Owning a home is everyone’s dream-come-true. But before you take the leap towards this long-term investment, make sure you do the math properly.
Should I buy or rent – this is one question that boggles every average Australian at some point in their lives. With rising costs and stagnating wages, renting seems to be a more viable option for many.
On the other hand, the temptation to buy a new home may be irresistible for many. A variety of grants, including the First Home Buyer Deposit Scheme and HomeBuilder, ensures first-time homebuyers can save anything above $25,000, based on the location where they want to buy.
With house prices dropping across the country consecutively for the second month now, it would be encouraging for buyers to own their dream home, said Dr. J-Han, the senior property lecturer at Curtin University. He said that “buyerswith stable jobs are in the box seat.”
But at the same time, he also cautioned that buying a home is a long-term investment. People should make a purchase only if it matches their long-standing goals, especially in a scenario where the Organisation for Economic Co-operation and Development (OECD) has warned that “Australia’s recovery from the coronavirus pandemic would be derailed if the second wave of infections hit the nation.”
So, should you rent? But isn’t rent money considered “dead money?” You spend hundreds and thousands of dollars to have a roof over your head but which you cannot call your own!
Stuck amid this volatility, it might be difficult to determine which path – renting or buying – to take to climb up the property ladder. To help you make an informed decision, we will help you compare renting or owning a new home.
Buying a Home in Australia – Think Before You Buy
The federal government’s HomeBuilder grants was adopted to help support the building industry while it endured the tough constraints from the COVID-19 pandemic. The tax-free scheme was successful in boosting the demand for house purchases in Australia in recent times.
Undoubtedly, stability is one of the primary reasons why people want to have their dream home. When you buy a house, it is your own. You enjoy more security knowing no one can throw you out or hike up the rent dramatically. Yes; interest rates on your home loan repayments do fluctuate but not as drastically as your rent could.
Additionally, you have control over your repayments, i.e., you can choose to opt between a fixed, split, or variable loan. Through the loan agreement, you know what you need to pay in the long-term and for how long.
Besides having control over repayments, you have complete flexibility in designing, renovating, and maintaining it the way you want; however, you may need to comply with regulations regarding property construction and modifications.
Long-term value is another key advantage of investing in a property. Depending on the location and the property market conditions, the value of your home might increase over time at a rate higher than inflation. But on the other side, experts suggest that Australia is recently amid a housing downturn while the Australian Property Institute reports “negative residential property returns across the country for the 2018/2019 period”, indicating the first yearly decline in a decade.
Therefore, it is crucial to consider different aspects of a property’s location and how these may affect its value in the long run.
Furthermore, Dr. Ho believes that “everybody will have a different perceived value for their home based on the amenities available and the location, which is what makes this debate very, very difficult.”
Are You Better Off Renting?
When it comes to renting, there are a lot of stigmas attached to it. “You are spending money on a property that cannot be called yours.” “Rent money is dead money” because you do not generate any value from such costs. However, economists from EY suggest that owning a house may not essentially be the ideal way to “get ahead.”
Based on their study on two different types of home seekers in Sydney, they found that renting allows having more money in hand than buying a similar property in the same location. According to them, tenants in Australia’s upmarket regions can save up to $500,000. In cheaper locations, they can save somewhat between $200,000 and $300,000.
“With today’s property prices, you could be better off renting somewhere affordable and investing the cash you’ve saved,”said Jo Masters, the chief economist at EY.
Renting, in most cases, is more affordable than paying off your home loan. At the same time, upkeep and maintenance of the rental property is not your liability. That means you can save big time on repairs, renovations, home insurance, and other fees associated with owning a property.
Renting also gives you more flexibility in terms of moving houses whenever you want.
But at the same time, you should take into consideration the disadvantages like lack of security & control and no investment opportunity with renting property.
Should I rent or buy – the debate continues. You must measure the pros and cons carefully and the above discussions might help you arrive at your conclusion faster. Ultimately, it is important to determine your financial condition and assess future income-earning potential before making a decision.