2020 is strange: It’s now cheaper to buy than to rent in Sydney

Apart from one standalone area, it is cheaper to buy a house in Greater Sydney than it is to rent, according to RiskWise Property Research.

Ryde is the only area where the interest-only loan repayments for owner-occupiers in all of Greater Sydney are higher than the annual rent. In all other areas interest-only loan repayments are low, and in some cases well below the annual rent. There are also areas where only a small additional amount is required to also cover the ‘full mortgage’, i.e. both the principal and the interest repayments.

RiskWise CEO Doron Peleg said ultra-low interest rates had created a unique environment where buying a house in many areas was cheaper than paying rent on one.

He said in many areas, rent money was dead money, and that renters with secure jobs were better off buying a house than continue paying someone else’s mortgage.

“Except for Ryde, interest-only loan repayment amounts for owner-occupiers in Greater Sydney are below the equivalent annual rent, so it often makes sense to take advantage of the current ultra-low interest rates rather than continue to rent,” Mr Peleg said. “In addition, except for in the Inner West, North Sydney and Hornsby, and Ryde, it’s also cheaper to buy than rent for interest-only property investors in the whole of Greater Sydney, despite declining apartment rents in some areas”.

He said for principal and interest loans, owner-occupier repayments were higher than the annual rent of Greater Sydney, however, the monthly difference was less than $500 in five areas which included the Central Coast, with only a $15 difference, and outer suburbs such as Outer South West, Outer West and the Blue Mountains.

“Areas such as the city’s western suburbs and the Central Coast have enjoyed exceptional capital growth over the past 10 years with further positive projections in the medium to long term, especially as more and more people work remotely and can enjoy a sea or tree-change without having to seek accommodation close to employment hubs, but rather move for lifestyle benefits,” he said.

“If you buy a house you can start building equity, particularly when you take a long-term strategic view and are in a good position to negotiate well and buy a ‘Grade A’ property that will serve your family to many years to come.”

“And, except for Sydney and Melbourne, in all other states and territories, even the principal and interest repayments are lower than the annual rent, assuming that you have a 20 per cent deposit.

“No interest rate rises are expected in the foreseeable fortune and the intense competition between the banks is only going to further intensify, meaning buyers are in a very strong position to continue enjoying ultra-low interest rates.”

Mr Peleg said the biggest savings were in the capital cities where rental returns were the highest.

Mr Peleg of RiskWise said “what this all means is now is the time to buy if you are a first home buyer or an owner-occupier as this current slowdown in the property market is only temporary, with houses in popular areas likely to experience solid capital growth in the medium to long term. However, it must be stressed that units carry a higher risk and at this point of time so this strategy should only be considered for houses.

“Once the COVID-19 issue is resolved, most likely in 2021, the traditional connection between low interest rates and increase in dwelling prices is likely to take place.”

Written: 8 November 2020

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