Should You Rent Or Buy: Which Is Best Right Now In Sydney’s Inner West?

December 8th, 2023 - by Brad Gillespie

Should you rent or buy?

It’s a question many tenants ask themselves constantly and one we attempted to answer this time last year.

But given that 2023 was another year of rising rents for Sydney’s Inner City and Inner West, has it become cheaper to buy than rent over the past 12 months? Or has a series of interest rate rises added even more to the cost of buying? We take a look.

The current property market

While 2022 was a year defined by falling sales prices, 2023 has been a very different story.

Since bottoming out in January of this year, Sydney’s median dwelling value has risen 11.4% to sit just -1.8% below the previous high (January 2022), according to CoreLogic.

Locally, the median price for Alexandria houses is up 3.1%, according to realestate.com.au, and apartment values have risen 2.6% over the past year. Erskineville saw prices rise 9.1% for houses and 7.5% for apartments.

Rents have been climbing steadily over 2023, too. SQM Research data reveals that the citywide median rent is now $819 per week - up from $696 a week exactly one year ago. That’s $123, or 17.7% higher than this time last year.

Taking a close-up view of our area, we have seen rents rise 17.1% for houses and 16.7% for units in Alexandria. In Erskineville, rents on houses are up 6.9% and on units 15.4%.

But while rents have been heading north, the cost of borrowing has been growing rapidly, too.

We’ve endured a year and a half of rising interest rates, which has dramatically changed things for those taking out a mortgage. The RBA’s cash rate has gone from an historic low of 0.1% in early 2022 to 4.35% today.

This, in turn, has led to the average variable mortgage interest rate in Australia hitting 6.72% (with the average fixed mortgage interest rate at 6.55%), according to Finder.com.au.

The difference in numbers

Assuming someone borrows 90% of the value of the home they’re buying, it still remains cheaper to rent than buy, taking Sydney-wide averages into account.

For instance, purchasing a home worth the median value ($1,121,196) would require a deposit of $112,119 and a home loan of $1,009,076.

Borrowing this amount on a 30-year principal and interest home loan with a 6.72% per annum interest rate would require mortgage repayments of around $6,525 a month or $1,505 a week (assuming no fees).

This compares to a citywide median rent of $819 a week.

If you had a 20% deposit, however, the difference would be much less. You’d require a $896,958 home loan, on which your repayments would be around $5,800 a month or around $1,338 a week.

Let’s break that down a bit further

Alexandria: one- and two-bedroom apartment - buying vs. renting

Median sales price one-bedroom: $670,000
Median rent one-bedroom: $625
Median sales price two-bedroom: $ $973,750
Median rent two-bedroom: $800

One-bedroom: Interest rates 6.72% with 10% deposit One-bedroom: Interest rate 6.72% with 20% deposit Two-bedroom: Interest rates 6.72% with 10% deposit Two-bedroom: Interest rate 6.72% with 20% deposit
Deposit required $67,000 $134,000 $97,375 $194,750
Amount borrowed $603,000 $536,000 $876,375 $779,000
Estimated monthly repayments $3,899 $3,466 $5,667 $5,037
Monthly rent (based on $625/week) $2,708.33 $2,708.33 $3,466.66 $3,466.66
Difference per month $1,190.67 $757.67 $2,200.34 $1,570.34

(*Source: realestate.com.au for median rents/sale prices and money smart mortgage repayment calculator, assuming no fees, 30yr, the interest rate of 6.72%)

Erskineville: One- and two-bedroom apartment - buying v renting

Median sales price one-bedroom: $735,000
Median rent one-bedroom: $650
Median sales price two-bedroom: $1,095,000
Median rent two-bedroom: $880

One-bedroom: Interest rates 6.72% with 10% deposit One-bedroom: Interest rate 6.72% with 20% deposit Two-bedroom: Interest rate 6.72% with 10% deposit Two-bedroom: Interest rate 6.72% with 20% deposit
Deposit required $73,500 $147,000 $109,500 $219,000
Amount borrowed $661,500 $588,000 $985,500 $876,000
Estimated monthly repayments $4,277 $3,802 $6,372 $5,664
Monthly rent (based on $650/week) $2,816.66 $2,816.66 $3,813.33 $3,813.33
Difference per month $1,460.34 $985.34 $2,558.67 $1,850.67

(*Source: realestate.com.au for median rents/sale prices and money smart mortgage repayment calculator, assuming no fees, 30yr, the interest rate of 6.72%)

Factors to consider

As the tables above demonstrate, it is generally still cheaper to rent than buy. Unless you have a really substantial deposit, you’ll still need to dip further into your pockets each week if you want to be a homeowner rather than a renter.

After all, while rents have risen over the past year, so have both house prices and interest rates.

That said, if you’re a first home buyer, you may be entitled to help getting on the property ladder through schemes such as:

If you choose to buy and contribute to a mortgage rather than rent, you’ll be paying off an asset and building up your wealth - something that should benefit you over the long run. After all, the long-term trend for inner-west and inner-city property prices is for them to rise despite any blips along the way.

So, even though renting may be cheaper in the short term, the long-term benefits of getting on the property ladder should still make it an attractive option.

That’s particularly true for smaller properties such as apartments and even more so if you have savings to draw upon to reduce your mortgage amount.

Finally, if you’re considering an investment property, this could be a great time to buy.

Two-bedroom units in Erskineville offer yields of 4.5%, and one-bedroom apartments yield 4.7%, according to realesate.com.au. In Alexandria, you’ll receive yields of 4.6% on one- or two-bedroom units and 5% on three-bedroom apartments.

Want more?

Contact our team today to find out more about how we can help you buy and sell in Sydney’s inner city and inner west.