Moving to Cairns – should we buy or rent?

[Wanderer Returns]

I’ve just accepted a job offer in Cairns starting next January, and we will be returning there after almost five years in the UK. We originally returned here to look after my elderly mum, who passed on a couple of years ago, but then we decided to stay on for a bit longer. We love both Australia and UK, but we feel we will be better off in Oz for the next few years and are excited about returning.

I've always thought that buying a property in the UK is something of a no-brainer – if you can afford to buy, you buy, as there's a significant financial advantage over renting. However, in my limited experience of living in Australia, that advantage seems to be a lot less clear cut. I’ve done some research and noticed property prices in Cairns over recent years have been quite stagnant, so there’s unlikely to be much capital gain in the value of a property over say, five years, like there would be in a major city. Body Corp fees also seem to be quite high in Cairns too (I’m guessing because of insurance for cyclones, flooding etc), and then there are the rates which you don’t pay as a tenant in Australia.

As there are only two of us, we would be thinking about buying a unit, apartment, or small house. Based on the experience of the forum members, do you think it's really worth buying or should we just rent like we did before? I should mention that we also have a house here in the UK which we can either sell or rent out.

Many thanks in advance for helpful advice,

Martin.

[Marisawright]

This should be a hot topic in Australia but the culture of home ownership is so great, it's not.

I used to be married to an accountant who had a great spreadsheet, allowing you to calculate whether to rent or buy.   It was based on the premise that houses doubled in price every ten years (because that's what happened in the capital cities then).   It showed that renting was cheaper than owning if you planned to live in the home for less than five years.  

I wish I still had that spreadsheet!   House prices, even in the cities, aren't expected to grow at anything like that rate for the foreseeable future.  So I'm guessing the "break even" point would be more like ten years now.   We're in our late sixties so we may not even live that long!

[Wanderer Returns]

10 hours ago, Marisawright said:

This should be a hot topic in Australia but the culture of home ownership is so great, it's not.

I used to be married to an accountant who had a great spreadsheet, allowing you to calculate whether to rent or buy.   It was based on the premise that houses doubled in price every ten years (because that's what happened in the capital cities then).   It showed that renting was cheaper than owning if you planned to live in the home for less than five years.  

I wish I still had that spreadsheet!   House prices, even in the cities, aren't expected to grow at anything like that rate for the foreseeable future.  So I'm guessing the "break even" point would be more like ten years now.   We're in our late sixties so we may not even live that long!

Thank you for your reply, Marisa - it rather echoes what I'd thought. The data which I've looked at indicates property prices in Cairns have increased 9% in five years. That's not even keeping up with the rate of inflation, so clearly it's a case of weighing up the long-term cost of renting versus buying, and how much our capital would make if invested elsewhere. That spreadsheet would've been handy, but I can probably find something similar online.

There are also quite a few pitfalls in owning a unit as well, such as noisy neighbours, a sudden increase in body corp fees, and various restrictions on what you can and can't do in the property. I think we would be very wise to rent for the first year and see how it goes. I'm now in my fifties, so unless we have another financial crisis which dramatically effects my pension, I hope that I will not be working in 10 years time. I also wish you a long and happy retirement too!

Martin.

[can1983]

You should take into consideration that renting prohibits you from changing decor, making the AC work properly, put up a shelf, change that thing that's been annoying you for the past year that the landlord wont fix, or indeed the opposite staying put in the place u call home when the landlord wants to sell etc etc

Theres a reason people want to buy other than just financial. I hated every day of renting. It made me feel like a second class citizen

 

[Marisawright]

36 minutes ago, can1983 said:

You should take into consideration that renting prohibits you from changing decor, making the AC work properly, put up a shelf, change that thing that's been annoying you for the past year that the landlord wont fix, or indeed the opposite staying put in the place u call home when the landlord wants to sell etc etc

Theres a reason people want to buy other than just financial. I hated every day of renting. It made me feel like a second class citizen

 

If the landlord isn’t fixing stuff, you take them to the tribunal or you find another rental. 

Putting up with a bad rental is something people do when they’re too poor to buy and don’t have a choice. That’s not the case for the OP. 

It’s true you’re limited on what you can do to the place and you don’t have long term security, that’s the bargain you make

[Whey aye]

Work out how much you want to borrow ,I.e $400K.Interest rates at 4% so interest is 16K per annum.Plus stamp duty,maintenance,insurance etc.Amortisation of mortgage.

 

Work out want annual rent is and bingo.

 

Should house prices take off you lose,should they flatline then you win.

How long do you plan on living there.

