Source iafrica.com 25 July 2011
A great article… it has been a while, which helps you to work out if you should buy or rent.
“Those debating the virtues of renting, added Clarke, should apply the “Clarke test”.
“I offer this simple calculation to all — free of charge,” he said with a smile.
“Take the house you wish to rent and find one for sale in the same area of a roughly the same size, with the same attributes and qualities. Then divide its achievable — not listed — sale price by the annual rent you expect to pay on the rented unit. If the resultant figure is above 20 you can rest assured that the price of the property is likely to fall and it would, therefore, be wise to rent the alternative unit for the time being. If it is below 20 the chances are that you could be paying too much in the current market.”
Asked to give an example Clarke said, “Supposing a house of the type you, the buyer, want is for sale at R1.5-million and the prospective landlord on another similar unit is asking a rent of R8500 per month, i.e. R102 000 per annum. Dividing the R102 000 into R1.5-million would give you a figure of 14.7. This figure, being below 20, would probably indicate that you should consider buying this property.”
Asked if he foresees renting replacing buying, Clarke said, “Definitely not. As I have indicated, the advantages of homeownership have been proved worldwide throughout the last 200 or 300 years, i.e. since the ordinary man-in-the-street has been able to afford a property of his own.”