According to an analysis of the Sydney property market done by EY, Sydney residents were better off renting and maintaining a leveraged ASX200 investment than buying a home in 60 per cent of cases over the last 25 years.
The analysis contrasted capital gains by people who bought homes with those who have invested in a leveraged share portfolio, stuck to a savings plan, and rented in a location that they could afford. The results showed that renting property may be a better financial option than buying in Sydney.
EY Chief Economist Jo Masters added that owning a home is not the only way to create future wealth. He said, “It’s time to give up on the mindset that renting is dead money. Yes, when you’re paying rent to a landlord, you’re not investing in an asset that you own. But with today’s property prices, you could be better off renting somewhere affordable and investing the cash you’ve saved.”
Nevertheless, timing is everything. Therefore, the winners and the losers depend on when they bought and sold within a suburb.
As an example from the report, homebuyers in Woollahra who have purchased a home in 2007 then sold in 2017 generated the biggest gains to buyers resulting in $303,711 ahead of renters. However, individuals who bought Sydney property in 1998 then sold in 2008 lost out to renters by $608,032.
Suburban areas where tenants triumphed were North Sydney, Mosman, and Leichhardt topping homeowners 70 per cent of the time.
Nonetheless, it is important to take into consideration that when EY takes away the ability for the lender to be able to leverage their ASX investment, the outcomes move in favour of the property owner.
Even though the Sydney property market has cooled, EY’s report identified that house prices in Sydney are still at a historical high with the average residential property still selling for 10.9 times the average NSW income.
This indicates that a purchaser of an average home in Sydney will need to save for at least nine years in order to produce the 20 per cent deposit requested by most banks.
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