The inner-west suburb of Enmore has topped the list of Sydney suburbs where it could be cheaper to buy than rent, according to latest RP Data Buy vs Rent report.
Enmore is one of 388 towns and suburbs across Australia identified where the monthly mortgage payment is typically lower than the monthly rent, a 63% increase on the previous August survey.
The report though should be seen as theoretical in nature rather than a definitive guide and to show “what impact adjustments to mortgage rates can have on housing affordability in the marketplace”.
In some of the locations highlighted as seemingly making more sense to buy than rent, like-for-like swaps might not be possible due to the savings not being evident for that type of property or there maybe a scarcity of stock at the median value.
For example, the report identifies houses in Melbourne’s Docklands as offering a potential monthly savings of nearly $2,200 if a renter chose to buy with a three-year fixed-rate mortgage.
However, houses make up less than 2% of the stock of properties in Docklands, where apartments dominate and those houses that are listed for sale – mostly luxury riverfront townhouses – start at around $1.2 million rising up to $4 million, beyond the price range of most renters.
Another example would be Burswood houses, just a few kilometres from Perth. Potential monthly savings by buying instead of renting are as high as $1,500 but there are only a dozen or so Burswood houses listed for sale on realestate.com.au with just one priced around the median value of $668,000.
In the case of Enmore units have a median asking rent of $1,950 ($450 per week) and a median dwelling value of $284,810. It is 5.7 kilometres from the CBD.
Renters capable of raising a 10% deposit ($28,000) and qualifying for a mortgage would be able to save $432 per month on principal and interest mortgage at a discounted rate of 5.9% rising to a maximum savings of $800 per month if they took out a three-year fixed-rate home loan at 5.39%, according to RP Data calculations.
Recent sales in Enmore include this one-bedroom unit on James Street, which sold for $241,000 and would likely rent for around $350 per week ($1,575). Monthly mortgage repayments on a standard principal and interest loan borrowing 90% of the purchase price would be around $1,300.
Enmore is one of 41 suburbs in Sydney where it is potentially cheaper to buy than rent, with the remaining 47 suburbs located in regional locations.
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Another prominent Sydney inclusion is Rushcutters Bay, just three kilometres from the CBD, where renters can save as much as $673 a month if they choose buy a unit rather than rent. The median price of a unit in Rushcutters Bay is $330,000 with median rent at $498 per week.
The comparisons in the RP Data report are based on borrowers having a 10% deposit and taking out a loan (in the case of variable) over 30 years. It does not take into consideration what can be considerable stamp duty costs as well as associated buying costs and strata fees, where applicable. Land tax, council rates and utility bills are also not considered.
The analysis also does not take into account the potential capital gains or loss over time.
Rental data is based on the median weekly advertised rental rate across the suburb over the past 12 months to September 2012.
Critics of the report argue it is too theoretical in nature and reflective enough of what is actually available to be purchased with money spent to rent a comparable property.
The WA list is topped by Ledge Point, a fishing village about 105 kilometres north of Perth where the median house value is $508,000 and where potential savings for renters that choose to buy range from $3,787 to $4,446.
Nationally, the report identifies 388 towns and suburbs across Australia where the monthly mortgage payment is typically lower than the monthly rent, a 63% increase on the previous August survey highlighting the “dramatic impact adjustments to mortgage rates can have on housing affordability in the marketplace”.
Queensland offers the majority of suburbs and towns where it’s cheaper to buy than rent at 147; Greater Brisbane accounts for 42 suburbs, while the remaining 105 can be found in the regional areas of the state. New South Wales has 88 suburbs; 41 are in Sydney while the remaining 47 are in the regional parts of the state
According to RP Data national research director Tim Lawless, the Australian housing market experienced one of its toughest years ever during 2011 and the early months of 2012.
“With capital city dwelling values almost 6% lower than when they peaked and discounted variable mortgage rates 125 basis points lower from their 2011 peak, coupled with fixed mortgage rates more than 210 basis points lower, we may see consumers returning to the property market as they realise that residential property may not cost them that much more to own than rent.
“In some suburbs it may actually be cheaper than renting especially where we are seeing evidence of tight rental markets resulting in rental increases and lower home values. For many buyers now may be a good time to either re-enter the market or buy their first home,” he says.
The report finds that across the capital cities, it is typically apartment-style housing where renting can be more expensive than paying a mortgage as the buy-in price tends to be lower compared with weekly rents, providing a narrower gap between mortgage payments and rental payments.
“If a potential buyer was willing to pay $50 extra to pay of a mortgage in a suburb rather than rent a house or unit, the total number of areas nationally rises from 388 to 1,419, based on making interest and principal payments on a variable interest rate loan,” says Lawless.
Melbourne buyers’ agent Catherine Cashmore has challenged RP Data’s methodology.