Property thoughts: Better to Rent or Buy?

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A good friend in Melaka asked me this question recently. If it is Melaka, should we buy or should we rent? Actually, for Melaka, when we look at the median property price today, it’s BEST to buy. Potential project? Waiting until price becomes higher is not a good option. However, today let’s look at things from a bigger perspective. Everyone knows, it’s a never-ending debate. Google for ‘Buy vs Rent’ and we get millions of search results. So, who wins? I would say both have their own points, really. However, if we are living in Malaysia and is a Malaysian, perhaps the answer can be slightly clearer. The answer will also differ with age yeah. It depends also on whether we are a working professional or a retiree… Decision is yours to make but read on for kopiandproperty.com’s version of Buy vs Rent.

Why better to rent?

#1 – Really short-term basis. If we are moving to a new place because of work and we think we may only stay for lesser than 12 months, it may make more time and money sense to rent versus buying a place. The reason is because just the viewing, comparing and even negotiating successfully would take us months, followed by the usual process of applying for a loan and going through land office will take many more months. This is just for the buying part. We have to repeat the process when we sell the place.

Source: https://www.macrobusiness.com.au/2017/01/2017-demographia-housing-affordability-survey/

#2 – Mortgage Slave Markets. In some property markets, the prices are already very high. Let’s look at the below median household income versus median home prices of the world. In some countries, the only way for buyers to buy is to fork out 70% of their monthly salary for mortgage. For these markets, it’s better to rent because it will be far cheaper! In Malaysia, if we have to fork out 70% of our salary ONLY for property, it is unlikely that we will get our loan application approved. We are just plain lucky.

#3 – If there are better investment alternatives. There are people who are extremely good with alternative investments. Stock market for example where these people are able to buy and sell for profits almost instantly by studying charts. There are also those who specialises in commodities; for example gold or silver. They always knew the best timing to buy and sell. This is why they should not tie up their money into property. Just let it multiply faster, perhaps. Please note though that cryptocurrency would be of a much higher risks yeah and is not considered an investment by most countries.

#4 – Dislike for properties. In case anyone thinks I am joking, this was the view of a managerial staff of an MNC in Penang many years ago. “Property is not needed at all. Money is needed. Just think very carefully, how many of us could bring our property along when we say goodbye?” While his argument looks okay but the truth is, property is also an asset and could also be turned into money. The downside? It will take a little more time than holding cash in our hands, that’s for sure. The person is still renting a room today. It’s much cheaper than renting the whole unit.

Why Best to Buy?

#1 – Property allows us to leverage. If there’s one single reason, it’s the leverage. Imagine buying a property of RM250,000. We only need to come up with 10 percent downpayment while the rest are through bank loan. In other types of investments, the returns are based on how much we invested in. For property, price increase is based on property price and not how much we invested in. In fact, it may even sound like a scam if someone were to tell you that returns are usually double digits per year. Do take a look at the next point yeah.

#2 – Exciting return on investment (ROI). We buy a property of RM250,000 and pay RM25,000 as downpayment. Assuming the property price did not move much, perhaps just 3% per year for the next 5 years. This is RM250,000 x 3% x 5 consecutive years = RM289,819 at the end of the 5 years. This is RM39,819 divided by RM25,000 (downpayment) = 159%. Divided into 5 years = 31 percent returns per year. Sounds crazy but imagine if we used the same amount and put into FD, that will be RM25,000 x 4% x 5 consecutive years = RM30,416. This is a total of RM5,416 after 5 years. Sad but true. As for how much was the average property price increase, do take a look at the chart yeah. (Note: Historical data does not mean future will be the same yeah)

#3 – Property is a NEED. We should buy one which could also double up as an investment. Everyone tells me that in the future, the next generation will rent instead of owning a home. My response is simple. If they need to rent, they could rent from me. 😛 A home is not a car. We can choose to take the MRT / LRT or even paster our colleague to fetch us to work everyday. However, we could not sleep under the bridge and we definitely will not be welcomed to stay at our colleague’s home for more than a few days. This is why demand will always be existent and supply will just have to meet the demand. Where price is concerned, let’s understand that MAMEE has been sold at 20 sen for as long as I could remember. However, the size is now many times smaller than previously. In the property world, the price of a home may continue to be affordable but the size will become smaller or developers build further away.

#4 – We are Malaysians! I do not wish to say that everyone must invest in a property for all countries. Let’s understand that there are countries where the median age is already pretty ‘high.’ I always love to ask this question. ‘Will you buy a new property if you are already 60?’ The answer is usually no. However, for Malaysians, we must note that the median age for Malaysia is still 29. The demand will continue to be very strong and if we look at supermarkets, the product with the most choices today would be baby products. Take a look at the demographics. If the top part is much bigger than the bottom part, it may be better not to buy.

#5 – Property investment is easy. View a unit. Then view a few more units. Drive around the area. Are there amenities which you like? Look at the developer’s track record (a good one here). Have they been around for over 20 years? Compare the prices of equivalent units in nearby neighbourhoods and even cities. We could even look at transacted prices of the properties in brickz.my This is unlike many other kinds of investments where the winners are usually just the best in their field or the richest. With property, it’s possible to start with just a right one and move along to the next one.

#6 – Renting is best when we retire. A good friend who’s a very prominent person in the world real estate scene once told me that everyone should aim to have 3 properties when we retire. One for own-stay, one for rental income and another one which we could sell and use the proceeds to do anything we like. While I agree, perhaps we could also think about selling all the three units and use the proceeds to do whatever we like. At that time, I will travel instead of staying in one place and watch TV day in day out. Since I travel, of course renting a place is the best. Agree with me? Perhaps a look at Melaka?

There are no such thing as a 100 percent right or wrong answers. Everyone has their own bias depending on different circumstances. However, if you are reading this in kopiandproperty.com right now, I think we may have some similarities in thoughts. Truth is, it’s a very good time to rent currently. There are many home owners who are over-stretched financially and they are willing to rent out their homes at below market rental rates just so that they could cover some of their mortgage payments. This is why some high-rise units in Kuala Lumpur worth RM800,000 may only be rented out at RM2,500 per month today. However, the question is, how long will this last. Secondly, is it not then the best time to enter the property market? When developers are also more willing to have lower profit margins? Happy following and deciding.

written on 15 February 2019

Next suggested article: Advantages of buying new vs sub-sale

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