Cheaper To Buy Than Rent In Queensland

You might have heard that it’s cheaper to buy than rent in Queensland. Plenty of media outlets are publishing headlines of this very nature. But is this actually true?

The media narrative began this month when Corelogic published a report “Mortgage serviceability cheaper than renting on over a third of Australian properties”. Assuming that the buyer had saved a 20% deposit and would be on a 25 year loan term, the property data powerhouse showed it would be cheaper to buy than rent for 36.3% of Australian properties. That’s even more properties than the 33.9% they reported in February.

What some of the articles surrounding this report haven’t necessarily highlighted is that a lot of these properties are in locations that you may not have heard of and may not want to live in. For example, in regional Northern Territory, a startling 96.4% of properties are cheaper to buy than rent. But how many people want to buy property in regional Northern Territory? So nation-wide, it’s not necessarily cheaper to buy – unless you’re happy to live in the middle of nowhere.

Queensland is a different story. In the sunshine state, a number of factors are converging to create a situation where it is genuinely more affordable to be paying off a home loan in a desirable location than forking out rent each week.

How can it be cheaper to buy than rent?

Mortgage repayments are lower than rent in many suburbs. In Logan Central, the CBD of Logan City in Queensland, the median house price is $308,500 according to realestate.com.au. With a $100,000 deposit, a buyer would be looking at estimated repayments of $1042 (4.35% interest on 30 year loan term) or $260 a week. In that same suburb, the weekly median advertised rent is $320. This isn’t the case for every suburb but there is a strong trend: In many areas a tenant pays more to rent a place than to own it.

There are several factors which have led to this situation:

Internal migration

An excess of demand for property in Queensland has been caused by an influx of interstate migration. Many Australians have chosen to relocate to Queensland. In 2020, 30,000 people moved to the Sunshine State from interstate – the largest boom in new residents in almost two decades.

These new residents have plenty of motivation to move. Some are drawn to the more relaxed lifestyle that Queensland affords. While the comparative affordability of property attracts others. For many, though, Queensland’s most desirable trait is the escape from NSW and Victoria which have suffered multiple lockdowns – both states in lockdown at the time of this writing – the longest of which lasted 112 days. 

Deputy Premier and Minister for State Development Steven Miles has confirmed this migration stampede. In an article published by The Queensland Cabinet and Ministerial Directory, he said, “Our strong health response to the COVID-19 pandemic has people moving to Queensland in droves. This has put pressure on available land supply.”

Lower building levels

Construction responds to demand and in years past, there hasn’t been significant demand for property. This has been gradually changing, as more investors have entered the Queensland market. The chronic shortage of available properties in Queensland could last for at least three years according to SQM data.  According to Managing Director of Hotspotting, Terry Ryder, an undersupply of rental properties has been brewing for a few years and now “reached a crisis point”.

Undersupply of housing

One of the reasons there is an undersupply of housing is because of tight lending laws, which make it harder for developers to access finance and construct large-scale dwellings. Approvals for private-sector houses fell across all mainland states, according to the latest Australian Bureau of Statistics (ABS) data. In Queensland, approvals are down 13.8%. Vacancy rates are at their lowest since 2012. Take Sippy Downs, for example. It has a vacancy rate of 0.6% and sold 168 properties in under 30 days (June 2021).

In Victoria, an extension of Melbourne’s lockdown saw a drop in consumer confidence, said the ANZ-Roy Morgan Consumer Confidence Monthly Report. In the longer term, however, 20% of Australians are expecting ‘good times’ for the economy over the next five years compared to only 13% (down 1ppt) expecting ‘bad times’.

Lower interest rates 

Low interest rates have made it compelling for would-be owner occupiers and investors, alike, to enter the property market, with repayments at record lows. According to RBA data, owner occupiers averaged a 3.21% mortgage rate in February 2020. But this is now down to 2.4% as of May 2021. Furthermore, interest rates don’t look set to climb any time soon with the RBA governor seeking to wait until inflation is sustainably within the 2-3% target range, which may not be until 2024.

Why don’t tenants just.. buy?

Looking at the figures, you might wonder why every tenant doesn’t break their contract immediately and move to purchase a property. There are a number of barriers to property ownership. Not everyone will have enough of a deposit saved to capitalise on the current market. In 2016, the median weekly household income was $1,402. As of June 2021, it would take four years and six months to save for a house deposit in Brisbane. “Reduced mortgage interest rates have…dramatically increased the deposit required to enter the market for first home buyers,” said realestate.com.au economist Paul Ryan.

Alongside professional service fees, stamp duty payments and lender’s mortgage insurance, the cost of entering the property market can be prohibitive.

While many will feel deterred by these costs, there are avenues through which people can overcome this initial hurdle.

At AllianceCorp, we help clients access quality properties in prime locations by:

• Assessing their current financial situation
• Finding ways to boost their deposit
• Maximising their savings with our cash flow analysis
• Identifying quality properties within their price range
• Determining what return on investment they can expect to make

With more than a third of properties in Australia cheaper to buy, don’t risk missing out. If you’re unsure how you can enter the property market and invest successfully, speak to qualified professionals with decades of experience. Don’t let an inadequate deposit hold you back from achieving your financial goals through successful property investment.