If you are thinking whether to rent or buy a property in Malaysia
in 2019, you are among thousands of people that are faced with probably one of the toughest decisions to make.
If you are like many Malaysians, you may think that renting is not a good investment and that you are helping others pay for their homes.
But at the same time you are not ready to make a lifetime commitment to become a homeowner.
So what decision you should make?
What is better?
Let’s compare some of the factors that might help you make that important decision.
Property experts use a very simple mathematical formula, namely the price to rent ratio.
How to calculate the price to rent ratio?
It’s easy. Simply find the average list price and divide it by rent per year.
Let’s say that the average list price of a Penang residential property is RM495,000 and rent is RM22,000 per year.
The Price Rent Ratio would be RM495,000 ÷ RM22,000 = RM22.50
But what does this ratio mean?
In simple words, it means that if you rent this property for 23 years, you would be able to own it by the end of the time.
Follow these guides to determine if buying or renting is a better proposition:
- If the price rent ratio is 15 or below, it means that buying is “less expensive” than renting.
- If the price rent ratio is 20 or above, it means that renting is less expensive than buying.
Keep in mind that the price to rent ratio is a guideline, and there are also other important factors to consider such as, how much time you intend to stay in the property, your personal preference and the cost of buying and renting.
Another key factor to consider is time. It is very important to know how much time you are going to stay in a property in order to decide between renting and buying.
Because when you buy or sell a property, there are costs involved. In addition, when you first move in, you will have to pay for furnishing/renovation.
Developers in Penang recommend that you stay in a property long enough to allow appreciation in the property value to pay for all the transactional costs.
This could take five years or more depending on the property market.
For example, today Penang property development
is considered a good investment because the state has been recognised as the most liveable city in Malaysia and the 8th most liveable city in Asia.
Thus it is recommended for Penang property buyers to buy and hold for 5 years or above.
So, Rent or Buy?
Only you can answer if buying or renting is right for you. To help you out, remember these tips:
- Financial Position
- Time Factor
: How long you plan to stay
- Personal Preference
: Ask yourself if you are ready to make a long term commitment
- Calculate price to rent ratio
of the property
Once you have factored in the finances, your preferences, etc., you will be on your way to make the best decision whether to rent or own a home.