When we have to pay rental, it’s ‘forever.’

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If we google online for ‘should I rent or buy a property’ we will find lots of articles telling us both sides of the story. One example with even calculations would be this article in January 2018 in TheStar.  If you are still reading kopiandproperty.com (KnP), you may have realised that I love people who love to rent because readers of KnP can then buy and rent to them for as long as they want to rent. As for the debate on the costs associated with buying (those never ending taxes and maintenance costs and more…), I also do not wish to comment. Let’s just agree that BUYING will incur higher costs than renting. In fact renting also gives us the flexibility to rent a different place every other year while we are stuck with the same property that we bought for a very long time. Final decision is the same, if you intend to continue reading KnP, buying is simply better. Haha. Two reasons and one real example below. We start with the actual example.

Real example. According to Mercer in an article in South China Morning Post (SCMP.com): Soaring rents make Hong Kong the most expensive city for expats, according to Mercer.  Mercer says that the prices of beer and hamburgers in Hong Kong is okay BUT it is now ranked the most expensive city for expatriates among 209 cities worldwide amid soaring accommodation costs. RENTAL is what the whole article is about. The reason? Expats do not usually buy a place. For a short term stay, the costs to buy a place will be prohibitive. The example of the type of soaring rental? “A two-bedroom flat of international standard goes for US$7,671 (RM30,500) per month in Hong Kong, compared with US$5,700 (RM23,000) in New York.”  Will the rental for these units continue to increase? Haha. I believe majority would answer Yes. Mercer compared a lot of other things as well, not just rental and for all those other stuffs, Hong Kong’s quite okay! For example, a fast food meal in Hong Kong is much cheaper than Sydney… A bottle of beer meanwhile is only 30 percent of the usual price in Sydney… Full article in SCMP.com here yeah.   An earlier article here, also about how RENTAL alone would have caused workers to work like crazy and still live under the poverty level.

Reason 1 – ‘Expensive’ will continue. Hong Kong is expensive, everyone knows that I believe. By the way, all my Hong Kong colleagues say that it’s too expensive to live in Hong Kong unless one has rich parents. They were all talking about the cost of a property and quite a few said that they have friends who have invested / intends to buy a property in Malaysia. One said in order to afford a small apartment, he will need to get married. Earlier article here: Marriage provides affordability One thing’s for sure. The price of a property will keep getting higher unless of course some sort of financial crisis happens but if it happens, many people would lose their jobs too. I am not too sure if that’s such a viable option to force property prices to drop… This is NOT limited to Hong Kong. It happens to all major cities in the world including the two I came back from just a week ago; Sydney and Melbourne.

Reason 2 – Power usually favours the owner. I think many will disagree with me on this one. They will point out the fact that these days in many places in Kuala Lumpur, the rental is soft or has gone down. Let’s take a step back and relook the situation. The owner bought the place 5 years earlier and started to rent out the place and over the years continue to rent ever higher because the house prices were also rising. Then, the market slows down for 2-3 years and rental softens. Is the owner renting out his place at a loss even at lower rental rates? For a while perhaps but on a longer term, it’s unlikely yeah because salaries continue to go up and this is why companies are also willing to pay higher rental for their expats. For the local management team, perhaps higher housing allowance with each passing year. What happens if the owner bought at the peak of the property cycle then? Rent out at a loss to cut his loss and wait. As long as the property is a good one, it’s just time before the ‘power’ returns to the owner.

Last but not least, despite all these higher costs associated with buying a property versus renting a place. Please note, I did not say renting a property because one may NOT even be able to afford to rent one whole place in the future. The situation is the same for property buyers, in the future they may only be able to co-own a property with friends or stranger(s) or they buy a very small unit. If you ask me, I would prefer a much bigger space even if it’s co-ownership versus opening the door to my flat and I see just my bed, a sofa next to it and a TV on the wall. When the buyers could not afford to buy one whole place, do we believe one could still afford to rent the whole place? 😛  Happy following and understanding.

written on 26 June 2018

Next suggested article:   Renting is not the end of the world, it may be a good option

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