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Should you buy or rent in the current environment?

How to make the right decision in a so-called 'renter's market'.

Senior Digital Journalist, Your Money

With property prices forecast to fall further, some commentators are now urging people to hold off buying and continue renting until better deals come into the market.

Economists have dubbed it a ‘renter’s market’, but is that true in every case?

It depends on a range of factors, according to analyst Margaret Lomas, founder of Destiny Financial Solutions.

Where you want to live, how much you earn and how far you’re willing to commute into work each day all come into the equation.

When you should rent

Most of us will have heard the argument that it’s always better to pay your own mortgage than someone else’s.

“But when the rent payment is less than the interest that you would pay on that mortgage, the argument is a little flawed,” says Lomas.

Ultimately, the biggest factor is where you’d like to live if you’re an owner-occupier.

For people that choose to live close to the CBD in major cities like Sydney or Melbourne, she explains that it’s probably going to be much cheaper to stick to renting for now.

“The recent boom in prices in both of those cities affected only the prices, the rents didn’t move much at all in many suburbs the entire time that values were going up,” Lomas told Your Money Live.

This has resulted in rental yields in many Sydney and Melbourne suburbs being considerably lower than property values.

“If you buy rather than rent and you’ve bought in a market which stagnates or goes down in value, then you’re on the losing side,” she says.

Areas close to a major city’s CBD or suburbs that are considered more prestigious tend to be areas that make better rentals because home values are unlikely to rise much further.

According to Lomas, some of the key reasons to continue renting include:

  • If the present rental yield in your area is very low (under 3.5 per cent)
  • If the area has had recent strong growth and is now plateauing
  • If the area is presently falling in value
  • If the area you want live is much cheaper to rent than to support a mortgage on

Renter’s market suburbs

While there are plenty of places around Australia that make better places to rent than to buy, Lomas says the five suburbs below are prime examples because values are falling or stagnating.

In each case, the mortgage repayments far outweigh average cost of renting, a key sign that the area is better to remain a renter.

    When you should buy

    Suburbs and regions that have lower property prices and rental yields of up to six per cent are more likely to make up a buyers market.

    “If those areas also show promise from a growth point of view and they satisfy your needs as an owner-occupier, then I definitely recommend buying instead of renting,” says Lomas.

    In such occasions where a renter decides to wait, the average price of the area could continue rising, making it harder over time to get on the property ladder.

    Plus, she says these suburbs can also make good choices for so-called ‘rentvesters’ – where a person rents in an area of choice and purchases an investment property elsewhere.

    “If you’re smart and buy in one of those areas with a high rental return while you’re doing the renting elsewhere, then the opportunity lies with you rather than against you.”

    Buyers market suburbs

    Suburbs that make good buys typically have rental prices at near to or even higher than the mortgage repayments, such as the five examples below.

    “These are all areas that have some really good signs of growth as well and that means that they make good buys not just for owner-occupiers but also for investors as well,” says Lomas.


    Watch the full interview in the video above.

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