This study examines a practical analysis of the current economic climate in relation to buying and renting. So is the preference for home ownership; which may vary; for example, between different stages of the life cycle or economic situation in the person's life.
The Mortgage Bond
The statistics provided by Absa, FNB, Standard and Nedbank revealed that the number of South African home owners who have defaulted on their home loan payments has increased to almost 100,000 since June 2008 and approximately 95,000 home owners have repayment installments for two ( 2) missed. months or more, compared to 55,000 in January 2008 (South Africans are...2008). The property market is expected to stabilize in 2008 and it has been predicted that price growth will gradually increase due to lower inflation and interest rates in 2009 and early 2010 (Rental Market Will…2008).
The Rent Option
Certain ongoing expenses are paid by the landlord that would otherwise be the responsibility of a homeowner, such as taxes or statutory rates. It found that the new generation of households in Australia are increasingly reluctant to commit to a mortgage bond, preferring to be described as "free agents" who like to travel, eat out and have other commitments such as loans for new cars (Ryan , 2002).
The Tax Consequences of Owning Property
Capital Gains Tax
South African residents are liable for the payment of capital gains tax (CGT) on the disposal of any asset with certain limited exceptions (Huxham 2008). The capital gain is calculated and disclosed in the individual's tax return for the year in which it is sold or disposed of.
Non-Residents Witholding Tax
However, if the Seller is registered for Value Added Tax (VAT), the purchase price will include VAT, unless specifically excluded in the contract. Sales of residential real estate do not earn VAT, due to the fact that sellers are not VAT registered.
Tax implications should a loss occur
If you have the property on an income account, you can deduct all the costs directly related to the property from the income, and the proceeds from the sale must be included in the income. If the property was held as an investment and the "basic cost" costs exceed the proceeds, a CGT loss will be generated (How SARS looks...2008).
Property as an Investment
The distinction is important because if a loss is incurred when the property is sold, the tax treatment of the loss will be quite different depending on whether the property had been held in a capital or income account to derive the maximum tax benefit. If the loss on the sale of the property is the only CGT event you had during the year of assessment, it will be reduced by the CGT reduction, which is currently R17 500 and carried over to the next year.
Rental Tax Deductions
Many investors are leery of getting involved in buying property as a rental investment, as there are tax implications associated with rental income. In the process of arriving at the taxable income of taxpayers, one must look at the gross income of the person. Gross income" is defined as: i) in the case of each resident, the total amount, in cash or otherwise, received or accrued in favor of such resident; or. ii) in the case of any person other than a resident, the total amount, in cash or otherwise, received by or accruing to or in favor of such person from a source within or deemed to be within the Republic,.
An expense or loss is allowed as a tax deduction if it meets the requirements set out in the Income Tax Act. Normally, capital gains tax will be charged on the sale of a second and subsequent home. In the case of Elandsheuwel Farming (Edms) Bpk v SIR (39 SATC 163), which states that in order to determine the capital or income nature of an asset, it is necessary to assess whether it is the realization of a capital asset (fixed assets). or the sale of an asset in the context of conducting a business (floating capital) or on the basis of a profit motive.
Consumer Behaviour when purchasing a home
Information search helps to clarify the options available to the consumer and according to Cathy et al (2005) can involve internal search as well as external search. According to Kotler et al (2006), in the evaluation stage the individual must choose between the upcoming choices. High-involvement purchases include purchases that involve high expense or personal risk, such as purchasing residential real estate.
Kotler et al (2006) as well as Cathy et al (2005) document three options that a consumer will typically consider once the search and evaluation stage is complete. This will usually depend on factors such as terms of sale and past shopping experience. As a result, the final consumer purchase decision is usually expected to be guided by a clearly rational and/or analytical thought process, which can be expected to be even more intense in the case of high-involvement items such as the purchase of residential property.
Stages in the Family Life Cycle
More specifically, opinion leaders are opinion makers who convey information across social boundaries between groups (Brown and Reigern, 1987). The well-known two-step communication flow is a composite of two very different network mechanisms: contagion through cohesion through which opinion leaders gain information in a group, and contagion through equality which generates adoption within the group (Burt 1999). As brokers, opinion leaders bear a striking similarity to network entrepreneurs in social capital research ( Burt, 1999 ).
The complementary content of diffusion and social capital research makes the analogy productive according to Gatingnon and Robertson (1985). Diffusion research describes how opinion leaders play their role of mediating information between groups, and social capital research describes the benefits that flow from intermediaries. Also referred to as word-of-mouth, it is accepted in a person's buying behavior literature as an important determinant of a person's attitudes (Kotler et al, 2006).
