Buy or rent? Find Out What’s Best For You

11 September 2017

The Portuguese are buying houses once again to “escape” high rents. But each situation has its pros and cons. Discover the solution that best suits yours.

Should I buy or rent a home? It’s a frequent question in Portugal, and the answer is not simple. The conundrum has gained in importance due to the prices currently practised in the real estate market, principally in the major urban centres.

The truth is that housing prices keep increasing and the trend shows no sign of abating. The average price of real estate in Portugal rose 7.1% last year, which translates into a 6% real increase after accounting for the yearly inflation of 1.1%. The increase is the fourth highest in the euro zone.

The tendency is to maintain this rate of growth, causing alarm to potential buyers, as some prices have reached almost absurd levels. The explanation for this phenomenon is simple: there are fewer and fewer homes for sale and more and more people wanting to buy property – so demand is outstripping supply. The result: prices go up.

The shortage is also affecting the rental market. The National Portal evaluated a sample of 1413 available properties and concluded that the average cost of renting a flat in Lisbon is 1458 euros per month. The average minimum price is 679 euros.

Given these figures what is the best option? The truth is that despite the fact that buying a home has traditionally been a tempting idea, it is not always the best decision, especially for those buyers who are thinking of reselling the property within three years or for those who believe that their circumstances may change in the short term. In such cases, it is best to opt for a rental. The explanation is simple: while rents are often higher than mortgage payments, people often forget to consider the additional interest and taxes they will have to pay. If the extra costs are taken into account for three years, it often turns out that paying a monthly rent is preferable.

There are also psychological issues that go beyond the amount being paid. Many Portuguese buyers value the security associated with buying a home: once the loan has been paid off, the house will be yours. With rentals, however, despite the possibility of extending the contract, the tenant may one day be invited to leave by the landlord. Also, no matter how long you pay rent, you will never own the property.

There are still other factors to consider. For example, renting may be the ideal solution for those who are starting their careers, intend to leave their parents’ homes or do not have the funds to buy. Mobility is also pointed out as one of the advantages of renting. It allows you to move to a new house quickly given the duration of the contracts and you do not have to wait for a good deal to sell, as is the case with home owners.

There are other criteria to consider when trying to arrive at the best decision. When renting, beyond the monthly payment, there is a one-month deposit as a guarantee and any renovations that may be required, depending on negotiations with the landlord. When buying a home, on the other hand, in most cases purchasers will have to arrange a mortgage, and generally, banks do not grant loans for the full value of the property.

Original Story: Jornal Sol – Sónia Peres Pinto

Translation: Richard Turner