Buying a home is not an automatic path to wealth, as the true value of property depends on net returns after accounting for costs, interest, maintenance, rates and taxes, insurance, and the opportunity cost of tying up your money, according to Bryan Nicol, a certified financial planner professional at Doshguide. While property remains a popular retirement vehicle, financial planners warn that investors must distinguish between a primary residence, which is a lifestyle asset, and an investment property intended to generate income.
Why Property Is Not Always the Best Investment
The primary mistake many South Africans make is assuming that rising house prices equate to a successful investment, according to Nicol. When calculating the actual performance of a home, owners must subtract costs, interest, maintenance, rates and taxes, and insurance. Furthermore, there is an opportunity cost involved in tying up capital in a property rather than in more liquid assets like shares or other investments.
“A primary residence is first and foremost a lifestyle asset that provides security and stability,” Nicol says. Unlike retirement savings, shares or other investments, a house does not provide an income stream when you stop working unless the owner chooses to sell or downsize.
How Location Impacts Long-Term Returns
The performance of residential property is highly localized, making it risky to treat the market as a single entity, according to data from Statistics South Africa. Between 2010 and 2022, the Residential Property Price Index showed that residential property prices in Cape Town increased by 141%, while Johannesburg saw growth of 71%. This disparity highlights that simply owning property is insufficient; the specific market performance of the area dictates the financial outcome.
Does Your Financial Plan Include Property?
Rory Brachner, founder of Doshguide, argues that property decisions should never be made in isolation. Instead, a home purchase should fit into a comprehensive financial plan that accounts for an individual’s income, lifestyle, financial goals, and retirement plans. A young professional who moves frequently for work may find that renting and investing the difference elsewhere delivers better returns.
Studies by global investment manager Schroders indicate that retirees who rely on a mix of assets, including retirement savings, investments, and property, are generally better prepared financially than those who depend on a single source of wealth.
Did You Know?
While property is a major purchase, modern financial tools have lowered the barrier to entry for other investments. South Africans can now access low-cost index funds, tax-free savings accounts, and retirement products directly from their smartphones, allowing for a diversified portfolio.
Frequently Asked Questions
Is paying off a home bond a good way to save for retirement?
It creates financial discipline and every bond repayment gradually converts debt into equity, building wealth over time. However, according to Bryan Nicol, it should not be your only retirement strategy because it does not provide a liquid income stream once you retire.
Should I prioritize paying off my home or investing in shares?
This depends on your broader financial plan. According to Rory Brachner, you should evaluate your total portfolio, your income, lifestyle, financial goals, and retirement plans before deciding where to allocate your surplus cash.
Does property always beat inflation?
Not necessarily. When you factor in the costs of ownership—such as interest, maintenance, rates, taxes, and insurance—the net return on a primary residence may not be the most effective retirement strategy, according to Doshguide.
Are you considering buying a property, or are you weighing the benefits of renting and investing? Share your thoughts in the comments below or subscribe to our newsletter for more insights on building a diversified financial future.