Renting vs. buying: the costs and fees

It’s not rocket science that real estate costs money. Some Australians opt to buy, while others rent. On one hand there are home loans and stamp duty to deal with, and on the other, bond charges and moving costs.

So which option works out to be a better deal in terms of costs?

Working out the better deal

A recent Reserve Bank of Australia (RBA) discussion paper by Ryan Fox and Peter Tulip, Is Housing Overvalued?, found that real house prices have risen at an average yearly rate of just under 2.5 percent since 1995. However, some commentators have indicated that house price growth will dip below historic averages in the future.

“In that case, at current prices, rents, interest rates and so on, the average household is probably financially better off renting than buying,” Fox and Tulip explained.

Those with home loans should certainly monitor capital growth trends when purchasing real estate. However, what are some of the other costs to bear in mind when buying or renting a property?

The costs of homeownership

Many Australians utilise home loan calculators to establish just how much money they’ll have to pay back over the duration of their mortgages – interest can mount up to significant levels over time.

But it’s not just the cost of borrowing to be aware of. Other costs involved include:

• Stamp duty
• Building inspections
• Land tax
• Water bills
• Regular maintenance

When purchasing a property, stamp duty is payable to the relevant state authority. The amount varies depending on the location and the value of the property. The amount can easily go into thousands of dollars, so it’s essential to budget for it when buying a home. Use our stamp duty calculator to help you estimate your stamp duty costs.

As part of the due diligence process when buying property, it’s essential to get a qualified professional to carry out a building and pest inspection, which can cost hundreds of dollars at the least. If you want to protect yourself, insert a clause into the sale contract that notes the agreement is conditional on a satisfactory building report. You may also obtain an independent valuation to ensure you’re paying the right price for a property. 

“Landowners are generally liable for land tax when the unimproved value of taxable land exceeds certain thresholds,” the Australian Taxation Office stated. Land tax applies in all states and territories except the Northern Territory, but principal places of residences are generally exempt. 

The costs of renting

When you consider the costs of homeownership, renting might seem more favourable. However, there are still costs involved:

• Bond
• Cleaning costs
• Moving costs

It’s realistic that you’ll shift more frequently when renting, which can end up being costly when you factor in professional moving and cleaning costs.

Bond can be a significant expense, too. For instance, in New South Wales, bond can be an amount equivalent to four weeks rent. The average weekly house rent in Sydney as of June 2014 was $510, according to Australian Property Monitors. That’s a $2,400 bond to cover!

Whether you are buying or renting there are a lot of things to take into consideration. So make sure you calculate the costs of both options — short and long term.

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