In current property market, many Australians are questioning whether to buy or rent. While renting may seem more affordable in some areas, data suggests that in certain suburbs, buying could actually be the cheaper option. This is particularly true in several suburbs across Perth, Western Australia.
Here’s a closer look at where it could be cheaper to buy than rent:
Key Insights
Suburbs Leading the Pack
- Baldivis
- Median rent: $400 per week
- Estimated mortgage repayments: $386 per week
- Armadale
- Median rent: $320 per week
- Estimated mortgage repayments: $283 per week
- Medina
- Median rent: $340 per week
- Estimated mortgage repayments: $289 per week
- Kelmscott
- Median rent: $380 per week
- Estimated mortgage repayments: $369 per week
- Brookdale
- Median rent: $350 per week
- Estimated mortgage repayments: $299 per week
Factors Contributing to the Shift
- Low-Interest Rates: Record-low interest rates have made mortgage repayments more manageable for many.
- Government Incentives: Initiatives such as the First Home Owner Grant and the HomeBuilder scheme have made purchasing property more appealing.
- Rental Market Tightening: Increased demand and reduced supply have driven up rental prices in many suburbs.
Advantages of Buying Over Renting
Several factors contribute to the affordability of buying over renting in these suburbs. Record low-interest rates have reduced the cost of borrowing, making mortgages more accessible. Government incentives like the First Home Owner Grant and the HomeBuilder program have further encouraged first-time buyers to step into the property market. Additionally, increased demand and a tightening rental market have driven up rental prices, making renting comparatively expensive.
Doing the Sums
For example, If you spend $500 per week on rent you would multiply this by 52 weeks in a year to get $26000 a year in rent.
You need to consider that when you rent you don’t pay council rates of about $2000 on average per year and water rates of around $1200 per year. As a renter you do pay the excess water rates. If you rent a unit you also don’t pay strata fees which are often $500 – $800 per quarter or another $3000 per year as the owner pays this for maintenance and insurance. These are some things to consider before buying. But buying almost always will move you over time to a better position financially in our opinion.
In order to work out what you could afford you simply divide annual rent – here $26000 by the interest rate you can get a loan at.
For example, if your interest rate is 6% then the divide $26000 / .06 to get an amount of $433,333.
This is the loan you can currently afford based on your rental expense. Now you may also be saving more than that or have a deposit saved.
So if you have a deposit of $60,000 you could potentially buy a place comfortably for $493000 and be spending a similar amount on your own property. In general the first couple of years you will probably be behind because of some of the extra costs a home owner pays as mentioned above.
- But consider that your rent usually goes up each year
- plus the amount you owe on your mortgage goes down each year meaning the pay back the loan faster and faster.
- This means your effective rent is actually now reducing every year (As long as interest rates don’t go up too much)
- AND property prices will tend to keep moving up with population growth which is a win for you.
- SO you will start moving ahead and building equity and wealth and be better off in the medium and long term.
So by working out what you could afford and then finding an area that you can afford to move to you will be able to get into the property market and build equity which will give you financial security and choices into the future.
You can use your first property as leverage to move up into a more preferred area once you have some equity in place.
Considerations Before Buying
- Upfront Costs: Consider the deposit, stamp duty, and other associated fees.
- Market Trends: Stay informed about market trends and suburb growth forecasts.
- Personal Circumstances: Evaluate your financial stability and long-term goals before making a decision.
When to buy over renting?
In suburbs like Baldivis, Armadale, Medina, Kelmscott, and Brookdale, the data suggests that buying could be a smarter financial move than renting. However, every buyer’s situation is unique, and it’s crucial to weigh the pros and cons before making such a significant commitment.
Whether you choose to rent or buy, the Perth property market offers various opportunities to find a place to call home. When you do buy, we can help do a smooth transfer of the property into your name. Call us as your local Perth Settlement Agents and Conveyancers.
Want to learn more about the Perth property market? Read this article about Perth Property insights.
