PURCHASING property will probably be the biggest investment decision you’ll ever make.
Given the financial implications that come with it, one would need to consider carefully if buying is the right option – or if it would just be wiser to rent, first.
Can you afford it?
Naturally, the decision on whether you should buy or rent would ultimately depend on your financial position.
“If you’re a fresh graduate, then it would be best to rent first,” says licensed financial adviser and syariah financial advisory for Excellentte Consultancy Jeremy Tan.
“If it’s a young couple, you can rent, but having double the income would mean you’re in a better financial position to buy your own place,” he adds.
However, with housing prices constantly on the rise, one would need to ensure that servicing the monthly housing loan does not end up being a strain on your finances.
According to property consultant CH Williams Talhar & Wong Sdn Bhd (WTW) in its 2014 property market report, the average price of terraced houses rose to RM890,000 last year from RM730,000 in 2012 within the Klang valley.
“For semi-detached houses, average prices have remained stable at RM2.6mil to RM2.7mil per unit,” it says, adding that following the years of inflow of speculative money due to the very accommodative monetary policies, the significant hike in real property gains tax (RPGT) might trigger a temporary correction in capital values.
According to Tan, if one does decide to purchase property, he advises that the loan servicing ratio should not exceed more than one-third of the homeowner’s take-home salary.
“Make sure that you can afford the loan and that there is enough for other expenses incurred during the month.”
For individuals or even couples that are already into their retirement years, already owning a property is an advantage.
“If you’re into your retirement years and your children no longer live with you, it might not be practical to want to stay in that house especially if it’s very big,” says Tan.
“In this case, downgrading to a smaller house could be a better option. A lot of retirees with a few properties tend to rent out their existing homes and rely on the rental as a passive form of income,” he adds.
And what if you want to sell the property?
“Let’s just assume that the house is worth RM2mil,” says tan.
“If you sell it and decide to live in a rented place for about RM2,500 a month, that means it would cost you RM30,000 a year. Not including inflation, the money from the house that you sold could last you a very long time!”
However, Tan feels that the money derived from the sale of the house should also be invested.
Pros and cons
Malaysia Institute of Estate Agents (MIEA) president Siva Shanker says both situations have their pros and cons.
“Compared with buying, renting is a simpler procedure. You just need to pay the down payment and utility deposits and thereafter, the monthly rent. The property doesn’t have to be for the long term.
“You’re only tied down during the term of the tenancy and can always find an alternative.”
Siva adds that renting a property also means not having to deal with any upkeep cost.
“When you’re renting, there’s no need to worry about assessment and quit rent costs. If there are cracks on the walls or when the air-conditioning is not working, just call the landlord and he or she will have it fixed.”
“On the flip side, renting property also has its shortcomings,” says Siva.
“When you’re not investing in your own property, you’re not hedging against inflation and not benefiting from capital appreciation. Instead, your landlord is.
“Furthermore, if you don’t own the property, you can’t conduct any kind of interior design or renovate the place according to your own personal preference. This is because when you leave, you can’t take it with you,” he says.