Why buying is still better than renting

If you google online for “should I rent or buy a property” you will find lots of articles presenting both sides of the issue.

While buying will incur higher costs than renting and mean that you will put down roots in that particular property for the long-term, choosing to rent gives you the flexibility to rent a different place every other year if you so wish.

In the final analysis, buying is still better than renting.

REAL EXAMPLE: According to an article in the South China Morning Post, “Soaring rents make Hong Kong the most expensive city for expats, according to Mercer”, the price of beer and hamburgers in Hong Kong is okay but the city is now ranked the most expensive for expatriates among 209 other cities worldwide amid soaring accommodation costs.

The reason? Expats rent. They do not usually buy property. For short-term stay, the costs to buy a place is prohibitive.

However, rentals are high as well. “A two-bedroom flat of international standards goes for US$7,671 (RM30,500) per month in Hong Kong, compared with US$5,700 (RM23,000) in New York,” according to the article.

The article also made other comparisons. For example, a fast food meal in Hong Kong is much cheaper than in Sydney. The price tag on a bottle of beer is only 30% that of a bottle in Sydney.

Reason 1 – The label of ‘expensive’ is here to stay. Everyone knows that living in Hong Kong is expensive. In fact many say it’s too expensive to live in Hong Kong unless one is rich or has rich parents.

This argument is centred around the cost of property. One thing’s for sure – the price of property will keep going higher unless some sort of financial crisis happens.

However, if there was a financial crisis, many people would lose their jobs as well. So it’s not a viable option to force property prices to drop. This is not limited to Hong Kong alone. It the same for all major cities in the world including Sydney and Melbourne.

Reason 2 – Power usually favours the owner. This is an issue of contention as many believe rental rates have gone soft in numerous places in Kuala Lumpur.

Let’s take a step back and relook the situation. A property owner buys a place five years earlier and rents it out. Over the years the rent is increased to reflect house prices that are also rising.

Then, the market slows for two to three years and rentals soften. But is the owner renting out his place at a loss even at lower rental rates?

For a while perhaps, but in the longer term, it’s unlikely because salaries continue to increase and this is why companies are willing to fork out higher rentals for expat employees. For the local management team, perhaps higher housing allowances with each passing year.

What happens though if the owner bought at the peak of the property cycle? Rent out at a loss to cut his loss and wait. As long as the property is a good one, it’s just a matter of time before the “power” returns to the owner.

This article has appeared in kopiandproperty.com

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.