Property Investment and Valuation Part 3: Rent vs. Buy
by Peter Kralj, LL.B LL.M
A recent report by one of the country’s largest mortgage lenders announced recently that buying was now cheaper than renting. In order to arrive at their conclusion, the bank merely compared the rent payable on an average home with the mortgage instalments on a typical loan (or around 70% of value) on that same home.
This is an incorrect comparison. Firstly the mortgage instalments include not only interest – which, like rent, is a sunk cost – but principal, which is an investment in the property as the owner’s equity share increases – assuming that the value of the property has not fallen.
More importantly though, the report failed to place any value or cost on the equity that the owner has to pay towards the home. The owner’s equity is not a cost-free investment. Yet that
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