Article: So long, mortgage stress

I am still wondering whether it's a good idea to rent and invest the rest of savings, rather than committing to a mortgage. Anyway, I would still need to rent for a couple of years to save for the deposit, before deciding whether to buy a house or continue renting.

I rented for 10 over years in Singapore before buying a flat a couple of years ago. I hate the thought having to move every 1-2 years.

So long, mortgage stress
Author: Paul Edwards Date: February 12, 2008Publication: The Age (subscribe)


The dream of home ownership is becoming less and less attractive, writes Paul Edwards.
Don't despair if you can't raise the deposit for the house you want - with a slight change of mindset you could be living in style while benefiting from whatever rich pickings there might be in investment markets.
Conventional wisdom says a home of your own is a holy grail. But that so-called wisdom might sometimes be wrong - is our national obsession with climbing the home-owning ladder right for everyone?
In Australia just over 70% of households own their home either with or without debt. That's about double the rate for Switzerland, even though the Swiss have just about the world's highest incomes.
The usual alternative to ownership is renting, and for many people this is not only the best way of getting the home of their dreams - they can often do it with the blessing of their financial advisers.
More and more people are questioning the sense of locking away savings in a 25-year mortgage and losing the potential of flexible alternative investments that might be less stressful and equally profitable.
So long as the money you would spend on buying is invested elsewhere at a similar or higher potential return, you could rent a much better home than you could afford to buy while still increasing your wealth.
Finance planner Hans Luiten - while declaring that he invests in both property and the share market - says it is generally agreed that shares outperform property in the long run.
"However, unlike property, not long ago you'd have found it difficult to borrow the full amount of a share portfolio. Now you can, so people are seeing the benefits of investing in something which can be sold in a matter of seconds, rather than go through the trauma of an auction or even private sale.
"The price of well-located Melbourne homes is beyond the reach of many people, but not if they choose to rent. They can live in property way above the standard they could afford to buy and, in the meantime, can be investing elsewhere."
Even the real estate industry agrees that buying a home is not always the best course. Neil Laws, president of the Real Estate Institute of Victoria, says there are times when renting is better than owning.
"If accumulating wealth while having somewhere to live is your primary aim it is worth considering the financial benefits of renting and investing.
"It may be that, depending on your housing requirements, it is more financially beneficial to rent and invest than to pay off a mortgage and maintain a home."

So why do we often feel we have failed in life if we don't own our own home?
Psychologist John Bacash says people become seduced by messages to buy a home even though it may not be appropriate.
"They see ownership as a symbol of security and status, when in fact it may be neither. This struggle to manage a mortgage regularly breaks up marriages and families.
"People should let go of their initial concepts about buying a home, do some solid research about whether renting might not be better for them, then trust their inner feelings to make the right decision.
"I think we're too often convinced by arguments such those put up by real estate marketers, and can feel inferior if we don't buy a home. Instead of succumbing to this pressure, people should decide what's best in their own case."
Darren McMullin, rental manager with real estate agents Kay & Burton, says he knows a number of extremely wealthy people who prefer renting to buying.
"There's a client on my books who is about to sell his Toorak home and will rent for at least 18-24 months while he sees what is happening in the property market. Currently, he feels he can do much better in alternative investment fields."
It's a matter of mindset and maths. Once you accept that renting might not be a bad proposition, a simple calculation could blow apart the notion that money paid to a landlord is wasted money.
Take the case of a couple with no savings, but annual earnings of $150,000. They can rent something really good for $40,000, allow $85,000 for living expenses and tax, and save $25,000 a year towards a deposit for their own place.
Alternatively, they can dismiss the idea of buying their own home and use that $25,000 to increase their wealth through alternative investments, which can still include listed or direct property.
Or consider superannuants who sell the family home for $750,000 and add the proceeds to their pension fund. At 10% that $750,000 would earn roughly $1500 a week, with which they could rent a penthouse in St Kilda Road or a really luxurious home in an inner suburb.
Properties such as these often sell for about $1.75 million, so our superannuants would be living in considerable style and, best of all, the $750,000 is still preserved in their pension fund.
Darren McMullin agrees, and cites an Elsternwick property worth about $1.2 million which rents for $1200 a week and a $4 million Toorak mansion which rents for $2600 a week.

