Property Investment 101: Rental does not stay the same every year

Property Investment 101: Rental does not stay the same every year

Renting is cheaper notion

Many people continue to tell me that renting is cheaper than buying. Their argument is very valid too. If they chose to buy, the price could be RM500,000 and they need to pay RM50,000 for downpayment too plus the monthly repayment is RM2,214 (image below). All these are much higher than if they just rent and the rental could be bwteen RM1,600 – RM1,800! Lots of savings, right?

Rental does not stay the same forever

Assuming the rental we pay is just RM1,600 and the owner informed us that for the next renewal, it will just be RM1,700, would we move out and to a new place to save RM100 per month? This RM100 increase is 6.25 percent. If we move, are we sure we could get back a similar unit at the same rental as what we paid last year?

If we did not move and we think RM100 is okay, then the rental has increased by 6.25 percent. Assuming this stays the same for 2 years, don’t we think it may increase by another 6.25 percent 2 years later? Let’s look at some news on renting and let’s not just look at Malaysia.

Rental went up just 5.5 percent in 2023 and will increase further in 2024.

USA President will look to ENSURE annual rental has a 5 percent ceiling.

Rental in the UK is not so positive for the tenants. Rents up 9 percent.

Many people are unhappy with rental increase and filing complaints

In Singapore where the government is the one supplying most of the new homes every year, the renters feel the rents are too high

Cheaper choices are available but rental increase is also real too

A renter / tenant who receives a rental increase notice when they renew the rental agreement can choose to say no and move out to cheaper options elsewhere. In fact, I believe cheaper options are available. It could be another unit within the same development, could be a unit in the area, could be a unit in another area and the renter / tenant could even choose to move to a room instead of renting the whole unit.

We just need to remember that rental can only increase when people are willing to accept it. If I am the owner, I also would not dare to increase the rental if I know there are many other cheaper options which is a similar choice. This is why when we read all the news above, we need to be aware that for some of these units, the reason the owners dare to increase the rental is because they know the renter / tenant is willing to accept and may not move away due to inconvenience or the renter / tenant could not find a similar property elsewhere.

A better option, maybe?

Rent as cheap as possible, save enough for downpayment and then buy the place so that the ‘rental’ payment will now change to mortgage payment and this mortgage payment would generally stay the same and actually will STOP at the end of the mortgage tenure. Renting without buying is forever. Imagine a pipe dripping a few drops of water every minute. It is not a lot of water every minute but this will go on forever and we will soon realise that after a very long time, the amount we ‘lost’ is going to be substantial.

Happy deciding and acting based what you think.

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