With the recent increase in interest rates in Australia, it is no surprise many Australians are now considering renting as a more viable option over buying. The factors that favour renting over buying are as follows:

1.  Rental yields are usually about 4.0% to 4.5%pa – while mortgage interest rate is at least 7.5% now (with new cash rate of 6.75% in November), it is more economical to rent than to buy.

2.  Most first home buyers borrow almost 100% of the property price with the cost of funds at 7.5%pa at best – almost double renting before you pay one dollar off what you borrowed!!!

3.  Australians find it hard to forego lifestyle benefits over property ownership.

4.  Renting does not require a deposit – Australians aren’t exactly the best savers hence to fork out a deposit for a property can be tough for them.

5.  Renting allows Australians to live in a desirable location at a more affordable price versus being pushed into the ‘outer less desirable’ locations where they may be able to afford to buy.

6.  Younger Australians will rent in three or four locations before buying a home.

7.  Australians are taxed to the maximum both directly (PAYG tax & GST) and indirectly (stamp duties, fuel excise tax, sales tax etc). This also makes it hard to save for a deposit once basic living expenses are taken into account.

8.  There is no tax relief to buy an own owner occupied home while there is, when they purchase an investment property – It is not uncommon for a relatively high-income earner to be renting and he may have half a dozen of investment properties, negatively geared to maximize tax benefits. It also allows the investor to build up a property portfolio as quickly as possible.

Article contributed by Clinton L. Waters, More Rosh & Waters a Melbourne-based company specializing in Australian Property Finance – Email Clinton