[Marisawright]

3 hours ago, Whey aye said:

Work out how much you want to borrow ,I.e $400K.Interest rates at 4% so interest is 16K per annum.Plus stamp duty,maintenance,insurance etc.Amortisation of mortgage.

Work out want annual rent is and bingo.

I think people often forget to add in the insurance and maintenance costs for a house.  If it's a unit then there's strata fees instead.  Then there's rates, and also water rates (which renters don't pay in some states).   Plus the cost of selling the property (fees, agent's commission) as well as the cost of buying (fees, stamp duty).

The other thing people don't realise is that for the first 5 or so years of a mortgage, you're not paying off much, if at all.   It's nearly all fees and interest.  So if you sell after 5 years, you'll owe much the same as at the beginning - meaning all your mortgage payments were just as much "dead money" as renting is.  

The only reason people don't notice it, is because in the past, house prices have always risen in that 5 years so they do get some profit.  And what they also don't consider is, if they hadn't bought the house, they could have put that money in investments and it would have earned a profit, too.

[Paul1Perth]

On Saturday, May 25, 2019 at 05:01, Wanderer Returns said:

I’ve just accepted a job offer in Cairns starting next January, and we will be returning there after almost five years in the UK. We originally returned here to look after my elderly mum, who passed on a couple of years ago, but then we decided to stay on for a bit longer. We love both Australia and UK, but we feel we will be better off in Oz for the next few years and are excited about returning.

I've always thought that buying a property in the UK is something of a no-brainer – if you can afford to buy, you buy, as there's a significant financial advantage over renting. However, in my limited experience of living in Australia, that advantage seems to be a lot less clear cut. I’ve done some research and noticed property prices in Cairns over recent years have been quite stagnant, so there’s unlikely to be much capital gain in the value of a property over say, five years, like there would be in a major city. Body Corp fees also seem to be quite high in Cairns too (I’m guessing because of insurance for cyclones, flooding etc), and then there are the rates which you don’t pay as a tenant in Australia.

As there are only two of us, we would be thinking about buying a unit, apartment, or small house. Based on the experience of the forum members, do you think it's really worth buying or should we just rent like we did before? I should mention that we also have a house here in the UK which we can either sell or rent out.

Many thanks in advance for helpful advice,

Martin.

I'd sell the house in the UK and buy something decent in an area you like in Cairns. If you like it and the area you don't tend to worry if it's making money or not. It's yours to improve or not too.

[Paul1Perth]

On Saturday, May 25, 2019 at 06:30, Marisawright said:

This should be a hot topic in Australia but the culture of home ownership is so great, it's not.

I used to be married to an accountant who had a great spreadsheet, allowing you to calculate whether to rent or buy.   It was based on the premise that houses doubled in price every ten years (because that's what happened in the capital cities then).   It showed that renting was cheaper than owning if you planned to live in the home for less than five years.  

I wish I still had that spreadsheet!   House prices, even in the cities, aren't expected to grow at anything like that rate for the foreseeable future.  So I'm guessing the "break even" point would be more like ten years now.   We're in our late sixties so we may not even live that long!

You should have plenty of time left yet

There's more to having your own place in a nice area than financial reasons. Feeling of belonging and being part of the community would be way above financial. Try putting that in a spreadsheet.

[can1983]

17 hours ago, Marisawright said:

If the landlord isn’t fixing stuff, you take them to the tribunal or you find another rental. 

Putting up with a bad rental is something people do when they’re too poor to buy and don’t have a choice. That’s not the case for the OP. 

It’s true you’re limited on what you can do to the place and you don’t have long term security, that’s the bargain you make

My brother just gave notice to his tenant because they didn't like them and they can relet easily. I don't agree with his methods but this is what you face as a tenant.

I had to evict my tenant (retired couple) after a year because we needed to sell to afford what we wanted in Hobart due to rising prices. It was hard on them being forced to move so soon after moving in, but what an I going to do have my family live in a shoddy rental so a retired couple get stability? of course not but this is another reason why renting sucks

[Marisawright]

1 hour ago, can1983 said:

My brother just gave notice to his tenant because they didn't like them and they can relet easily. I don't agree with his methods but this is what you face as a tenant.

I had to evict my tenant (retired couple) after a year because we needed to sell to afford what we wanted in Hobart due to rising prices. It was hard on them being forced to move so soon after moving in, but what an I going to do have my family live in a shoddy rental so a retired couple get stability? 

Of course the lack of security is a downside of renting.   No one is saying renting is better than buying.  The original question was from someone who's planning to stay in Cairns for a few years.   In that situation, if they buy a property, they will likely be much worse off financially than if they rent.    It's up to them to decide whether security of tenure is worth that extra cost.

