Home is where the heart (and spending card) is

November 13, 2022

Home is where a lot of things we love are — our pets, our beds, and even our Netflix. However, the home itself can sometimes be a bit of a burden (a financial one, that is) if one is not anticipating how it fits into their wider financial plan.

To buy, or not to buy — that is the question

The case for buying vs renting a home is a topic of great debate amongst different schools of financial-planning thought.

On one hand, owning a home means that the money you’d otherwise be spending on rent would go towards owning an asset (ie, the house itself). However, that begs the question, what is an asset? Well, most people would class it as something that gives you a return on investment.

Can you consider a house an asset?

Yes, a house gives you passive income by renting it out to tenants. BUT, if you’re buying a home to live in it then you’re foregoing that income altogether so long as you’re living in it. Now, there are exceptions to this if you rent out a portion of your home on platforms like Airbnb these days, but let’s set this aside for now.

In addition to forgoing rental income, you’d also consider the home you purchase on the liabilities side of your balance sheet as it requires money to maintain and upkeep. So, you’d only really consider it an asset if you’re buying to live in it, once you sell it at some point in the future and hope for a gain on the capital investment by selling it at a price higher than that at which you bought it. But at that point, you’d be revisiting the “buy or rent” question all over again.

The case for renting a home

If you’re one to hop around homes depending on a growing/shrinking number of depends, or changes in your “base” location, you’d be looking at extra “++” costs associated with buying/ selling property such as government-linked fees (sometimes around 2-5% of the purchase price). In this case, it would make more sense to rent in order to avoid these extra costs.

How to make the big decision

The decision of whether to buy or rent a house has to be one of the most stressful decisions one has to make. In any case, it’s worth mapping out the financial case for either buying or renting a home, which would take into place your current income and local economic situation.

Start by looking into the average rents of the neighborhoods you’d like to live in, across the property types you’d consider. From there, look at the prices to buy these types of properties. Following, consider associated government fees, maintenance charges, and mortgage rates to get a full picture of how much it would really cost to buy a home.

Typically, in Dubai, the average rent for a studio apartment ranges from AED 30,000 to 50,000 (USD 8,100 to 13,600) per year. On the other hand, buying a house in Dubai can range from anywhere between AED 500,000 (USD 136,130) to multiple millions.

Further, as most people don’t just have the cash to buy a home up-front, seeking financing from a bank is common, and many ask for a hefty downpayment to secure the financing for you. Generally, for expats, mortgages for non-UAE residents in Dubai require a downpayment of around 20% of the value of the property being purchased (for up to AED 5 million in value)

https://www.incharge.org/housing/homebuyer-education/homeownership-guide/advantages-and-disadvantages-of-owning-a-home/

https://www.internations.org/uae-expats/guide/housing

https://www.damacproperties.com/en/blog/find-the-best-dubai-property-mortgage-solution-with-damac#:~:text=The%20minimum%20down%20payment%20for,to%20value%20ratio%20of%2070%25

Once you add up the number, you’ve come to a decision. In both cases, you’d need to fit this expense into your monthly spending and budget, so make sure you plan for it! In order to help you with this, identify a digital method tracking your spending so that you stay on top of your rental dues or mortgage payments, whichever would be your financial obligations.

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