EVER WONDERED how much their squeamishness is costing in real dollars and peace of mind?
We have asked Hopeton Morrison, managing director of the St. Thomas Credit Union and financial writer, to examine the issue for us.
He notes, first of all, that opinions differ within the wide financial circles, on the issue of whether or not it is best to buy a home of your own or simply rent one. The matter is further complicated by the unique inflationary patterns in Jamaica.
"In those jurisdictions where prices are stable and economic indicators are predictable," says Morrison, "one can know that if you rent, rental will probably move by a minimal percentage annually. The adjustment to rent invariably is an inflation adjustment.
"Locally, however, the situation has not been so predictable. In Jamaica, we are just beginning to see some serious predictability about economic
indicators," the writer said.
In his own opinion, he believes that renting is best for young people who are just out of school or college.
"They are into an acquisitive phase of their financial life cycle, but if the person has not yet completed tertiary education and plans to do so on a full-time basis, it is better to rent and save towards sending oneself through school.
"At this time, an education is probably the most crucial investment, unless you are going into direct entrepreneurship. And, often, an educated entrepreneur is often ahead of the game.
"It is better, therefore, to rent if you are in transition as a relatively young person. If you have taken a job in order to move on to study either here or overseas, there is no point in purchasing a house."
Rental is uneconomic
However, apart from the young who may be in transition, there are not very many other instances in Jamaica where you are better off renting, Morrison states, though he hastens to add, "There was a time when the stock market was booming, where persons sold real estate, invested in the stock market, made a killing and came back able to buy something five times the value of what they sold. If you are single, young and prepared to go for broke, this is probably not a bad time to do it."
Personally, the financier states that he thinks that rental is uneconomic, "especially where you are not keeping up with inflationary factors."
If you should purchases a house and pay a set figure for mortgage for 15 to 25 years, this remains constant over the period. As time progresses, the inflation makes the figure insignificant and you gain down the road.
When you rent, each year, this expense is being increased to match the inflation factor. While some people receive some taxable benefits when they rent, outside of these circumstances rental is a wasting expense because it goes up each year and at the end of the day you do not have an asset. It is a wasted investment, states Morrison.
If you rent for 15 to 25 years you end up with nothing. If you were paying mortgage for the same period you would have tangible asset.
In the case of the elderly, owning a home is even more important. "I have seen," says Morrison, " situations where elderly persons owned as many as two or three homes in 70s and in the scare of the period they sold out. I have seen those individuals now trying to survive, but not now in a position to purchase and trying to and moving from one place to the next.
" I don't think it is a good situation for elderly persons to be renting. Stability, especially at this stage of life, is necessary.
"The elderly feel that their house is the little piece of earth that they own and it gives them peace of mind which exceeds any dollar value. Every elderly person I know in a rental situation is in a very unstable situation. They just never seem to find an environment that suits what they want. It is a great mistake to find yourself in retirement living in a rented premises."
Owning own home, as opposed to renting, it gives one a very safe asset which is not just a place of your own that you can repose in great peace of mind, but that asset can be leveraged in several ways to finance children's education down the road by taking out home equity loan the financier also noted.
Property which you own can also be levered to jump start doing a business. "It's an asset which bankers love. When looking at collateral or security, outside of cash or near cash - easily disposable securities - real estate is widely regarded as rock solid, especially that which is in an area which would not provide a problem for disposal," Morrison states.
" In every way you are better off buying your home in Jamaica. You can , later, use this house to send your children through school, start a business and still have peace of mind of knowing that you are somewhere where no one can tell you to leave."
- Outlook Team