We've made the decision that it's not worth it for us. If our landlord turns round and gives us notice tomorrow, we'll find somewhere else.  It's a bit of a nuisance but there's just the two of us and we don't have a lot of stuff, apart from my husband's book collection. There's plenty of unit blocks in our suburb so we won't have trouble finding somewhere else that's just as nice. 

I know that won't suit some people.  Some people are homebodies and aren't happy until they've "put their stamp" on a home.  Others would find the prospect of moving every few years too stressful.    I also know that in some cities (e.g. Sydney), people are nosey about property and will look down on you if you're "just renting".   I'm lucky that I'm in Melbourne where the subject doesn't even come up - most of my acquaintances probably just assume we own our place.  So overall, it suits us.  Each to their own.

 

[Wanderer Returns]

Thanks to everyone for their feedback. My original post was really aimed at considering the financial implications of buying versus renting in Cairns, although I appreciate that it’s an over-simplification and there are a lot of other factors to consider. A feeling of belonging and being part of the community is very important to us too, but I don't see how renting would disadvantage anyone from achieving that? It’s really down to the person’s willingness to get involved, and probably the main reason why some find it much harder to migrate than others.

I can appreciate that some people simply don’t like the idea of renting because it makes them feel inadequate, but I’ve never had a problem with that. I’ve also never had a real problem with any previous landlords. I think that generally you can judge from the outset whether someone is going to be professional not. Renting can provide you with a great deal of flexibility, which is important when you’re just starting out in a place and trying to find your feet.

I met up with one of my friends this week who conveniently just happens to be a tax consultant. He pointed out that if I rent out my place here I’ll be taxed in Australia on all my UK rental income, and based on the salary I’ll be receiving it’d be 37% tax on the lot! There would also be the letting agent’s management fees, landlords insurance, and any repairs that needed doing, so we would be lucky to see half of the rental income. We might also be liable for capital gains tax on the sale of the property in the future because it would no longer be classed as our primary residence.

Taking these factors into consideration, it’s clearly going to make a lot more sense to sell our property and buy somewhere in Cairns, although I think we’ll just rent it out for the first year and see how it goes.

[rammygirl]

You might want to double check that. On a temporary visa you will not be taxed on overseas income in Australia.  UK may still tax it tax it but you keep your tax free allowance and expenses will be deducted.

Even on a PR visa deductions for expenses would be taken into account. Check on the ATO website to clarify.

Edited June 8, 2019 by rammygirl

[Marisawright]

6 hours ago, Wanderer Returns said:

I met up with one of my friends this week who conveniently just happens to be a tax consultant. He pointed out that if I rent out my place here I’ll be taxed in Australia on all my UK rental income, and based on the salary I’ll be receiving it’d be 37% tax on the lot! There would also be the letting agent’s management fees, landlords insurance, and any repairs that needed doing, so we would be lucky to see half of the rental income. We might also be liable for capital gains tax on the sale of the property in the future because it would no longer be classed as our primary residence.

Is he talking about UK tax or Australian tax?   I know about Australian tax and you'd get several deductions so it wouldn't be 37% tax, I don't think. 

Firstly, how old is your property?  It may be too old to claim depreciation on the fabric, but what about the internals?  There is a company in the UK that does depreciation reports, Alan Collett (on these forums) can point you in the right direction.  If you can find some depreciation to claim as an expense, that would reduce the tax bill (on a new or near-new property, it can wipe out the tax liability altogether, which is why Labor wants to abolish negative gearing - it's a rort!).

You can claim letting agent's fees, insurance and minor repairs, plus mortgage interest, as tax deductions.  Major repairs would have to be claimed as depreciation (i.e. spread over a few years).  

If you're moving temporarily to Cairns and don't buy a home there, then your UK house will be classed as your primary residence for up to 6 years. 

https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Your-main-residence/Treating-a-dwelling-as-your-main-residence-after-you-move-out/

Edited June 8, 2019 by Marisawright

[Wanderer Returns]

On 09/06/2019 at 00:00, rammygirl said:

You might want to double check that. On a temporary visa you will not be taxed on overseas income in Australia.  UK may still tax it tax it but you keep your tax free allowance and expenses will be deducted.

Even on a PR visa deductions for expenses would be taken into account. Check on the ATO website to clarify.

This may be the case for temporary residents but I will be a returning Australian citizen, and according to the ATO residency tool I will be an Australian resident tax purposes.

[Wanderer Returns]

On 09/06/2019 at 00:33, Marisawright said:

Is he talking about UK tax or Australian tax?   I know about Australian tax and you'd get several deductions so it wouldn't be 37% tax, I don't think. 

