For a long time, the debate of whether to rent or buy in Australia has been on a spike. Both options have their own benefits and drawbacks which should be evaluated prior to making a decision. While many believe that money might be the only thing to consider, the decision relies on various factors that should be thoroughly evaluated. Let’s settle this debate.
Real Estate in Australia
Before we move on, let’s just take a fact check on the real estate market of Australia to find out the trends from the past few years. As per the research by the Australian Bureau of Statistics, the real estate sector has been on a decline since 2016 since more people are going for rental options. Changes in demographics, population factors, political changes, property prices, income levels, net immigration, and other such factors have been key influencers towards this change.
As per the Australian Consumer Sentiment Index, the population growth in Australia has slowed down ever since the pandemic of COVID-19 struck. In 2021, the growth was predicted to be only 0.2% compared to 1.5% in 2019. The customer sentiment readings forecasted that in 2021, there would be a 3.5% change. Both of these are positive indicators for the real estate market as they indicate that there are going to be smaller families with higher net income that could be used on buying houses.
With the cities filling up and very few spots left for newer houses, the prices of property have skyrocketed. Cities like Sydney, Melbourne, Brisbane, Canberra, Hobart, and Adelaide have shown growing prices for houses. Areas near to the city sides have not been as developed which is why the countryside is expected to become the next big option for buyers in Australia. In addition to that, there has been an increase in the number of working men and women who are comfortable in having one-bed or two-bed apartment. As a result, the demand for apartments has increased while for housing, it has decreased.
On the contrary, the rents have also been increased in the city centers. Although these changes have not been as high as property price increment, they still indicate that the demand for rental housing is increasing day by day. In Melbourne, a 4.7% incremental change was recorded in February 2020 while the other cities were not as actively increasing.
Buy Vs Rent
Now for the big debate, to buy or to rent. We have summarized both sides and given our judgment for you to make the best decision on living in Australia.
Buying a Property – Benefits
One of the most important factors to consider when living in Australia is stability. With conditions like COVID-19, and the employment rate going down due to inflation, homeowners proved to be having a more stable life than the ones living at rent. The unemployment forced many to change rental accommodations. Buying a house may seem like a big deal, but it definitely ensures you a secure future with one of the major expenditures (rent) not being there anymore.
Appreciation in Value
As suggested from the above trends, property prices in Australia have been on a constant rise. And that’s great news! If you buy a home, you won’t only be living in it but it will also become an appreciating asset for you. Maintain your property in a proper manner ensuring that all the renovation works, paints, and other maintenance works are done on time which will result in appreciation of the value of your house.
Easy Financing Options
Although many countries offer this scheme, Australia has one of the easiest financing options for first-time homebuyers. First Home Owners Grant helps people in paying for their first home on an easy installment and low-interest basis. The specific “First home loan” is utilized for this purpose along with the Bank of Queensland. As a result, many people are able to afford their own homes with peace of mind.
According to Paul Ryan, an economist, there are very low mortgage interest rates for homes. Sometimes these rates are even lower than renting out an apartment. As a result, an ample amount of money can be saved by mortgaging rather than renting out a property. The reserve bank of Australia has plans to keep the interest rates low till 2024 after which they might be changed as per the new financial requirements of the country. Till then, it is a golden opportunity to buy rather than rent.
No Restriction on Changes
Owning a house compared to renting one has its particular freedom in terms of renovation and making changes. Many rented accommodations do not allow you to have any kind of pets, new paints, or other changes in the house but with your own home, there is full freedom. You can change the overall look to somewhat better and utilize the space in the desired way without having thinking anyone would benefit.
Buying a Property – Drawbacks
Big One Time Investment
Although buying a house has become cheaper in the form of monthly mortgage payments, the main problem of a big one-time payment is still there. A minimum of 20% to 25% is required to take out a loan and depending on the type of property you are interested in buying, even this one-time loan could cost you a lot.
Too Many Legal Formalities
Buying a house in Australia may give you long-term stress but the hassle of one-time buying is a big one. If you are buying a house from an existing owner, there are different types of legal formalities to be fulfilled by both parties. On the other hand, real estate agencies usually wind up the hassle quickly but charge too much. In either case, the high legal formalities turn out to be a problem for the buyers since they require time and money.
In Australia, certain taxation policies should be considered before buying a house. There are two types of taxes, Land Tax and Council Rates. Both of these are costs that need to be considered before buying a property. Land tax is payable on the value of your property while the council rates are approximately $1300 per annum which may be subject to change at any time.
Renting a Property – Benefits
Low Running Cost
In some parts of Australia, rent is below average than the mortgage price. If you have a job in cities such as Perth or Hobart, you might be able to find a very low rent accommodation as well going down to approximately $400 a week. In addition to that, other than the refundable security, there is no major cost that has to be incurred which is usually in the case of buying an asset.
Flexibility in Moving
The reason why renting is usually preferred by many is that it is flexible. Moving from one place to another is a big job when you own a house because you need to sell off the property in order to move to a new location. However, no such restriction lies on a person who is on rent. This is one of the main reasons why the demand for rented accommodations is higher.
There are many foreign students in Australia who have plans to return to their home country after their studies. Moreover, they do not have the required budget to pay for their university fees as well as the accommodation side by side. Therefore, these students rent the small hostels or apartments for their temporary stay period and avoid the high cost and legal formalities.
Property owners in Australia have to pay a substantial amount of taxes to the local councils but there is no such binding on the rent payers. You don’t even have to get into a lot of legal formalities to rent accommodation. Some simple documents such as a rental agreement would be enough.
Renting a Property – Drawbacks
Payment not adding up
The main advantage of a house that you buy on loan is that the monthly payments are just adding up to your asset. Rather than expenditure in the case of rent, you are paying money to own your property fully. Rent does not allow this. Even after 2 years of living and making constant monthly payments of $2000, you would be having $0 saved or secured towards your property.
In parts of Australia, you may come across landlords who are not cooperative and could be very non-tolerating. Dealing with such types of landlords is a problem because they make your living experience a very unpleasant one. Many homeowners create restrictions for the person who is renting. For example, a rental agreement for a minimum of one year. Violating any contractual terms may lead to penalties and fines causing a very high rental amount. Some landlords are very strict about payment schedules. For example, they want to rent on the first two days of the month even if you didn’t get your monthly pay, they will not be lenient.
Lack of Space
In urban areas of Australia such as Sydney and Melbourne, the rent amount would be too high for even a small apartment. If you are coming with a family to a city center, consider this as an important factor because you might require a higher budget to locate at an accommodation that suits your choice. You would also have to give up on the extra items and only necessary ones would be kept.
It is our recommendation to buy a house rather than rent one because renting just adds up an expense but having a house on loan will be something that will be saved for you in terms of your property. It may seem difficult to buy a house but we recommend saving some money from jobs and extra expenditures and till then, rent a very basic apartment that does not cost much so that your monthly savings increase.