Downsizing to an apartment offers numerous advantages, making it an appealing choice for those seeking a simpler and more cost-effective lifestyle.
Property
Is it better to buy or rent a property?
Trying to decide whether to rent or buy a property can be tough. The white picket fence has long been considered the great Australian dream. But on the other hand, renting offers freedom and flexibility. So, what’s the best choice?
Put simply, there are pros and cons for both buying and renting a property. And what’s right for your personal situation won’t work for the next person. Here are a few things to consider when deciding whether buying or renting will work best for you.
Buying a property
Pros of buying a property
Putting down roots on a property provides security and a direction in life. You can also personalise where you live, and over time, the repayments will bring you closer to home ownership. The property may also increase in value over the years, and you may also be able to use the equity in your home to invest in another property or pay for renovations.
Some people also like the discipline of regular mortgage repayments as a way of forced savings, with your savings paying off an asset you will eventually own outright. Part of the monthly repayment (the principal) is going towards paying off your own property, rather than your rental provider’s property.
Cons of buying a property
To start with, you’ve got to save up for the deposit, which in the current market, can take years. You are also then locked in to covering the mortgage for years to come, which means that taking time out of the workforce for a holiday, for example, might not be an option available to you.
There’s also a range of other costs, including council rates, maintaining the property and repairs. There’s also no guarantee that your property will increase in value, depending on what and where you buy.
And if you get in over your head financially can be a major problem. If you can’t cover the mortgage every month, you risk the possibility of repossession by the bank.
Buying a home is still the dream for many Australians. Image: Getty
Renting a property
Pros of renting a property
Renting can enable you to live in a neighbourhood you might not be able to afford to purchase in. It also provides greater flexibility to find a new rental if you need more space, or take a job on the other side of town and want to move closer to the office, for example.
Renting might be considered ‘dead money' by some, but it’s also usually cheaper than buying, which means you could save some cash if you’re not paying more than you can really afford to.
Renters are also able to avoid all the other costs that come with property ownership, such as rates, insurance on the property and maintenance costs.
Cons of renting a property
But there are downsides of renting, too. You’re essentially paying off someone else’s mortgage, rather than your own. Once you’ve paid off your mortgage, you’re done and dusted. On the other hand, rental payments never end.
More: Renting rules in Victoria: what you can and can't do as a renter
Renting allows you to avoid costs like council rates. Image: Getty
What do property experts say about buying vs renting?
Analysis to identify the areas where it’s cheaper to buy a property compared to cheaper to rent, suggests that it’s actually cheaper to buy than rent, with conditions particularly favourable in Victoria.
The research, undertaken by realestate.com.au in April 2021 by economist Paul Ryan, found that more than 80 per cent of houses, and almost all units, are estimated to be cheaper to buy than rent.
Low mortgage interest rates are the main driver of favourable buying conditions. Interest rates can be fixed at relatively low rates, which means that mortgage costs won’t increase for a period of time.
The report also found that low interest rates and moderate property price growth will likely offset the additional costs of owning. The research assumes that buyers have access to a 20 per cent deposit.
The suburbs where it’s cheapest to buy a home in Victoria were named as Waterford Park, Rockbank, Mickleham, Millgrove and Wollert.
Meanwhile, CoreLogic analysis has suggested that servicing a mortgage is cheaper than paying rent on 36.6 per cent of Australian properties.
The analysis was undertaken last year using a set of mortgage assumptions and valuation estimates to approximate mortgage repayments, which were then compared with rental estimates.
Deciding whether to buy or rent warrants plenty of consideration. Image: Getty
Weighing up buying vs renting property
Of course, the cost to rent or buy property will vary depending on which part of Victoria you’re planning to live in.
But you should take into account the opinion of nearly 40 experts and economists, who weighed in on future cash rate moves and other issues related to the state of the economy. In a blow for renters, they have determined that the cost of renting is predicted to increase dramatically over the course of this year. The analysis, conducted by Finder, suggests that rental prices will increase in line with international borders opening.
Graham Cooke, head of consumer research at Finder, says renters need to start preparing. “The pandemic turned the rental markets on its head in some areas, with vacancy rates increasing in major capital cities like Sydney and Melbourne. As international students and backpackers return to our shores, we’re going to see demand quickly flow back,” he says.
Either way, what’s right for one person, won’t be right for the next person. Consider using a calculator like this one on the MoneySmart website to compare renting against buying property.
