Loans Explorer: What's New

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Renting versus Buying

Reporter: Helen Wellings
Broadcast Date: November 19, 2009
Rental costs are rising as are property prices so are you better off financially by buying your own home or leasing?

A new report reveals once and for all the differences between buying and renting.
Unlike previous studies, this one looks at the difference over a 50-year period, taking into account capital growth of the property.

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Buying a house is getting tougher with prices and interest rates rising but there is still a way to get into real estate.
Peter Koulizos lectures in real estate investment at Adelaide's TAFE college. He said you are much better off buying.
"You have to remember your first house isn't going to be dream house and your first home may be a unit rather than a house," he said.
"If you can get your foot on that real estate ladder then you're in a great way."

Long term the difference between buying and renting is vast. For the first 10 -15 years, the outgoings for a home owner are higher than for the renter, but after 15 years, as the value or capital growth of the property increases, the home buyer starts to make huge gains.
"I've looked at a 25-year-old person who is forecast to live until they're 75. So we've got 50 years," he said.
"You can either rent for 50 years or you can buy for 50 years."

Peter's calculations are based on a 30 year loan at 6.5 per cent paying principle and interest, and taking into account the capital growth of a $300,000 property over 50 years.
"If property doubles every 10 years and you bought that $300 000 place today, then in 10 years' time it's worth $600,000," he said.
"In 20 years time it's worth $1.2million. In 30 years time it's worth $2.4 million. In 40 years it's worth $4.8 million and in 50 years it's worth $9.6 million. What's the renter worth? They own nothing."

Peter selected suburbs where canny buyers can make it pay buying rather than renting.
"In the first year it might cost you $20 or $30 a week, which is like parking your car," he said.
"However your net worth increases by well over a $100 a week if we factor in a miserly 2 per cent capital growth."

Peter compared the eastern states.

Brisbane
On an average priced unit in Fortitude Valley costing $370,000, you would be renting at $410 a week, $21,300 a year.
Buying it: total costs would amount to $454 a week, $23,600 a year. But factor in a modest 2 per cent capital growth and you would be ahead $99 a week, over $5,000 a year by paying a mortgage.
South Brisbane, buying, not renting a $383,000 unit, you would be $7600 a year better off.

Sydney
For an average priced unit in Arncliffe at $324,000, you would pay $360 per week in rent, $18,700 a year. Total costs buying it would be $400 a week, $20,670 a year, but with a 2 per cent capital growth, you are $4500 a year better off.
A Surry Hills unit at $395,000, you are $5560 a year better off buying.
"Now there are two suburbs in Australia where I found not only will you make money while you sleep but you're also putting cash into your pocket," Peter said.

Melbourne
In Carlton, renting an average priced $225,000 unit is $370 a week, $19,240 a year. Total costs buying it is $300 a week, $15,600 a year. Factoring in 2 per cent capital growth by buying it you are in front $8140 a year.
In Seddon, paying a mortgage instead of renting a $280,000 unit puts you ahead $3960 a year.

Conclusion
Peter said being better off $13 million over 50 years makes buying a clear winner.
"If looking at a $300,000 unit, if you can have $15,000 saved up of your own, my research shows first home owners boost and grant will cover a lot of your buying expenses," he said.

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High home prices sustainable: RBA

CHRIS ZAPPONE
Sydney Morning Herald, November 25, 2009

Australians can cope with high home prices, even as first home buyers struggle to enter the market, according to the Reserve Bank.
RBA deputy governor Ric Battellino said that Australian households appeared to have the capacity "to sustain a relatively high ratio of housing prices to income" but older, more financially secure households had seen the biggest benefit of home price rises so far. Read full article