To buy or to rent, that is the question
Property prices are so expensive in Hong Kong that buying or renting a home for accommodation is a main concern for many people. Baba is a young working adult who bought an apartment with her mother’s help. A few years later, she sold her property and bought a new one. Now, she wants to buy another property to earn rental income. On the other hand, couple Ron and Yuki, prefer spending more on renting a flat in an urban area which is close to their workplaces. How do they arrive at these decisions and manage their finances? Let’s view the case study by The Chin Family.
Baba：Buying and renting are two different concepts. The former is an investment, the latter is an expenditure.
Yuki：The conditions at my parents’ apartment were not ideal. I don’t really have much personal space.
Ron：As opposed to getting a sense of security from owning a home eventually, having the financial flexibility also brings me a sense of security.
5 considerations whether to buy a home or not
Buying a home is a long term financial commitment. Therefore, it is important to carefully consider the following factors:
- What are your accommodation needs (e.g. size of flat and district)? Will your needs change over time?
- Is the property affordable? Calculate how much cash you have on hand for such an investment. If it is not sufficient, come up with a practicable saving plan.
- Examine whether you have the repayment ability in the long term. Pay attention to the debt-to-income ratio (e.g. it should not exceed 50% of your income) as well as the impact of any interest rate changes on your repayment amount.
- Consider your job stability. For instance, young adults who change jobs frequently and have unstable incomes are better off reserving enough money for emergencies to tide over in case of loss of income (e.g. an amount equivalent to six months of repayment).
- Think of your life plans. Are you aspiring to change jobs or the industry? Repaying a home mortgage may be a huge financial burden on you, which may discourage you to change jobs in pursuit of your dream.
Make smart choices for a new home
No matter how old you are, you will always want a nice home. Moving to a new home is a major life event, whether you are buying or renting it. Whichever you choose to do, you need to be smart about it, as either will have a big impact on your finances and therefore require careful planning.
Renting or buying usually depends on your financial capability and other factors such as lifestyle and family conditions. Let the following guide you when making a decision:
|How flexible is it?||- You can renovate to meet your family's needs.
- It can be more difficult to move to other areas.
|- Is less flexible about decoration or renovations.
- It is easier to get out of a lease and you can move depending on work or study needs.
|What is your financial responsibility?||Borrowing money from a bank to buy a property causes a long-term financial stress.||Rent fluctuates by the market.|
|What are your expenses?||You are responsible for many expenses such as management fees, and maintenance and repairs.||Many expenses, such as repairs, are usually paid for by the landlord.|
|What is the investment value?||You can earn rental income, or if the property goes up in value, you can make capital gain by selling it.||Paying for rent gives no investment or savings value.|
|What risks do you face?||A sharp drop in property prices could result in negative equity, i.e., your property is worth less than what you owe.||Your landlord can raise rent, or end the lease after the fixed term period.|
|What is the impact on personal assets?||Your property can be inherited by your family and/or other loved ones.||There is no asset accumulation.|