Disclaimer: This article provides knowledge to readers which does not provide any advices to readers. The writer and the company of this article take no legal responsibilities for any usage of these methods. The readers should consult their financial adviser first before implementing any financial decisions.
Buying a house is a big dream for many, but with rising prices, it can feel out of reach. Different generations have different views on homeownership. Boomers see it as security, millennials often wait until marriage and many younger people don’t plan to buy at all.
So, is buying a house a smart move? Is renting the better option? Let’s look at both sides.
Why buying a house makes sense?
1. A symbol of success
People prove their success by buying a house. Making a decision to buy a house is not easy for a person. Therefore, a person who decides to buy a house may show that they are successful in their work or business.
Buying a house involves 6- to 7- figure in currency which is not easily affordable by many. Nonetheless, people who borrow to buy house are risking paying a huge amount of interest to the financial institution – which may be high and unaffordable.
Buying a large asset may prove the ability of a person in managing their finances well. It is not just about success in their work or business as larger income implies larger expenses. Someone would not buy a house if they have no discipline in managing their finances – even if they are rich demographically.
2. Family security
An ownership of house refers to family security. Whether it is large or small, house will always be a place for family gatherings. It gives the single adults to have a place to hide on when they are mentally exhausted.
Should the family rent a house for their living, the landlord has the right to ask their tenants to leave without due notice sometimes. The family which rents the house will need to look for some where they may call their home.
Family which moves from a place to another frequently may also experience exhaustion. As a result, having a house for a family increase cohesion among family members.
3. Building wealth over time
Net worth, in personal finance terms, refers to the “price” of a person if the person would “sell” themselves out. Owning a large asset will increase their asset value. As the net worth is calculated by taking off liability value they own from their asset value, buying valuable assets increase their worth too.
There is a catch – these asset values do not immediately contribute to their net worth, unless they paid all their instalments for their assets. It takes a decade or more to increase a person’s wealth after buying a house.
While those large assets can contribute to high net worth, there is an additional reason on buying a house – value appreciation. Value of the house will increase by time. It will further improve their net worth when value increases.
Why renting might be a better choice?
1. Less financial stress
Just to name a few, paying huge amount of interest at the beginning of the housing mortgage payments, requiring renovation for both new and old houses and paying tax on the property owned, had been burdens to the house owners. Neither can the house be lived in nor without legal obligations without paying all of them.
On the other hand, people who rent houses only pay rental and utilities which will sometimes less than the monthly mortgages. As renovations require approval from the owner, people who rent do not bother about renovating their rented house.
As the housing prices are usually at least 100 times of their monthly salary, most of their income will be using to pay their mortgages. This affects the family cash flow which causes more problems to the household.
2. Avoiding legal hassles
It is a steep learning curve to learn about how tedious legal operations entail after buying a house. After getting vacant possession (a grant for key collection), the owner has to perform a few tasks such as Memorandum of Transfer (MOT, to transfer the ownership of property to the named owner from the developer, only for the property which are newly built) and Perfection of Charge (to associate the property with the loan as an agreement to buy back in the future, based on the loan agreement). Selling the house involves another series of legal operations which not an ordinary person can understand.
To make the matter worse, all these operations require money. This makes renting a house a cheaper option. Rental agreement can be renewed at a specified anniversary and should not cost the tenant more than a month of salary.
It is important to know the required legal operations to buy a house, or else the buyer of the house can be scammed for not performing required legal operations. Some people rather keep their money in the bank for realised appreciation to avoid legal operations which complicates them through not owning any houses.
3. Flexibility to move
As a tenant, if the environment is no longer convenient, it is better to move to a convenient place. They can choose to also forgo their deposits to the landlord to terminate the agreement if the contract terms do not end. However, buying a house which is no longer convenient to live in involves selling the house and a huge cost of buying or renting another house which is suitable.
Tenants have better options to pick their house which is convenient to them although risking their deposits, which will not be more than 5 times of their monthly rental payments. Buying a house takes time for another house buyer to observe, accept and execute their loans with the bank, which can take as long as a few months.
Tenants can move to a place where rentals are cheaper. This gives the tenants better living cost optimisation than people who buy their house. Buyers of the house will need to brace for living cost hike if the area has a higher cost of living.
What is the right choice for you?
Before deciding, ask yourself:
Can I afford the monthly mortgage payments without financial strain?
Do I have enough savings for a down payment?
Am I ready for the legal and financial responsibilities of homeownership?
Do I plan to stay in one place for a long time?
If you answered “no” to most of these, renting might be the better option. If you answered “yes,” then buying could be a smart long-term investment.
At the end of the day, there’s no right or wrong answer—just what works best for your lifestyle and financial situation!
No idea how? Join our courses to know more!
Join the course "Plan For Your Risk" and "Plan For Your Debts" by Minda Sfera Sdn Bhd if you are interested in learning goals setting in investments. You will get the course now
at RM240 (Plan For Your Risk) or RM260 (Plan For Your Debts)
through HRD Corp Claimable Course scheme (contact us for more details)
in Kahoot! courses
Contact us for more details.