Is it better to rent or buy a property in Sydney?

sydney

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During the first half of 2019, Sydney’s real estate market continued seeing falling property prices. The negative sentiment was due to the upcoming federal election and few international economic problems such as Brexit and the USA China trade war. Not only that, but the Australian government tightened its lending rules and Sydney imposed new taxes on foreigners buying homes.

Sydney’s property market recovery

However, the property market in Sydney has shown a clear turn since June 2019. According to the Berejiklian government, a quicker turnaround in Sydney’s housing market is expected, which will boost the state government revenue. After the reserve bank had three interest cut-rate cuts since June 2019, a big impact has resulted in Sydney’s property market – home value indicators showed there was an 8% jump in property prices between mid-August and early December. So, what really led this surge in prices?

Interest rate and regulations

The Reserve Bank of Australia said last October that cuts to the interest rates, which are now at a record low of 0.75%, and some flexible lending regulations lead to bring the demand back.

The research firm CoreLogic also mentioned that the value of homes was rising for 5 months straight, where last month alone saw a 2.7% rise in Sydney value of homes.

The budget review that was released last week by Treasurer Dominic Perrottet said “Forward-looking indicators, such as Sydney auction clearance rates, suggest price growth will continue to strengthen in 2020,”

However, even when prices are recovering, that doesn’t mean they have made new highs. Property prices are around the same levels as they were three years ago.

The premium end of the housing prices is the ones who are recovering faster due to previous rapid falling prices in the past few years.

How is the housing market improving?

Let’s see few indications that show how the Sydney housing market is steadily improving:

  • A year ago, it would take on average 44 days to sell a home, and today it would take only about 31 days.
  • Vendors are only cutting their properties prices by 3.6% on average, where a year ago they would cut it to almost 6.5%
  • In the last 12 months, 6.8% fewer properties were sold compared to the previous year.

According to Moody’s analysis, Sydney property prices are expected to rise by about 8% in 2020.

Renting vs. buying a property

As mentioned above, Sydney homes are on the rise again, and they are known to be one of the most expensive in the world. For most young people, it is not even a question of buying or renting anymore, as they have no choice but renting a property.

Dead money

But the popular view suggests otherwise. Renting a property is always known as “dead money.” Why would you want to pay someone money every month and you can pay your mortgage which will eventually lead you to own the property in a few years?

Obviously, the down payment of owning a property could be very large, which doesn’t give most people that option. But, even if you did have the down payment saved and ready to purchase your property, the businessman Phil Ruthven does not recommend owning one.

Phil Ruthven is the founder of IBISWorld, the business information company. Phil owned few properties, but for the last 30 years, he preferred renting, and here is why.

“I simply did the arithmetic to work out how you might approach retirement being either an owner or a renter,” he told the ABC.

He added “You retire on three times the amount of money that a person who owned home would if you rented or leased a home for most of your life,”

Not only that but the difference between his rent payments and what a mortgage would have cost him allowed him to start his own business. He was able to save $1 million and used this money to build his business into an international company.

But not everyone is convinced: the benefits of a mortgage

The long-term financial advisor Suzanne Haddan, the founder of Sydney-based BFG Financial, stated that a mortgage will always let you save money while renting, saving is optional.

Suzanne also states that the house you will own is more than a financial decision.

“Most of us feel a bit more comfortable if we have a diversified wealth structure,” she said.

“Yes, it includes some shares, maybe via our super, but that diversified wealth structure also owns a physical asset [your house].

“You can touch it, you can feel it, and you know the carpet can’t be pulled out from under you because it’s yours.”

Again, you should always seek professional advice if you decide to rent for the long-term instead of buying.



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