New index to compare buying vs renting in Perth
Perth’s median house price would need to increase by 4.3 per cent every year over the next 10 years for a house purchase to be considered profitable over renting at the median rent, according to a new index.
The Buy-Rent Index, developed by the Real Estate Institute of Western Australia and Curtin University, will help determine the best time to buy or rent in the Perth metro region, based on past and current trends.
The quarterly index is based on economic models that help identify the annual house price growth rate required for home ownership to be financially advantageous over renting.
The 4.3 percent figure for the increase in house prices was taken for the June quarter 2017. Since 2002, Perth’s annual growth rate in the median house price has been 6.9 per cent.
REIWA CEO Neville Pozzi said the index would provide prospective home owners and renters with an insight into whether it is a good time to buy or rent based on trends in the current market.
“In the current economic and property climate, we recognise it can be difficult for West Australians to determine whether or not they should buy or rent,” he said.
J-Han Ho, a property researcher and senior lecturer in the School of Economics and Finance at Curtin Business School, said the index aimed to help Perth households make an informed decision about buying or renting a home.
“Many households only focus on the location and price of the property when looking to buy, but this shows there are many other factors that need to be considered including interest rates, opportunity cost of capital and the property being a long-term investment. Buying at the right time can achieve a superior outcome to buying in the right location,” Ho said.
Figures for the September quarter Buy-Rent Index will be released late December 2017.