Firstly, how old is your property?  It may be too old to claim depreciation on the fabric, but what about the internals?  There is a company in the UK that does depreciation reports, Alan Collett (on these forums) can point you in the right direction.  If you can find some depreciation to claim as an expense, that would reduce the tax bill (on a new or near-new property, it can wipe out the tax liability altogether, which is why Labor wants to abolish negative gearing - it's a rort!).

You can claim letting agent's fees, insurance and minor repairs, plus mortgage interest, as tax deductions.  Major repairs would have to be claimed as depreciation (i.e. spread over a few years).  

If you're moving temporarily to Cairns and don't buy a home there, then your UK house will be classed as your primary residence for up to 6 years. 

https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Your-main-residence/Treating-a-dwelling-as-your-main-residence-after-you-move-out/

Thanks for that info, Marisa. I'm an Australian citizen, so on returning to Australia I will be classed as resident for tax purposes. As I'm sure you are aware, there's a double taxation agreement in place between the UK and Australia, so I'll not be taxed by the HMRC but I will need to declare any UK income on my Australian tax return.

I wasn't aware that I would be able to claim deductions and depreciation against rental income, so that is good to know. My property is 100 years old so I can't imagine I could claim depreciation on the building. I guess if I rented the place out furnished rather than unfurnished, I could claim for more in terms of depreciation? Even taking these factors into consideration, I'd still have to pay 37% tax on any profit made as it would push me into the higher rate tax bracket in Australia. We'd also have to rent in Cairns because all the equity will be in the UK property. It's a tricky one!

[rammygirl]

Yup just assumed you might be on a temp work visa from your original post. As PR or citizen you will be taxed on your worldwide income even if you only stay for a few years. People on temp visas are resident for tax and will be taxed in Aus but not on income from overseas. 

[Marisawright]

2 hours ago, Wanderer Returns said:

Thanks for that info, Marisa. I'm an Australian citizen, so on returning to Australia I will be classed as resident for tax purposes. As I'm sure you are aware, there's a double taxation agreement in place between the UK and Australia, so I'll not be taxed by the HMRC but I will need to declare any UK income on my Australian tax return.

You are misunderstanding the double taxation agreement.   It doesn't mean you're only taxed in only one country.

You will have to submit a tax return in the UK and you may treated as a foreign investor (unlike in Australia, citizens do get some concessions, so worth checking exactly what the tax rate will be, including capital gains liability).  

When you submit your Australian tax return, you declare your income from the UK and also declare the tax paid in the UK.   

The ATO will then work out what tax you would normally be due to pay in Australia, and then deduct what you've already paid in the UK.  

[Wanderer Returns]

9 hours ago, Marisawright said:

You are misunderstanding the double taxation agreement.   It doesn't mean you're only taxed in only one country.

You will have to submit a tax return in the UK and you may treated as a foreign investor (unlike in Australia, citizens do get some concessions, so worth checking exactly what the tax rate will be, including capital gains liability).  

When you submit your Australian tax return, you declare your income from the UK and also declare the tax paid in the UK.   

The ATO will then work out what tax you would normally be due to pay in Australia, and then deduct what you've already paid in the UK.  

Thanks for clarifying. I didn't know exactly how it worked, except that the double taxation agreement ensures that (in theory) you shouldn't pay tax on the same income in both countries.

[Marisawright]

3 hours ago, Wanderer Returns said:

Thanks for clarifying. I didn't know exactly how it worked, except that the double taxation agreement ensures that (in theory) you shouldn't pay tax on the same income in both countries.

I wanted to make sure you understood.   A while back we had another member who thought it meant they weren't liable for tax in the UK, so they never submitted a tax return for their rental income.  Some years later HMRC found out and not only did he have to pay tax, but he got fined several thousand pounds.

[Wanderer Returns]

8 hours ago, Marisawright said:

I wanted to make sure you understood.   A while back we had another member who thought it meant they weren't liable for tax in the UK, so they never submitted a tax return for their rental income.  Some years later HMRC found out and not only did he have to pay tax, but he got fined several thousand pounds.

Blimey!  As a matter of interest, is there any evidence that the HMRC and the ATO share information, or does each organisation rely on tax payers compliance in providing the correct information about overseas earnings?

[rammygirl]

https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Foreign-residents-reporting/Foreign-tax-resident-reporting/

[Wanderer Returns]

4 hours ago, rammygirl said:

https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Foreign-residents-reporting/Foreign-tax-resident-reporting/

Thanks, I guessed that would be the case. It surprises me that it has taken them this long