Should you buy or rent a home? The arguments for and against have evolved over the years.
There are now more factors in play – the pandemic and resultant work-from-home practices, for instance, have provided more incentive for people to own their own residential property.
But Covid-19 has led to fears of new variants amidst rising costs of goods and household debt. Add these to pre-existing issues of affordability, stagnant wages, and the risks of home ownership, and the factors can weigh heavily on prospective buyers.
Here are the pros and cons of buying and renting in Malaysia.
Buying a home – pros
- Value appreciation
One of the biggest pros to buying a home is the expectation that the mortgage will eventually be paid off and you will be left with a valuable asset.
Real estate values generally increase over time, especially in the case of landed property as land is a limited commodity. While there is no guarantee of making money from the eventual sale, your property will likely appreciate in the long term.
- More freedom
By paying down your mortgage each month, you build up equity and can refinance the property if needed.
You also enjoy complete freedom to renovate or redecorate your home to your liking, while renters are bound by restrictions within the tenancy agreements and/or the landlord’s consent.
- Buyer incentives
The past two years have seen the introduction of various government incentives, coupled with record-low interest rates and distressed sellers in the market.
Current incentives for first home buyers include up to 110% financing under Skim Rumah Pertamaku, and stamp duty exemption for properties below RM500,000.
One option that could work for Malaysians would be to rent while servicing the mortgage on a property that they, in turn, rent out.
Buying a home – cons
- Affordability issues
Properties in Malaysia have progressively been deemed “severely unaffordable” when measured by the median multiple ratio, which takes into account house prices and household incomes.
Malaysians usually need at least 10% of a home’s purchase price for the down payment, or about 15-20% for a subsale property including legal fees, stamping, and insurance costs.
- Long-term commitment
Home loans can span up to 35 years. While a mortgage is generally considered “good debt”, overextending to purchase one’s dream home could lead to disastrous consequences.
Also, the current property overhang leaves buyers with plenty of options, but those who do make a purchase will have a harder time reselling it.
- Hidden costs
Buying property entails various costs that may not be immediately apparent, such as taxes, maintenance fees, sinking funds, and strata titles.
Homeowners are also responsible for the upkeep of landed properties and must be prepared for costly unexpected repairs.
Renting a home – pros
- Greater selection, lower costs
Since renting is often cheaper and offers better value for money in terms of space, renters can opt to live in neighborhoods or larger dwellings that would otherwise be unaffordable.
The upfront costs of renting are typically deposits, moving costs, and the first month’s rental. And by renting fully furnished units, you can save on moving costs or having to buy furniture and appliances.
- Fewer worries
Tenants don’t have to concern themselves with maintenance and repairs on the home and appliances. These generally remain the responsibility of the landlord, unless damages were the result of the tenant’s actions.
The current property overhang leaves prospective homebuyers with plenty of options, but those who do make a purchase will have a harder time reselling it.
- Less risky
Renting is generally considered a safer option, especially if the real estate market crashes. Renters avoid taking on long-term debt and can easily upgrade or downgrade their property upon expiry of the tenancy.
If they terminate the tenancy early, they only stand to lose their deposit, subject to the conditions of the tenancy agreement. This flexibility allows renters to adapt to unexpected circumstances such as loss of income or switching jobs.
Homeowners in similar situations might be unable to sell their property if the outstanding loan amount exceeds the current property value.
Sure, they could choose to rent out their property and live elsewhere, but if the rental rates are below the monthly mortgage payments, they would be further burdened with an additional ongoing expense.
Renting a home – cons
- Zero equity
The most common argument against renting is that it is akin to burning money, as monthly rent payments do not build any equity for the tenant. A renting mindset may give rise to an asset-less generation of Malaysians.
Remember that investing in hard assets such as real estate can help build wealth and provide a hedge against inflation. Property can also be handed down to future generations or sold once its value increases.
- Landlord woes
While current laws are more pro-tenant, renters may still find themselves dealing with uncooperative landlords who could at any time decide to move in or sell the property, forcing them to move.
The middle ground
Ultimately, the decision to buy or rent depends on one’s budget and circumstances. Malaysians might find the “rent where you stay, buy where you can rent out” concept more practical, as it would allow them to enjoy the flexibility of renting for own-stay while reaping the benefits of investing in real estate.