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Renting or buying a home with a mortgage: What is best in the current economic context - Infobae
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Alquilar o comprar una vivienda con crédito hipotecario: qué conviene en el contexto económico actual
En qué situaciones puede ser más indicado elegir una opción sobre la otra. Qué puede ocurrir con los valores por la indexación y el precio de los inmuebles
www.infobae.com
July 28, 2024
In what situations might it be more appropriate to choose one option over the other? What can happen to values due to indexation and the price of real estate?
By Jose Luis Cieri
In the current economic context, with the availability of mortgage loans and calculator in hand, hundreds of tenants are considering buying. What the qualified ones say (Illustrative Image Infobae)
Using long-term financing to buy a home is the most common practice in many countries around the world. In Argentina, the reintroduction of mortgage loans after almost six years of absence raises a question for those who have some savings: should they buy with credit or opt for renting?
With the new mortgage offer, including those that can be updated by UVA (Unidad de Valor Adquisitivo), a wide and varied range of options are emerging that allow you to stop renting and buy your own home. Deciding between one option or another in the current economic context requires evaluating the advantages and disadvantages of each option and considering how the values of the installments and the price of the properties could evolve.
The decline in inflation (especially if it remains below 5% per month) and the sustained rise in wages could allow more people or families to opt for a loan to become homeowners.
Another context that favors the option to buy is that prices have stopped falling, and in several neighborhoods of the city of Buenos Aires they have begun to rise slightly by up to 10% year-on-year.
“So far this year, there have been 30,000 sales inquiries in CABA alone, reflecting a 30% growth compared to the previous year. May has been positioned, so far, as the best month for the sector, driven by the return of mortgage loans (although operations could only become more active beyond August). Meanwhile, sales grew 27% in June (according to the College of Notaries of Buenos Aires that surveys the deeds executed), and everything points to the market continuing to rise,” Ariel Champanier , from Re/Max Premium, told Infobae .
Capitalization
The sector argues that it is more convenient to take out a mortgage than to rent. Although it involves a debt, it allows you to build up capital and, brick by brick, become the owner of your own home.Rafael Baigún , president of Baigún R & N, said that in the current context it is starting to be more interesting to buy a property, as long as the buyer has the money for the down payment. “The monthly payment for a mortgage loan can be very similar to the cost of rent, making the purchase an attractive option.”
In terms of long-term financial impact, Baigún stressed that buying a property tends to be more favorable: “In the long term, one can own all or part of a property, which can also appreciate in value. Renting, on the other hand, involves a sunk cost with no return on investment. This aspect is crucial for those who are evaluating the appreciation of the property and long-term financial stability.”
For those who need flexibility and mobility, such as young professionals, renting remains a convenient option. “Moving before three years makes the costs associated with buying not worth it, unless there is a significant revaluation in the short term,” said Baigún.
Three-room apartments are the most sought-after for purchase in CABA and Greater Buenos Aires
Baigún mentioned that owning a home entails financial and maintenance commitments, but also offers security and potential for property appreciation. “In contrast, tenants may face non-renewal of the contract and the need to move out.”
The first UVA mortgage loans -in the last decade-, launched in April 2016 during Mauricio Macri's government, facilitated access to home ownership by adjusting the installments based on inflation. They initially allow for a low amount to be paid, but in an economy with high inflation, the risk of installments increasing above income can be significant. This led to hundreds of families paying installments that exceed 30% of their current income.
Since its inception, the UVA coefficient has grown more than 60 times. Initial payments represented 25% of the policyholder's income, but have since reached 50%. This percentage is similar to that used to pay rent.
Today, a three-room apartment averages $550,000 in the city of Buenos Aires (CABA) and $500,000 in Greater Buenos Aires (GBA). With a quarterly adjustment planned for the coming months, it is estimated that, even with a slowdown in inflation, tenants will be paying $650,000 in CABA and $600,000 in GBA before the end of the year. This represents a high burden, in addition to the expenses, which have already risen by 87.53% in 2024 alone .
Studio apartments are as in demand for rent as for buying. Today in CABA the average rent is $300,000 per month (Illustrative Image Infobae)
Following Decree of Necessity and Urgency 70, which repealed the Rental Law, the housing supply, which was very limited throughout the country, grew by 195% in CABA and more than 140% in GBA since the beginning of the year.
According to experts, there are now offers in all neighbourhoods and towns, prices are beginning to stabilise and, in some cases, prices have dropped from the starting point of the contract last February.
Details to be considered
Santiago Magnin , from Deinmobiliarios and an expert in Real Estate, offered several key points when evaluating whether it is more convenient to rent or buy with a mortgage loan. “I know very few people who have regretted buying a property in Buenos Aires. Despite the historically negative interest rates on mortgage loans in Argentina, today all inflation-adjustable credit lines (UVA) can represent an opportunity.”In addition, closing prices are at historic lows comparable to 2004, offering a unique window of opportunity to buy cheap.
According to Real Estate Report, the average closing price for used apartments in CABA was approximately USD 1,800 per square meter, although with great variation depending on the type of services offered by the unit.
Owning a home entails greater responsibility for maintaining the home, which helps preserve its value.
When comparing the long-term financial impact of renting versus buying, Magnin stressed that buying is more favorable. “In the long term, you will have the property that can appreciate in value, whereas renting is a sunk cost that is never recovered.”
He said that taking out a mortgage loan with low salaries and stabilizing in the future is more beneficial because property prices will probably rise, especially if the country's economic conditions improve.
The need for flexibility and mobility also plays a role in this decision. Magnin explained that “for those who need to move frequently, it is more convenient to rent.”
Experts say, however, that state-owned banks often avoid auctioning off properties, providing additional security to mortgage borrowers with volatile incomes.
In this context, UVA mortgage loan rates vary between 3% per year and 9.5% per year, with loan amounts of up to 250 million pesos, although some have no limit.
Generally, entities finance between 75% and 80% of the value of the property, except for Banco de Córdoba (Bancor), which lends up to 100% with a limit of 90 million pesos. Financing terms range from 5 to 30 years, and the committed installments must represent between 25% and 30% of the borrower's monthly income.
Responsibilities
Among the risks and benefits of being a homeowner versus a renter, Magnin highlighted that the former generally involves assuming a commitment to maintaining the property, which helps preserve its value. In contrast, the latter are at the mercy of the decision to renew the contract, which can force them to move unexpectedly.“Retirement as a tenant can be a sentence to poverty; property is a crucial financial security for the future,” warned Santiago Magnin.
“Retiring as a tenant can be a sentence to poverty; property is a crucial financial security for the future,” warned Santiago Magnin (Europa Press)
Current real estate market conditions and the availability of mortgage loans also play an important role. Magnín points out that “the window of opportunity to obtain a mortgage loan in Argentina has historically been very short.”
Finally, Magnín advised renters or those with savings not to aim too high for their first purchase. “Buying what you can afford (whether it be a studio or two-room apartment) with the resources available is key. The first property is the most difficult to acquire, but once you take that step, it is much easier to move on to bigger and better properties,” he concluded.
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