Property research firm RP Data has released its Buy vs Rent report containing a list of suburbs where the typical cost of renting is greater than servicing a mortgage. According to the report, now may be a good time for people to consider the financial viability of property ownership as opposed to paying rent money. The report comes as property markets around the country continue to recover and rent prices are on the up, identifying 692 suburbs across Australia’s capital cities and regions where it’s cheaper to service a mortgage than pay a landlord.
RP Data’s report utilises the most popular borrowing scenario, a loan based on paying back principal and interest on a variable mortgage rate. Analysis then estimates the difference between monthly mortgage payments and monthly rental payments based on median home values and units within all suburbs around Australia, compared with median asking rents. The 692 suburbs identified were based on servicing a principal and interest loan on a variable mortgage rate and represents a 286.6 per cent increase on the results of the same report from a year ago, equating to an extra 513 suburbs. RP Data’s research director Tim Lawless says that with capital city home values now 2.9 per cent lower than their 2010 peak, discounted variable mortgage rates 175 basis points lower from their early 2011 high and fixed mortgage rates 265 basis points lower than their peak, many renters and prospective home buyers would be wise to calculate whether it’s better for them to pay a mortgage or pay a landlord.
For the record, Queensland offers the greatest proportion of suburbs with 242, 71 of those in the greater Brisbane area. New South Wales meanwhile has 193 suburbs, 73 of which are in Sydney. A strong run on capital gains and flat rental market conditions across Melbourne has meant that, with just 2, Melbourne holds the second lowest number of suburbs across the state capitals
Real Estate figures
Confidence in Australia’s property market has fallen, weighed down by declining rents and declining price growth. National Australia Bank Limited’s
(ASX:NAB) residential property index showed national house price growth stalled to 0.1 per cent in the second quarter of this year. Despite improved affordability and lower interest rates, survey respondents predict national house prices will rise by 1.4 per cent in the next year and 2.4 per cent in the next two years.
Commentary
FNN spoke to CEO of Mortgage House, Ken Sayer for his thoughts on the recent drop off in first home buyer activity:
“It’s absolutely cyclical, it’s a direct response to stimulus and the stimulus is the first home owners grant, and the stimulus is also a free or a tax free environment. When a client is looking at buying a house their justification is, ‘well I’m paying dead rent or dead money and I’d rather pay that towards my mortgage. Interest rates are very low so we ask the question; what happens if interest rates go up? And the answer is usually blank, ‘I never thought about that.’ So we stress test it at a higher rate and the purchase is still dearer than a rental environment. So with customers that don’t have surplus cash, that tends to stop them.”
Australian auction results
This week’s auction results across Australian capital cities - Sydney recorded a 81 per cent clearance rate from 245 properties for auction, Melbourne cleared 63 per cent from 184 properties, Brisbane had a 38 per cent clearance rate from 37 properties listed and Adelaide cleared 42 per cent from 17 reported auctions.
Commercial property sector
RHG Limited’s
(ASX:RHG) board has accepted a sweetened takeover bid from a syndicate led by Resimac Ltd, put by the group to counter a rival offer from mortgage lender Pepper Australia. Lender RHG says it has accepted a counter proposal from the Resimac syndicate of 48 cents per share, an increase of 3.9 cents per share over the original offer.
Charter Hall Group
(ASX:CHC) has sold the Home head office in Melbourne to a private investor for $48 million and will use some of the funds to repay $27.5 million in debt. Managed fund Charter Hall REIT will direct a further $10 million from the sale toward shopping centre investments.
