The millennial dilemma: Should I travel now or buy a home first?
Advances in travel technology have made it that much easier to quench human nature’s insatiable
thirst to explore, and South Africans are taking full advantage of this fact. According to Stats
SA’s Tourism and Migration Report of November 2017, the total number of South African residents
who left and returned to the country is on the increase. For South African residents, the volume
of arrivals (409 446) increased by 4.6% from last year, departures (420 665) increased by 4.4%,
and transits increased by 5.2% (774).
Not only are South Africans travelling more, but they are also willing to spend more on these
holidays. The Trip Advisor TripBarometer global survey of 2014 revealed that there was an estimated
increase in the average traveler spend in 2014, with South Africans seeing the biggest increase (+30%).
The question now becomes not if South Africans will travel, but when will they choose to do so.
According to the 2017/2018 Old Mutual Millennial Survey, 37% of millennials, versus 10% of older
generations, are more likely to save money first towards travel than any of their other expenses.
This could explain why the average age of a South African home buyer has increased from 38 to 44
“Many are choosing to prioritise other expenses such as travel over the expense of buying
a property, thereby delaying their ability to enter the property market sooner. South
Africans should consider the long-term financial implications of making such a decision
carefully. It is advisable first to reach a point of financial stability whereby the total
of your fixed assets and investments exceed your expenses before money is spent on other
luxuries such as travel,” advises Regional Director and CEO of RE/MAX of Southern Africa,
However, Goslett acknowledges that this advice will only resonate with buyers who prioritise
stability and security over adventure and experience.
“It is not difficult to understand the appeal to travel first and invest later. The younger
you are, the fewer things you have tying you down and the easier it is to travel. Yet, as
appealing as it is, smart South Africans will realise that the sooner one enters the property
market, the higher their rate of returns will be, which quite possibly translates into higher
quality travel experiences later in life over the holidays one can afford in one’s young life,”
“To understand why one should enter the property market sooner rather than later, buyers should
consider that house prices increase annually, but the instalment on a home loan remains the same
unless interest rates change. That means that while the monthly payments are constant, the rate
of return increases. Renting, on the other hand, is a monthly expense that yields no returns.
Rent rises with inflation, which means that unless your salary rises to match it, every year that
your rent increases, you’ll have less disposable income - meaning that whatever cash you were
putting aside to travel will also lessen over time.”
Setting the above aside, the reality is that it is much easier to save for a R20 000 overseas
vacation than it is to save for a R100 000 deposit for a home loan - especially when you are not
earning enough to qualify for a home loan in the first place. Goslett sympathises with this
reality, but encourages young buyers to consider what they might be earning in five to ten years’
“For example, to purchase a R850 000 property, a household needs to earn R20 000 net income to
qualify for bond taken over a 30-year loan term. The transfer and bond fees on a 100% home loan
for this amount totals roughly R43 000. If it’ll take you five years to earn this salary, then
you should be putting aside just R717 per month for five years. If you add a 10% deposit, you’ll
need to save a total of R2 100 per month to be able to afford the R85 000 deposit plus the R41 000
transfer/bond fees in five years’ time,” Goslett says.
“When you consider it this way, it might be possible for young buyers both to save for a home loan
as well as travel. However, if unable to afford both, I would advise young buyers not to sacrifice
saving for a home loan in order to travel. There will be plenty of time for that after they have
achieved the financial security of owning property.”
Author: Veda Palmer