When it comes to living in Australian property, purchasing with home loans seems to be the default choice. For many, there’s a general impression that renting property is some kind of short-term bridge between leaving your family and buying your first home.
But if you’ve had your eye on real estate news for the last few years, you’ll notice that purchasing real estate in Australia is getting increasingly difficult, particularly in certain capital cities.
While there are many great perks and benefits from owning property, there are also key advantages to renting that make it an appealing option.
Affordability is a big factor for anyone. In this field, the case for renting seems to have the upper hand.
The Housing Industry Association reported in June that the National Affordability Index dropped by 2.9 per cent. Sydney and Melbourne saw the greatest decreases, at 6.9 and 9.1 per cent respectively. This demonstrates that housing prices are rising faster than people’s earnings.
While people with low interest home loans can still find ways to adapt and purchase property, it outlines just how comparatively affordable renting could be.
The deal with yields
The best way to observe this comparison is not just to examine rental rates, but to take a look at yields. Sure, rates can give you a snapshot into how much it’ll cost you per week, but this alone will not give you a holistic view.
Yield figures on the other hand, will show you how renting stacks up to buying property in the current market, which is the real contest here. This can be defined as the percentage of rental income to the home’s purchase price.
For instance, CoreLogic RP Data research notes that the median rental price for a Sydney house was $610 in July. This figure might seem high and have you consider buying instead.
However, figures reveal that Sydney’s rental yield was down 0.2 per cent over the quarter, and decreased by 0.6 per cent over the year to July. This shows that rental income were in fact lower than they should have been when considering property prices.
This is true for many of the other capital cities as well, and is a sign that renting could the far more affordable option in relativity to housing prices.
Another good reason to look at houses for rent is the fact that rates have been mostly stagnating. Australia’s combined capital cities experienced a 0.7 per cent decline in rates over the September quarter, with every single one recording negative change.
Melbourne has lead the charge in rental growth over the year, showing a 2.1 per cent rate increase in the year to September but clearly, this figure is hardly something to worry over.
With stable rates that are lower than property prices would have them, anyone who may struggle with mortgage repayments should consider renting instead.