this is known as the avalanche approach.
• Add the savings to an emergency fund to establish a financial cushion for unforeseen circumstances.
• Talk to your financial adviser about a plan to save or invest the savings. You could save for goals like travel, education and starting a business, or give your retirement savings a much-needed boost.

How does investing stack up against property ownership?

We asked well-known investment blogger, The Finance Ghost, for his views on how this calculation stacks up.

“There are a number of variables of course, but we can try to break them down into a simple example. For example, we can consider a time frame of 5 years. Although people think they will buy a home and live in it forever, things do change over time and people often need to move earlier than expected. This is relevant because the costs of buying and selling a home are much higher than the costs of moving from one rented property to another. If we assume that a home is bought and sold within a shorter period, it is almost guaranteed that renting is cheaper than buying.

Another key assumption is that rental escalations will be in line with property value increases. For example, if the property goes up by 5% per annum, we assume that rental escalations will be similar. Although the real world doesn’t always work like this, it’s an important assumption for this renting vs. buying argument as we need to build in both increases in annual rent as well as property values in order to make a fair comparison.

Assuming a bond repayment of R31,500 per month and costs of ownership of another R3,000 per month, as well as a year 1 rental of R20,000 per month escalating at say 5%, we can estimate that the cash flow saving of renting vs. buying is around R760,000 over 5 years. If we assume that the cash is invested along the way at roughly 8.5% per year in money market funds (or around 5% per year after we account for typical taxes, which may vary), it could be more like R850,000 over that period.

Now we add in the saving from not incurring transfer duty and other costs of buying, which would be around R245,000 on a R3 million property. Invested at 5% per year after tax as well, this grows to nearly R300,000.

So, in round numbers, our disciplined renter has R1.15 million after five years - not bad!

But what about our buyer? If we assume the property grows in value at 5% per year and that it is sold after five years with the usual estate agent commission, the net proceeds from sale would be around R3.56 million. By then, the bond balance has decreased to around R2.9 million, so net proceeds are R660,000.

That’s a whopping R550,000 less than the disciplined renter is sitting on!

Do renters always win? No, not always. It depends on house price growth. The numbers show that if house prices grow by roughly 7.5% per annum, the buyer is in much the same position as the renter if the house is sold after 5 years. At growth above that level, the buyer may well be better off.”

However, proceed with caution when estimating house price growth. According to Stats SA, the only province in which residential properties saw value increases around the 7% mark in 2024 was the Western Cape. North West recorded an increase of 5%, followed by Mpumalanga at 2,3%. On average, properties were cheaper in Northern Cape and Limpopo, with prices declining by 4,8% and 2,3% respectively. Gauteng saw a marginal 0,7% increase.

The importance of financial smarts - and discipline

Renting can be a smarter financial choice than buying, but only if approached strategically. By using tools like home loan calculators, carefully comparing the costs of renting and owning, and committing to disciplined saving or investing, you can build a secure financial future without taking on the risk of owning a property. The key is to challenge conventional wisdom, think critically about your unique circumstances, and take proactive steps toward your long-term goals.

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