Recently we made a nifty calculator that looked at the cost of renting or buying over the course of 10 years. What we have started to see in the brokerage this year is an increase in applications (generally), but specifically in places where people are looking at purchase costs versus the cost of renting.
We’ll look at a few examples today…
Here is a property in Marino in Dublin 3, it is costing €165,000. It is a doer-upper so we’ll do figures based on €200,000. A house in this area will rent for €1,150 a month. Using the rent or buy calculator we see that you would be better off to the tune of €45,000 over 10 years (not factoring in changes in rents or rates).
Another way to look at it is this – your cost after Tax Relief at Source would be c. €700 per month for this property. Compare that to the €1,150 renting price. Even without TRS the monthly cost of €850 is cheaper than renting, even if you factor in the household charge, insurance and minor maintenance.
It is important to note that the interest rate applied in that calculator is 5% which factors in some rate increases that have not happened. Rents on the other hand are (oddly) not going down according to the latest CSO figures (see page 3). Some stability in rental prices has been reported for several months now. Of course, that could change, but the recent property barometer showed something interesting, in Dublin 3 bed semi’s went up in price by 1.6%.
This ties in with something we have been saying for a long time now, that any recovery will be ‘pockmarked & stratified‘ – certain neighbourhoods (primarily cities) at certain price levels. In terms of the type of stock, non-apartment 2nd hand houses is what seems to be the safest bet.
Another example on the West side of the city would be Pinebrook in Clonsilla, this property is listing at €194,950. It is listed for rent at €950. Using the calculator again you see that the cost over 10 years is lower (the capital owing part reflects movements in prices and repayments). Using a mortgage calculation it is €837 before TRS of €146 which would give a net cost of €691.
This exercise is being repeated across the city. In some places it makes no sense at all to buy (typically the upper end of the market), sometimes that reflects a premium in certain neighbourhoods.
Consider Foxrock in South Dublin, posh neighbourhood, you can rent there for €1,600 a month, but to buy there will cost about €400,000. Comparing only the cost of buying (€231k over 10yrs) versus the cost of renting (€190,000 over 10yrs) you see that it would be nonsensical to purchase a home there. Unless you really want to pay the premium to OWN a property there.
The point is, that it doesn’t make sense everywhere, so you have to do the sums. It also shows that there are still plenty of places where the premium to ‘buy in’ is high. You’ll see the same thing in much of Clontarf or Malahide which are considered good neighbourhoods in North Dublin.
Going around the country the picture is different, in rural areas there are few and far between examples where it makes sense to buy rather than rent, so for now it is very much a story of cities. In Douglas or Balinlough in Cork city, a nice rental property is about €1,000 and upwards per month. To buy the same type of property in the region of €280,000 shows again, that renting is cheaper. This proves the ‘premium’ that exists in those areas.
When you start looking at normal 3 bed stock though you get the same story as we did before, it is cheaper to buy than rent.
Try the calculation for yourself and post the results. You will probably start to see a similar picture.