Renting vs buying is one of the hottest topics around town. This is for those who can’t decide whether to purchase a house in 2023 or keep renting until you can afford a home!
Purchasing your own home or property is one of the biggest achievements in life. The concept of putting a big amount of money into such an asset is overwhelming, and it is something that requires careful consideration.
Economists anticipate a contraction in the global economy in 2023, although most economies worldwide have largely returned to normal operations since the COVID-19 epidemic.
It’s also important to consider the costs associated with purchasing a home, which include mortgage payments, stamp duty, legal fees, valuation fees, mortgage insurance (MRTA), and real estate agent fees.
Yet, on the other hand, like most Malaysian millennials, you are probably sick of paying a sizable portion of your monthly rental income. And wouldn’t it be lovely to own your home, which could lead to a future period of strong capital growth?
Nonetheless, there are several grey areas in the renting vs buying decision. In the end, everything relies on the situation and future goals of the individual.
Did you know that based on the recent findings by National Property Information Centre (NAPIC), Malaysia’s median house price is RM320,000? But as you can see from the photo below, there is a huge median price difference across states in Malaysia.
According to NAPIC, the median home price in Malaysia in 2022 was RM320,000, up from RM305,000 in 2021. However, it fell to RM295,000 in Q1. The most expensive states to own a home in are Putrajaya, Kuala Lumpur, and Selangor, but this price differs. The median home price in Kedah and Melaka is RM220,000, which is half that of Kuala Lumpur.
Does it also depend on your location and whether you should rent or buy a house? There is no accurate answer to that. It all depends on you.
Yes! Every one of you has different life commitments, needs, and others.
Renting Vs Buying: Is Owning a Home Cheaper Than Renting?
We’ll use a renting vs buying calculator to estimate how much renting versus buying will cost.
Consider that you have decided to purchase a condominium at Setia Alam in Selangor for RM560,000. You will need to pay
- 10% upfront as a down payment
- 4% as a closing fee (legal fees, stamp duty and valuation fees)
- 3% Home Insurance
- Monthly payments of about RM2,500
- RM250 maintenance fee
The following are used to compute this:
- 10% down payment
- 4.25% interest rate
- 30-year loan term.
In contrast, the identical unit will cost you RM2,100 monthly to rent. You must pay the following before committing: RM5,750 as a down payment (equivalent to 2.5 monthly rent)
The renting vs buying Calculator makes the following assumptions:
- Property values grow by 2% year over year.
- Rental rates for the same properties increase at a 2% YoY rate.
- 4.0% as an investment yield (the percentage of annual earnings from investment in FD, stocks etc.)
Renting VS Buying: Cost
After 6 years, your total cost of homeownership (down payment, mortgage, taxes, etc.) for an RM560,000 home in Malaysia would be RM829,577. Renting leaves you with RM616,246 in your pocket (including the money you didn’t spend on a down payment).
Renting VS Buying: Gain
After 6 years, if you buy, your home will have RM181,393 in equity (available to you when you sell). However, if you instead rent and invest your down payment and the other money you save, at a 4% return rate, it will earn around RM17,602 in 6 years.
Looking at your gross costs, equity and investment potential, buying is better for you to buy than renting if you plan to live in your home for more than 6 years.
As a result, it is better for you to only invest in a property that you are positive will meet your and your family’s needs over the long run. Dont forget about RPGT! It must also be considered by buyers who intend to upgrade in 5 years or fewer.
Remember that this is only an example for us to understand and see the whole picture. Prices for buying and renting property can vary significantly depending on the type of dwelling, the age of the property, and the location.
There are many other factors in deciding whether buying or renting is better for you. However, one of the easiest and fastest ways to do it is by using a renting vs buying calculator.
You should experiment with the renting vs buying calculator to determine whether buying your property right now makes sense.
In conclusion, the decision to rent or buy property in Malaysia ultimately comes down to one’s circumstances, financial status, and market trends. For those not yet ready to make a long-term commitment or who need flexibility, renting may be a better option.
On the other hand, buying a property may be a better choice for those looking for stability and long-term investment. It is important to consider all factors and make an informed decision based on needs and circumstances.