Should you rent or buy?

January 13, 2014

There are clearly differing views on the subject, and though the considerations will always be incredibly personal; there are universal factors to consider before taking the property plunge.

 

Many people will quickly tell you that buying a home is always a better financial decision than renting. After all, at the end of the term you will own the house as opposed to paying rent which in the end leaves you with nothing.

But if foreclosures and bankruptcy statistics are anything to go by; buying a home may not be the best choice for everyone. Owning a home is a big responsibility and taking that step just because someone else considered it right is landing a lot of youths who can’t (and don’t want!) the responsibility in hot soup with their bankers.

As such, we thought we’d revisit the old question on renting versus borrowing from a different perspective than one that is merely based on money.

What some are saying
“I don’t need to buy a home. I have no dependents to pass it on to and I don’t see why I need one. I like being able to pack up and leave anytime I feel like it. I am not worried about old age. I have some savings for a nursing home,” shares Darrin, an NGO worker.

Darrin comes from a new breed of young adults who don’t see the need to have a house in his name. But it doesn’t mean there aren’t those who prefer some asset security.

“Before I even bought a car, I bought a house. I was 25 and at my first job but I felt it was something I needed to do. I could still drive the old car my parents gave me but I am better off starting my mortgage payments as early as possible,” said Jeanne, a Customer Service Executive.

An ex-bank officer, Mala says she sold her house just a few years after buying it. “I bought it when I was 24 but sold it at 28. I realised I didn’t want to live in one place anymore and I didn’t want the hassle of renting it out.”

But some others weren’t so lucky to be able to make decisions on their own. A young couple in the Klang Valley bought property together only to find they couldn’t handle the responsibility of payments and were forced to sell at a loss as they were months behind on the monthly payments.

They sold within a year of buying. “I thought we could handle it but our debts overtook us.” The woman tells us.

There are clearly differing views on the subject, and though the considerations will always be incredibly personal; there are universal factors to consider before taking the property plunge.

The considerationsOf Plain Ringgit and Sen

Buying a house will definitely flatten your wallet at the get-go much more than the beginning of rental tenure.

Most banks now offer 90% financing but that means a 10% deposit from you. Even on a low cost apartment costing RM150,000; that is an RM15,000 deposit plus fees for the Sale and Purchase Agreement and stamping (1% on the first RM150,000+RM10 for stamping of each copy of the SPA + miscellaneous fees). All in all, you could be looking at a RM17,000 put down amount to buy.
 Using a home loan calculator, with an interest rate of 4.5% and tenure of 30 years; you’re looking at a monthly payment of RM684.* Of course, BLR rates fluctuate and your interest rate could climb at any time.

To rent, you will need a lump sum of one month’s utilities fees and three months full rental. Utilities are charged at half the monthly rental but some landlords actually demand a full month’s rental for the utilities deposit. For a low cost apartment, at approximately RM800 per month; you will be looking at forking out RM2400 (two months) + RM400 (utilities) = RM2000. A tenancy agreement costs approximately RM250 in legal fees, so a total of RM3050.**

Without the need for a large deposit, the upfront cost of renting is lower than buying. However, while you will save in the short run you are giving up the opportunity to own a home as opposed to just paying someone to stay in theirs. Last but not least, owning a home comes with other expenses such as quit rent (approximately RM90) and land tax (about RM900 per year and up depending on land valuation of a particular area. Kuala Lumpur assessment rates are expected to climb significantly this year).
Of Commitment and Lifestyle
Taking a purely monetary view, owning is a better alternative as you are pumping monthly payments into an asset as opposed to simply paying a charge.

However, buying a home is a commitment of 30 years of continuous payment. Owning a home also means you are responsible to maintain and care for it; whether or not you live in it. If you are looking for flexibility in housing arrangements without the added stress of property maintenance, renting is the way to go. It is definitely more difficult to sell a house as opposed to simply severing a tenancy agreement

In a Nutshell
Before buying a home the main factors to consider are:
• Do you have enough cash for a downpayment?
• Can you afford the commitment and maintenance of your own home?
• What is your preferred lifestyle (nomadic or staying put)?
• Do you really want it? The main thing about house ownership is to really want it. If you’re doing it to please someone else or conform; do think again.
The decision whether or not to buy is a big one: so don’t make it lightly.
* Calculations are based on the structure of legal fees released by the Bar Council FAQs on
Conveyancing matters and property prices at the time of writing. Agent or realtor fees are extra.
**Calculations based on tenancy securing without an agent or realtor. Realtor fees are extra.

All names have been changed.
This was brought you by Diana Chai from RinggitPlus.com. RinggitPlus compares credit cards, personal loans and home loans to help Malaysians get more for their money.