Sunday, July 6, 2008

Renting beats owning, paper says

I always thought, as the owner of a mortage-free house, that I had the best deal going. Not so, says The Sunday Star-Times, which has found that, regardless of whether you own an expensive house or a humble abode, "it makes more cents to rent than own".

"We looked at three areas with different housing-market characteristics," Greg Ninness says in an article in today's issue of the paper. The three areas were Devonport, on Auckland's North Shore, where the median selling price in May was $820,000, according to the Real Estate Institute of New Zealand; Mt Maunganui/Papamoa, where the median was $395,000; and Timaru, where the median was $240,000.

"We then estimated what that money would earn if it were invested, instead of being tied up in a property. We used a conservative benchmark for this: Kiwibank's term-deposit PIE account, which pays interest of 8.85 percent and is taxed at 30 percent. This provided an annual income figure.

"We then looked at the cost of renting a property in the same area. We drew the likely weekly rent figures from the Department of Building and Housing's Tenancy Bond Centre. In each case, the rents were for a three-bedroom house and the rents were in the upper quartile (top 25 percent) for that type of property, ensuring they reflected the cost of renting a good-quality house in each area.

"The rents ranged from $600 a week in Devonport to $250 in Timaru.

"In each case, this left a significant surplus, even after deducting tax from the investment interest and paying rent.

"In the Devonport example, this was $19,599 a year, in Mt Maunganui/Papamoa $6270, and in Timaru $1868. These amounts would be cash in the hand to the investors.

"We also had to allow for the fact that people who own their homes have to pay for rates, insurance and maintenance on their properties, whereas those who rent do not.

"When these are added into the equation ,they considerably improve the financial advantage of renting over owning."

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