Wednesday 18 June 2014

Buying or Renting?

To buy or rent? This has been a discussion point that has surfaced many times during my interaction with friends, colleagues and relative. There seems to be a clear divide between these two seemingly opposing views of property ownership.
The renting camp will tell me that the property cycle is at a high now. It would be better to sell their current property, rent a place and wait to buy after a correction.
The buying camp tells me that they rather spend the money paying to own their own home rather help the landlord pay for theirs!
Depending on which region of the world you come from, the culture, government policy and influence of your upbringing will affective how you think about buying vs renting. According to Eurostats, 2012 home ownership rates in developed nations of France, Austria, Germany and Switzerland stand at 63.1%, 57.5%, 53.3% and 43.8% respectively. In contrast, according to various other sources, home ownership rates in Singapore, China and India are 90.5%, 90.0% and 86.6%.
Asian nations clearly show a stronger emphasis on home ownerships.
So, what factors would influence a person’s decision to buy or rent? Here are some consideration factors based on my discussions with different groups of people:
  • The person does not feel financially prepared to make a large commitment
  • The person does not that they have sufficient knowledge to make such a large decisions
  • The person views the property prices are trending downwards and prefers buy after the correct has run its course
  • The person has just recently immigrated from outstation or from another country and is unfamiliar with the local property market
  • The person want to have a location convenience (eg near school or place of work) but is unable to afford the purchase
  • The person wants to start or raise a family immediately as the process of buying can be fairly long
  • The person view the property as financial security with a view of passing it on to the next generation
  • The person wants freedom to remodel or renovate the house according to their taste and lifestyle
  • The person wishes to take advantage of low interest rates; buying makes sense as paying the mortgages may be cheaper than paying rental
  • The person is buying with an investment objective in mind, expecting capital appreciation and creating an additional source of income

However, my advice is that one should not look at buying or renting as a mutually exclusive decision. You can buy and rent at the same time!
When I acquired my first property in 2005 far away from the city area, I was still single and living alone. I did not require such a large space and maintaining the unit would require more effort. I instead chose to rent it out for $1500 a month and then rented a small old room for $400 near the city fringe. The monthly mortgage to the bank then was about $1200.
Therefore the addition stream of income from my property helped to offset my rental. Had I stayed in my own place, I would have had to fork out $1200 every month affecting my cash flow; instead I now had only to pay $100 a month, ride the capital appreciation for the next 9 years and still enjoyed the location convenience!

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