Buying or renting a property in Cambodia - What's the best choice?
Buying or renting? Most people think that renting a property is a waste of money, as you are “throwing away” your money every month. Instead of helping landlords pay their mortgages, why not buy your own property? But this may not be obvious. In some circumstances, renting may end up giving more benefit than buying.
There are arguments in favour of buying a property but also in favour of renting. Depending on your financial situation and lifestyle. Here are the things to consider before making a decision.
Buying a house or a flat has a cost.
For most buyers, the only costs they consider are the mortgage and interest. However, there are many other costs involved in buying and selling a property. Different costs that most buyers and sellers overlook.
These costs include the deposit, stamp duty, land tax, brokerage fees and so on. There are also bank charges, application fees, valuation fees, home insurance and maintenance costs.
For Cambodian real estate, in most cases you will need to pay at least 30% of the house price as a down payment. This is the minimum necessary before you can get the loan. The average interest rate for a mortgage is about 7-8% per year.
Bank charges vary from 1 to 3%, stamp duty is 4% and property tax is 0.1%. Commission, insurance and maintenance fees may vary depending on the companies or services you choose.
The calculation is simple: you add up all the fees per year and divide them by 12. If the rental costs are lower than the purchase cost, it is better to rent. However, most people do not buy this concept. They think that despite the high expenses, it is always better to buy. Because they will have a property in the future, hoping that the price will appreciate.
Is renting really a waste of money?
There are two points to consider here. First, there is no explicit guarantee that the price of your home will increase. This is particularly the case at the moment with a crisis like the COVID-19 pandemic.
Secondly, renting is not always a waste. What if you use the average cost per month you plan to pay to buy a house to rent a cheap property? Then you use the remaining funds to invest in shares or other businesses. It’s likely that you’ll be a winner in the long run.
According to Ben Felix, portfolio manager of PWL Capital Inc. The nominal return on real estate around the world averages about 3% per year. However, the rate of return on stocks is 6.57% per year.
In addition, there are always costs associated with selling a home. Such as capital gains tax, commissions and other hidden costs. In contrast, shares are much easier to trade.
In addition, it may be riskier to put too much of your savings into one investment. Or just in your house, than to invest in a diversified mix of stocks and bonds, especially over the long term.
However, if you buy several houses to invest in, you will be faced with a large mortgage. This could eat up all your savings for unforeseen emergencies, your retirement or your children’s education.
The comparison between stocks and real estate may not be very relevant to Cambodia. However, it is also a factor to consider before deciding to buy property.
Renting offers more flexibility.
According to Investopedia, in addition to the advantages of avoiding high costs such as down payments, taxes and maintenance fees, etc., leasing is preferable to buying for some individuals. Because of the greater flexibility, lower risk and affordable access to equipment. Such as a swimming pool or fitness room, which might otherwise be prohibitively expensive.
Flexibility is very important for some people, especially during COVID-19. Flexibility here refers to both financial flexibility and flexibility of residence. For example, in terms of financial flexibility, if the pandemic disrupts income, renters can easily move to a smaller alternative that fits their budget.
In contrast, home buyers are stuck with the mortgage. It is difficult to get out of it. Because selling a house is not always easy. And it always has a cost. As far as flexibility of residence is concerned, tenants can live almost anywhere. Homeowners, on the other hand, are limited to areas where they can afford to buy.
Buying or renting property in Cambodia? In summary, owning a home can be beneficial in the long run. Because of the equity they gain in their home. Tenants have nothing tangible for years of rent if they do not invest in stocks or other activities. Also, for those who want to avoid the hassle of ownership, maintenance costs and property taxes, renting may be a better option. In the end, it mostly depends on one’s lifestyle and financial situation.