Rent at Your Peril: 8 Reasons why home ownership is something all Australians should aspire to
The RBA’s recent research discussion paper “Is housing overvalued” sets a dangerous precedent for many Australians who remain undecided about home ownership.
The RBA argues that if property prices continue on a 2.4 per cent long-term trajectory, the cost of buying a house would be the same as renting, and if housing growth slows to less than 2% then home buyers would be financially better off paying Rent instead of a mortgage and other costs related to home ownership.
“On paper these figures may seem to make stark economic sense, but the property market, like any other, is cyclical and therefore undergoes peaks and troughs,” said Ken Raiss of Chan & Naylor. The other significant factor is that not all properties are created equal. The purchase of a property whether it is for owner occupation or investment must take into account purchasing right and not with emotion and as per the old adage which says there are lies, dam lies and statistics so every property owner must strive to purchase property that will outperform the average. This is not as difficult as it may appear advises Mr Raiss if purchasers look at buying property below intrinsic value, in the higher capital growth locations that are different and capable of having improvements added. Spending time on research should take you out of the average result.
“If you agree with the notion that property prices will fail to rise by 2.4% over the long term then fair enough, enjoy being a tenant for the rest of your life. However unlikely scenarios aside there are a number of other very practical and important reasons why all Australians should be encouraged to get on the property ladder if they are able to do so,” continued Mr. Raiss.
- It is forced savings – Australians are some of the worst savers in the world, therefore being forced to put your money in a long term asset is a highly prudent exercise that offers reassurance in later life. There is truth in the old adage that ‘I might retire broke, but at least I have my house.’
- It can cover your retirement costs – The majority of us are living longer however as was evident from the recent Budget it is clear that the Government can no longer afford to pay for the growing number of pensioners. Having an asset like a house will actually help pay for your long term stay in a retirement or care facility, something that potentially awaits many of us at some point.
- Not owning means that you are subject to rental market forces – As a middle aged unemployed tenant you will be subject to the market forces of the rental market as dictated by your landlord who can throw you out as soon as you fail to meet your rental obligations. Conversely as a homeowner it is more likely that you can come to an arrangement with your bank should circumstances require it.
- Home ownership gives your financial certainty – If you have purchased the right property, it will increase in value above the average, but the amount you have borrowed will remain relatively fixed. Rental income however increases with the value of the property market, so do you really know what you will be paying for your two bedder in 30 years’ time?
- Home ownership gives you personal certainty – Buy what you can afford now rather than what you necessarily want and you will be in front as you enter the second half of your life rather than waiting for a late win.
- You can leave your grandkids something – Most people aim to leave their legacy to the next generation and a home is a fantastic asset to pass on.
- Bricks and mortar are less volatile than the share market – If the value of the housing market looks like it is on a downward cycle for now, it is nothing compared to the wild swings of the stock market over the last decade. Where would you rather put your hard earned money?
- There is only a finite amount of rental property to choose from – At end of day everyone needs somewhere to live, and as only 30% of the Australian housing market is owned by investors, limited choice means taking matters into your own hands.
“Home ownership, like any form of wealth creation, is all about having a purpose and focused determination,” said Mr. Raiss. “Whilst many Australians have an unrealistic ‘lottery win’ view of their future financial independence, it is possible to win your personal lottery with property if you do the research and just have the patience for it.”
According to Mr. Raiss the basic fundamentals of property ownership are buy early, buy right and hold on to your faith in your investment and financial destiny.
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