Rent or buy property in Australia?

by Mark Benson on March 9, 2013

in Property in Australia

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Rent or buy property in Australia?

While on the whole the Australian property market has held up better than the vast majority of developed countries around the world, many people are still not sure whether to rent property of buy property in Australia. There are obvious pros and cons for each of these options which we will cover below.

Australian property market

As we touched on above, the Australian property market has held up better than many around the world and indeed it is certainly a reflection of the very strong economy. The market has benefited from relatively low interest rates, controlled inflation and also the fact that some overseas investors are looking towards Australia for property investment.

The performance from area to area across Australia varies significantly and could well be one of the major reasons why you choose to buy property in Australia or rent property in Australia. We will now give you an example of rent against mortgage payments for some of the major areas of Australia:-

Adelaide

The average rent in Adelaide is around AU$340 per week against an average mortgage payment of around AU$330.

Melbourne

The average weekly mortgage repayment in Melbourne is around AU$394 with rental payments at AU$360 per week. We are now starting to get into an area where renting on the surface looks more attractive in the short term than buying a property.

Perth

Surprisingly, the situation in Perth is very different to that in Melbourne with the average rent significantly above mortgage payments at AU$470 per week. This compares to around AU$408 per week for the average mortgage of around AU$298,000.

Sydney

Sydney, very much like Perth, certainly favours those looking to purchase property with the average rent around AU$500 per week against mortgage payments of $422 a week. This is a significant difference when you look at it on a monthly basis.

Darwin

The situation in Darwin is very much at the extreme end of the spectrum with average rents at a whopping AU$650 per week against mortgage payments of just AU$401 per week. The average mortgage in the area is around AU$293,000.

Renting property in Australia

One of the main benefits in renting property in Australia is that you have a relatively short term liability which is in effect the length of your lease. Therefore, if for example you are moving around Australia after different types of work then this will not impact your movement too much.

Quote from AustraliaForum.com : “Does it make sense to rent a property in Australia today or would you rather buy?”

The downside is that in the eyes of many people rent money is “dead money” because it is not an investment and you will not get a return on this money. It is simply a case of balancing up the short term liability of rental arrangements against the longer term matter of a mortgage.

Buying property in Australia

The property market in Australia has fallen since the 2008 US mortgage crisis although it has not fallen anywhere near the same amount as that seen in the UK, the US, etc. Therefore, in the eyes of many people Australian property offers a very interesting investment opportunity although there are considerations to take into account for expats moving to Australia and looking to buy a home in the country.

On the plus side, all of your mortgage payments are an investment in your property and ultimately if everything works out a plan you should have a very valuable asset at the end of your mortgage which could potentially increase in value. The downside is that you are saddled with a potentially large debt which could run into hundreds of thousands of Australian dollars as you look to pay down the loan against your property. You’re also at the beck and call of the mortgage companies, interest rates, the economy and most alarmingly the employment market.

There are obvious implications with regards to ownership of your property if you fall behind on payments which could happen for a number of reasons including an ever-growing cost of living and potential job losses.

Conclusion

Each and every expat moving to Australia has a very different situation, a very different goal and very different angles to look at the property market. Some expats will favour a short-term rental arrangement, which reduces their ongoing financial liability and gives them some flexibility with regards to movement around the country in search of employment.

On the other hand some expats, possibly those with a family, may prefer to put down their roots as soon as they land in Australia and purchasing a property, often using property sale proceeds from their former homeland, could be the best way forward. There are obvious risks with regards to purchasing property such as the relatively large loan which many people are forced to take out in the shape of a mortgage. It is simply a case of balancing up your requirements, your financial situation, your employment position and deciding whether renting or purchasing property best suits you.

In this particular argument there is no right answer and no wrong answer.

{ 2 comments… read them below or add one }

castor March 10, 2013 at 4:12 pm

rent. the market will crash with the mining downturn. hard

Reply

Rua March 15, 2013 at 4:02 am

What nonsense. What use is it quoting the average mortgage when that has nothing to do with the cost of houses now? Average houses in Perth (if you can call these dog boxes houses) are between $500k -$800k – to live anywhere thats under 1h to the city. That's between $700-$1200/week on mortgage repayments. Average rent is between $350-$550 for the same houses. You do the math. Do not buy here, you will get burned.

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