Owning a home carries enormous prestige in most parts of the world. In a study published by NOI Polls in 2013, 85% of Nigerians polled said that if they had access to a mortgage, they would like to own their own homes. While many people may find owning a home to be appealing, renting may be a better option for a number of reasons.
Aside from the initial financial burden of a direct purchase, changing work and lifestyle cultures sometimes make renting a place more appealing than buying. In this piece, we examine the global effects of home ownership and offer arguments for why renting rather than buying outright might be a better option for you.
To start with, as real estate prices continue to soar, rents are going up in most cities.
First off, as real estate prices continue to soar, rents are going up in most cities.
The general consensus is that a household should spend 30%, or even less than 30%, of its annual income on housing when renting an apartment.
According to our research, some households, particularly in Lagos, may spend up to 70% of their net annual income on rent. This compares to some locations in the UK, Australia, and the US where some households spend closer to 50% of their annual income on rent.
Although 68% of the world’s population currently own their homes as reported by RentCafe, more people across the world are becoming cost-burdened by rent. As property prices continue to surge, more people are less likely to afford to buy their own homes, making renting a more sustainable option. Let’s take a closer look at the other factors associated with home purchases.
1. It will cost an average earner in Nigeria almost a lifetime to save up to purchase a property
Buying property is also very expensive and almost impossible for most of the world’s population to afford without aid. In even moderately priced places across the US, it will take median wage earners approximately ten years to save for a 20% down payment, according to Libertina Brandt of Business Insider. According to research from Unison, it will take the average earner up to 12 years to save up the down payment for a property in Columbus, Ohio.
The average earner in San Francisco will need to save for about 40 years, and those timespans extend significantly farther for people who want to reside in even more pricey locations. Even though renters might need to put down a security deposit, it will almost certainly be significantly less than a down payment and closing charges. In Nigeria and across most African cities, it will cost an average earner almost a lifetime to save up to purchase a property, and renting can be more sustainable than purchasing for many people.
2. Renters don’t have to pay property taxes
Outside the initial cost of purchasing a home, there are also annual recurring expenses that are typically borne by landlords. One of such is government taxes and levies on real estate. This can range from stamp duty to annual rental income tax and can significantly push up the costs associated with home ownership. Stamp duty can range from 10% to almost 15% of property value or more in most countries. Even when the owner decides to sell, the gains realized on the asset is also subject to taxes, and can range from nothing to 30% in most countries. Outside the financial burden, the process of administering these taxes is sometimes very complex with very detrimental repercussions for non-compliance.
3. Renting provides more freedom and flexibility as to where to live
A research article by McKinsey reported that 35% of the American population across all kinds of jobs, in every part of the country and sector of the economy, including traditionally labelled “blue collar” jobs in 2022, have the opportunity to work from home five times a week. Across the world, the global workplace has evolved. Geographic location, academic qualifications and other traditional considerations for employment are becoming less important and employees now have more flexibility to work from anywhere in the world.
With this trend, renting an apartment for most people may be an ideal decision against buying. With most jobs allowing for remote working, renting provides you with the flexibility to relocate to any country of your choice, without having to bother about disposing of your home or the pain of buying a new home in your new country of residence.