- Unmarried: Financial commitments and family responsibility tend to be low with disposable income being high. These young unmarried
- Young newly married couples – no children: This group focuses its expenditure on those items considered necessary for setting up
- Older married couples still with children at home: Disposable income will probably have increased, often with both parents working
- Older retired couples and single people: At this stage, most consumer durables have been purchased although occasionally,
The development of a typical family has been modeled by what is called the family life cycle (Kotler et al 2006). In some cases, children can work and parents can increasingly engage in leisure activities, often in the form of more than the "standard" annual leave. Such purchases are often made with different motives than the original motives of strict functionality and economy required in the earlier stage of the life cycle.
The implications according to consumer behavior experts (Kotler et al 2006, Engel et al, 1990; Wagner and Hanna, 1983) are that the family life cycle stage a family is in will have a profound effect on family needs. and its ability to. In the past, the family life cycle theory was a useful tool for segmenting markets and developing marketing strategy. The following is an outline adapted from Old Mutual Financial Planning 2009, where the principles have been adapted and related to the issue of buy-to-let according to the different stages of the family life cycle.
Family Life Cycle with regards to Ownership capabilities
- Single and Starting Out
- Single and Established
- Married and Family Life
- The Empty Nest Stage
According to Old Mutual, this stage involves a person who is still studying, or has just started their first job and must consider the financial needs as an independent adult. At this stage one does not have much in the way of responsibility – no dependents and few financial obligations. At this stage, a person does not want to be committed as they are still enjoying their freedom and having to endure financial strains such as maintenance requirements and maintenance as well as mortgage repayments will be stressful, especially on a minimal starting salary.
Old Mutual describes this stage as one where the person is in their first or second job and has been financially independent for a few years. In this phase the children are married off and the parents are nearing retirement or have already retired. At this stage the children have left home and the mortgage is almost paid off, significantly reducing the financial burden.
Senior Citizens
Conclusion
CHAPTER THREE
RESEARCH METHODOLOGY
- Introduction
- Aim and Objectives of the Study
- Sampling Technique & Description of the Sample
- The Realism Paradigm
- Sampling Technique and Description of the sample
- The Research Instrument
- Description and Purpose of the Research Instrument
- Construction of the Interview Questionnaire
- Ethical Clearance
- Trialling of the Interview Questions
- Validity and Reliability
- Administration of the Interview Questionnaire
- Analysis of the Data
- Conclusion
A population is defined as "the entire collection of elements on the basis of which the researcher intends to draw conclusions" (Cooper & Schindler 2001). The purpose of the questionnaire was to obtain as much information as possible through the structure and style of the questions. An interview is a conversation, usually between two people, where one person – the interviewer – seeks answers for a specific purpose from the other person – the interviewee (Gillham 2000).
The form, structure (order of questions) and wording of the questionnaire were designed based on the outlined research questions. This chapter reveals the details of the research methodology adopted in the study. Chapter four will now focus on the results of the interviews conducted with the respondents.
CHAPTER FOUR
PRESENTATION OF RESULTS
- Introduction
- A Summary of the Results Table 4.1: Response to interviews
- A Financial Case Study of Buying and Renting
- Example when deliberating on the Decision
- Conclusion
People don't like paying for someone else's mortgage and many want to own their own home in the future when the market stabilizes. The most important factors are the lending criteria that hinder a person from obtaining financing, the availability of suitable stock in the market and the lack of cash for costs associated with the transfer of the property as. Due to the current economic crisis as well as the downsizing in the real estate market, it is difficult to precisely determine house price projected growth due to the uncertainty in the economy.
The researcher has taken into account a growth of 6%, although this would have been influenced by the current changes in the economic cycle. The interpretation of the graph in Figure 4.1 indicates that if rental prices at the beginning of the twentieth annual period are lower than the monthly repayment of the bonds, one may be inclined to choose the rental option. It should be remembered that there is a possibility of paying more when renting in the last phase of the twenty-year period, as the hypothetical situation in the graph suggests.
CHAPTER FIVE
DISCUSSION OF RESULTS AND RECOMMENDATIONS
- Introduction
- Recommendations Based on Research Findings Objectives were as follows
- Limitations of the Study
- Discussion and Recommendations
- Conclusion
Due to the uncertainty of the economy and rising rates, people are conservative about entering into long-term contracts. This is due to the escalating rental prices and robust competition for available rental properties on the market. This is due to the method used as well as the type of questions asked.
Explore the option of buying or renting a property and the factors that favor one over the other in the difficult times ahead. The study did not reveal the effect of different stages of the family life cycle on buying or renting a property. Make sure to gain the credibility of the potential tenant before signing the lease and handing over the keys to the property.
