Is it cheaper to buy or rent a unit? This is how the figures stack up
Unit rents soaring to new records in most capital cities have meant that now, for almost the first time in history, it makes more sense for some tenants to buy apartments rather than lease them.
Renters of units in Brisbane, Perth and Darwin are now paying more weekly than it would cost them, generally, in mortgage repayments, while in Adelaide, Canberra and Melbourne they’re paying only slightly less than it would cost them to buy.
“There are currently a lot of positives for people wanting to transition to become home owners,” says Domain chief of research and economics Dr Nicola Powell.
“The rental market has seen such vast changes and such steep rises that sometimes these now eclipse the increase in interest rates for purchasers.
“This situation really highlights how expensive it has become to rent units. And, of course, there are long-term benefits in purchasing in that it’s a chance to enter the market and start a buying journey to be part of the property cycle.
“And committing to rent at the moment can be more costly than committing to a mortgage.”
Analysis of the latest quarterly Domain Rent Report found unit rents rose for the eighth consecutive quarter, with the steepest annual increases on record in Sydney, Brisbane and across the combined capitals.
As a result, in Brisbane, which has a unit median price of $450,000 and a median rent of $530 a week, the weekly mortgage repayment, using a 20 per cent deposit, would be $498 a week – $32 less than the rental.
Similarly, Perth has a median unit price of $360,428, and a median rent of $480, so the home loan repayment would be a big $91 less, on the same deposit.
Meanwhile, Darwin’s unit median price of $356,860 equals a mortgage payment of $395 a week, against its median rent of $515 – a handsome $120 saving on the rent.
In other cities, rents are less than mortgage repayments but, for some, not much.
Adelaide has the slimmest differential at $32 more for a mortgage, and Melbourne the second smallest at $84 extra.
In Canberra, buyers would pay $91 more to buy a unit than to rent one, in Sydney $169 more and in Hobart – which, together with Darwin, has falling unit rents – buyers would pay an astonishing $253 more.
“As well as the money, there’s also the stability of owning your own home which is so different to renting,” says Ray White chief economist Nerida Conisbee.
“When you rent, you have so little control over conditions. But when you buy, you’re likely to benefit from price growth as well.”
| Capital city | 5% deposit | 10% deposit | 20% deposit |
| Sydney | $37,933 | $75,866 | $151,732 |
| Melbourne | $26,391 | $52,782 | $105,564 |
| Brisbane | $22,500 | $45,000 | $90,000 |
| Adelaide | $20,910 | $41,820 | $83,640 |
| Perth | $18,021 | $36,042 | $72,084 |
| Canberra | $28,954 | $57,909 | $115,818 |
| Darwin | $17,842 | $35,685 | $71,370 |
| Hobart | $28,251 | $56,503 | $113,006 |
If saving for a 20 per cent deposit alongside paying record-level rents is nothing short of a pipe dream, there are options, such as the federal government’s Home Guarantee Scheme.
The scheme allows buyers to borrow with a deposit as small as 2 to 5 per cent, depending on their circumstances, and avoid costly mortgage insurance, with the federal government acting as guarantor for whatever is left over of the deposit from 20 per cent.
Recently expanded eligibility criteria mean that friends, siblings and other family members can now apply as joint applicants under the First Home Guarantee and the Regional First Home Buyer Guarantee. These two guarantees will also accept eligible home buyers who haven’t owned a property in Australia in the past 10 years.
Perth agent Sharon Smith, of LJ Hooker City Residential, says that these days it’s almost become a no-brainer in the country’s west to buy a unit rather than rent.
“We’re now seeing a lot of tenants coming to buy after renting for a period,” she says. “Even with the interest rate rises, we’ve seen rents rise so much that a mortgage makes so much more sense.”
Smith is currently selling a two-bedroom apartment at 21/2A Goderich Street, East Perth, for offers above $399,000 – less than the unit median.
In Brisbane, Kylie Drakos of Coronis Inner South is selling a two-bedroom apartment with access to a fabulous communal pool at 606/62 Logan Road, Woolloongabba, for offers above $619,000. She says buying is simply the smarter alternative.
“Who wouldn’t prefer to pay off their own mortgage rather than someone else’s?” she asks.
“The rental market is very difficult at the moment, so a lot more people want to buy. Owning an apartment is such a lifestyle decision too; you can have a lovely pool but never have to worry about maintaining it. The body corporate does that for you.”
In a number of other cities where it’s marginally more expensive to buy, the actual price of a unit is an important factor. For instance, Paul Gervasi of the Nicole Gervasi Property Group is selling a one-bedroom unit at 605/442 St Kilda Road in Melbourne for just $398,000.
“It often is cheaper to buy than rent, when you look at prices like this one,” he says. “But the problem is that this building does have high body corporate fees, so you have to take that into account too.”
PRD Real Estate chief economist Dr Diaswati Mardiasmo agrees. She says that while comparing rents and mortgage repayments is a valuable element in making a decision to buy, potential purchasers should also work out the costs of holding property.
That could include strata levies, council rates and the costs of utilities and repairs.
“When you’re a renter, you don’t pay any of those bills,” she says. “But when you’re an owner, you have a lot more responsibility for the costs of your unit. So it’s important to calculate the annual cost and then break it down into the weekly cost for a true comparison.
“Also, bear in mind that a renter’s commitment to a property is usually 12 months rather than 25 to 30 years, and do you have the financial capacity to commit long-term?
“If you rent and your circumstances change, you can move to a cheaper home or go back to mum and dad’s house. But with your own unit, you can only sell – and risk losing a lot of money.”
– with Ellen Lutton
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