Many of us have a deep affinity with home ownership. There's the idea of the 'great Australian dream' some of us have drummed into us from a young age.
In some countries, renting is preferable to owning your own home, but Aussies tend to hold the concept of home ownership in high regard.
House prices in Australia's capital cities have generally risen, driven hard by supply and demand. A major argument for home ownership is to 'get in to the market' for fear that delaying a purchase might make it more difficult to do so further down the track.
Rent only goes toward the landlord's investment earnings and a renter has no participation in the upside that their rented property may have.
So what is the case for home ownership? What advantages does this have over renting?
Obviously, without a suitable deposit and finance, you have no choice -- your only option is to rent.
Real estate expert and author George Astudillo told The Huffington Post Australia if your deposit and access to finance is limited then you might not be able to afford to buy the property you would consider suitable to live in.
"If this is your situation, weighing up your priorities to decide which would be the better option for you will depend on what you can actually afford to buy," Astudillo said.
"Another option at this level is 'rentvesting'. This is where you remain a tenant, enjoying a level of comfort and lifestyle that you wouldn't be able to afford, and buy a property within your budget that you then rent out.
"This is a great way to start the home-buying process, minimising the wait to save up for the necessary deposit."
However, if you can afford to buy a property that you are comfortable with, there are certain advantages.
Since the mid 1980's, Australia has had a tax on capital gains on most investments. Tax is paid by the investment owner based on the change in valuation from the point of purchase to the point of sale (losses can be offset against other gains). Your main residence is exempt from capital gains tax.
Gavin Fernando from Prosperity Advisers told HuffPost Australia this is a key tax advantage of purchasing a home versus any other type of investment.
"Purchasing a property provides the owner the investment opportunity to participate in capital gains at no tax cost," Fernando said.
The case for buying
Astudillo: In Sydney, generally, demand for housing exceeds supply. And although there will be many new apartments coming online over the next few years this situation is likely to continue. This is one of the main forces that drives property prices up resulting in steady capital gains. Owning your own property takes advantage of this growth and benefits from being capital gains tax free.
Fernando: A home owner also has the flexibility to improve their property for either a lifestyle benefit or investment improvement (or both), Renters can only do so at the landlord's tolerance and any such improvements are for the landlord's benefit.
Astudillo: You don't need to worry about the landlord wanting the property back. You are free to make whatever plans you wish safely knowing your home will always be your home.
Astudillo: You have utmost control in how you wish to live: colours, layout, finishes, appliances -- if you can afford them you can have them. Your living space can become an expression of who you are.
The case for renting:
Fernando: Renting allows a potential purchaser the chance to 'try before they buy' in a particular area. You might think city apartment living is for you but have you thought about all aspects of living in such an area/environment? Rather than sink a large amount of cash and buy, renting affords the opportunity to experience the lifestyle without the long term commitment. Renting is also flexible particularly after the initial rent period (6 to 12 months) when most rental contracts move to a fortnightly or monthly notice period.
Astudillo: This is the one area that renting wins: it is much easier to enter and exit a lease than it is to buy and sell. The 'neighbour from hell' moves in next door; move. You realise you don't like the suburb; move. Want to travel the world, put your things in storage and terminate your lease? Move.
Fernando: Renters have no investment risk. Any negative impact to property values does not affect the tenant (arguably they may benefit from pressure on rents). This is often discounted as an issue however risk exists in any investment. An example recently is the expected negative impact on inner city apartment prices (particularly Brisbane) as a result of capital flow restrictions on overseas investors.
A big portion of most mortgage payments, particularly in the early stages of the loan, comprise interest payment to the lender. Interest paid to a lender for a home owner's mortgage is not deductible. Interest to a renter does not have the on cost outlay of stamp duty, legal fees and conveyancing.Suggest a correction