Indulge your fantasies and consider what would happen if you sold that Toorak mansion, invested the money wisely, and joined the rental market.
Your $4 million invested at 10% would return about $8000 a week - before tax - which would let you rent another mansion for $2600 a week, have $5400 a week to invest - and keep the $4 million in one piece.
Interesting? The concept gets even better when you consider that, as a tenant, you don't have to worry about rates, maintenance, body corporate fees and all the other nasties that beset the property owner.
If you see a crack in the wall all you have to do is point it out to the owner and let him or her worry about it.
A major consideration in the rent or buy debate is the behaviour of the housing market. Conventional wisdom says you will always make money from well-located real estate, and while that may be true in the long term, it might not be true at the precise moment you want to sell.
Property can most certainly drop in value. It happened during the 1991 recession in Australia and it is happening now in America and possibly Britain. While there are few indicators to say it will happen here, history shows when America sneezes Australia often catches a cold.
This is something tenants don't have to worry about. Just like that crack in the wall, it can be filed away under NMP - Not My Problem.

Renting is viable now
One man who knows a lot about renting is Mark O'Brien, head of the Tenants Union of Victoria. He says the private rental market can work well for tenants who have financial capacity and can successfully deal with landlords and estate agents.
"Often these tenants can make the choice to live in the area they want but without the cost of home ownership," Mr O'Brien says.
"My family, for example, rents a new unit in a middle ring suburb. To buy with a standard deposit would mean mortgage repayments almost double what we pay in rent."
He says the transition to home ownership is now occurring later in life for most people and if they take out a 25-year mortgage in their late 30s, they may be unlikely to have the house paid off until close to retirement.
"Previous generations had the benefit of entering into home purchase earlier in their lives and at comparatively lower prices. The average house price has grown from about two or three times annual average weekly earnings to about five or six times annual average weekly earnings."

Gold Coast Marathon

I'm toying with the idea of going for Gold Coast Marathon in July (06-07-08). The entries will only open in April but I am thinking of booking tickets to Gold Coast in advance. If I book the tickets now from Virgin Blue, it would cost $ 180/person.

I am thinking that my PIL would be interested to go too, but my husband told me that there is a possibility that they would not be ready to move to Sydney by then. Still, I persuaded my husband to book the flights to Gold Coast for 2 of us first :P and buy for them later.

As for hotel, I read from SG Runners forum that July is low season for Gold Coast so I hope we can book for the hotel later.

Hmm... still thinking if we should book the air tickets now :)

Private Health Insurance

I decided to buy PHI in early Jan as advised by my friends in Australia. Since we have been trying for a baby for quite some time already, it would be good to have some coverage to reduce our hospital bill in case I'm pregnant later. Also, it would help if we decide to go for IVF.

There's a waiting period of 1-year so that is the reason why I bought the plan now. Also, since I just turned 31 I would need to pay extra levy/charge if I don't get PHI by next June after turning 31.

I was quite in a hurry to buy the plan so I asked among my friends for recommendation and decided to go with Medibank.

Transaction Account

I have been doing some research here and there to decide which bank and account type we want to open in Australia. Currently I have one with INGDirect and Citibank but would probably need to open one for joint account with my husband.

So far, I think BankWest looks good, but I thinkn we'll decide there and then. I just realise that we can even open a bank account from Singapore, using Westpac. The bad thing is, the account has monthly fee attached.

That brings me to another issue, it seems most of the transaction accounts have monthly fees attached. In Singapore, it's zero if minimum balance is >$500. I would need to find a bank that has a good transaction account (low fee with free atm transaction, etc), a high-interest saving account and free-fee credit card.

A great website to do the comparison is http://www.infochoice.com.au/

So the search continues...