There are many factors which will have an influence on how a local property market performs in the short, medium and longer term but one of the main factors you need to consider, and many people seem to ignore, is property ownership trends in a specific country. If you live in a country where renting property is more popular you may not understand why many people would buy their homes and if you live in a country where the purchase of your home is considered the norm, you may wonder why people “waste” their money on rent.
There are numerous benefits to both rental and outright purchase and while much of an individual’s decision will be down to their specific circumstances there are different trends in different countries. For example the trend in the UK is for the outright purchase of your home (with some 75% of homes in the UK occupier owned) while in places such as Germany the figure falls to 45%. However the most interest market of late has been the US were historically more homes have been rented than purchased although this trend has changed in many ways of late although not necessarily for the better for many buyers!
Benefits of purchasing your home
The main benefit is the fact that you will own your home outright as and when you have paid off any mortgage on the property. This can not only take substantial pressure off in later years but also gives the owner added asset backing in the event that they may need to raise cash at short notice in the future.
For many homeowners there is also the benefit of knowing that any investment or modifications they make to the property will be for their benefit and nobody else’s. However one of the main attractions for owning your own home is the potential for substantial capital gain in the longer term with many people also looking very long-term towards potential inheritances for their children and other family members.
Downsides of purchasing your home
One of the main downsides to owning your own home is the many ongoing costs such as the upkeep, local taxes and general expenses. Many government taxation systems work on the basis that the higher the value of your house the more council tax and other local taxes you can afford therefore you can miss out on additional financial incentives offered to some who may have a smaller home or in fact rent their home.
A mortgage is the main downside of any property purchase as this type of loan can be with you for on average around 25 years. During that time your repayments will change depending upon the economy and your own financial situation. If you were to take out additional finance, or mortgage rates were to fluctuate, this can cause repayments to vary and as a consequence difficult to forecast. However, the main element associated with ownership of your own home is the fact that property prices can go down as well as up as many around the world are experiencing at the moment.
Benefits of renting your home
The major benefit of renting your home is the fact that not only does it give you the opportunity to put down your roots in the longer term (with a long-term lease) but it also gives you greater flexibility if you need to move around the country or indeed the world for employment or any other reason.
Those who rent their homes will be able to call on the underlying landlord for ongoing repairs which under ownership of the home you yourself would be liable for. There is also the subject of local taxes and similar payments charged against the owner of the property which are irrelevant for those who rent their homes.
Downsides of renting your home
As with purchasing a property outright there are some downsides to renting a property, with the main concern being the fact that at the end of your lease you may well need to find alternative accommodation. While there are rules and regulations to protect tenants ultimately the property is an asset of the landlord and tenant has little control over all.
While obvious not all landlords are the same and some may be more helpful to their tenants than others, some can literally treat their tenants like numbers. There have been many circumstances whereby unhelpful landlords have created situations in order to eject their tenants when in reality there were no problems.
Many people will tell you that rent is dead money and while in some situations it is and in some it is debatable there is no doubt that renting a properly can literally cost you thousands of pounds if the value of the home you live in increases and you have no equity stake.
To rent or to buy?
As we touched on above, places such as Germany have lower occupier owned homes than countries such as the UK while the US has seen a shift from renting to homeownership although this was probably brought about by the stock market and property boom of the last few years. Many of these countrywide differences are cultural and can be traced back many years although the ongoing performance of an economy and the underlying property market still hold great power.
If you are looking to acquire a property in an overseas market you need to ensure that there is demand both on a domestic and international basis because even the best property in the world is useless if you are unable to make use of the asset at some point in the future i.e. sell it. Those who consider property purchases without knowing the culture of the area they are investing in put themselves at serious risk because ultimately they do not understand the local market.
Property investment is a very complicated subject and while many will argue that there are many general factors to consider they are also national, international and property specific issues to take into account such as the local and the country trend towards rental or property purchase. If you make a bad call on these underlying issues you are literally giving yourself a massive handicap.