Buying a house or renting for housing, Urban leasing and buying houses

Buying a house or renting for housing, which is the best option?

The prices of urban rentals and the purchase of houses for housing have increased in Portugal, with the pressure of tourism, the permanence of non-habitual residents and the local accommodation market. There are few houses for rent and this causes the value of rents to increase and some offer that would have been destined for urban rental was probably sold. This reality is particularly evident in the Lisbon areas, where the aforementioned pressure has been great. Which will be the best option: Buy a house or lease?

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What are the values ​​in Portugal to buy a house or rent

The National Statistics Institute (INE) regularly publishes information on the median value, per square meter, of new lease agreements for family accommodation.

It also provides the values ​​for the acquisition of houses for housing, whether new or used.

Otherwise, you can analyze the rent values ​​per m2 in new lease agreements for family accommodation, due to the respective geographical location in Portugal.

Likewise, you can consult the median home purchase prices, considering the purchase of new and existing homes.

With this data, we can compare the costs of housing, whether rented or purchased.

Thus, the average rent per square meter in Portugal is €6,03 (2nd quarter of 2021) while the purchase of a new house with the typology T2 is €1.286 per square meter (2nd quarter of 2021).

Considering, as an exercise, a house with 100 m2, the lease would be €603 per month and, in the case of purchase, €128.600.

Thus, the annual value of the urban lease will be €7.236 (€603x12).

Finally, we can say that in 17,8 years (€128.600/€7.236) the lease amount is equivalent to the acquisition value, without considering either increases or decreases in rent, as well as the costs inherent to the acquisition, such as the tax on transfers (IMT) or other fees and interest.

This indicator varies in the different regions of Portugal.

The greater this relationship purchase/lease, which means that the purchase price is higher than the cost of the lease, the lease becomes more attractive.

INE data show that, in general, it is better to buy than to lease, particularly if loans can be made over a long period of time.

However, the longer it takes to arrive at equivalent values, the greater the risk that the values ​​that we are now pointing out may turn out to be different.

When buying houses, those who buy have to pay Municipal Property Tax (IMI), Municipal Property Transfer Tax (IMT) and Stamp Duty (IS).

Let us assume, to calculate the IMT, that the Tax Equity Value (VPT) is equal to the purchase price.

In the purchase of houses for housing, we calculate the monthly amount that will be paid and that results from the amortization and payment of interest on the bank loan, based on the simulator available on Portugal's bank.

Simulate the amounts payable on the loan

Acquisition of a house for housing in Lisbon, with 100m2, for a value of 331.800 euros, an amount to be financed 100% with a bank loan, within a period of 30 years (12×30=360 months) and at a nominal annual interest rate (TAN) of 1,31% (1,5% spread with a discount of -0,19% of the 12-month Euribor). It is assumed, in this exercise, that there are no other charges or life insurance, which is normally mandatory. At the end of the month, the homeowner will have to pay the Bank an installment of €1.115,10 for 30 years.

Screenshot 1 The bank loan to buy a house
Screenshot 1 – The bank loan to buy a house; Bank of Portugal simulator

Considering a house with the same 100 m2, urban rental in Lisbon (Metropolitan Area) has a median cost of €882 a month.

Calculate the Municipal Property Tax (IMT) and Stamp Duty (IS)

To calculate IMT and Stamp Duty, you can use the APEMIP simulator.

Screenshot 2 Taxes to pay when buying a house
Screenshot 2 – Taxes to be paid when buying a house; APEMIP simulator

Finally, to do the calculations, you can consult, How to calculate IMI - Municipal Property Tax.

Buy a house or lease?

We take Lisbon, Porto and Coimbra as an example and compare the rent values ​​with the monthly purchase costs, including interest on the bank loan and taxes.

Table Buying a house or renting, the costs compared
Table - Compared values ​​of lease, house purchase, with 100m2, including loan interest and taxes, Source INE 2nd quarter of 2021

It appears that, in general, the purchase price of houses in Portugal is higher than that of the lease, strongly influenced by the values ​​of Lisbon.

However, in Lisbon and Porto, leasing is 23 to 29% cheaper than buying with a 30-year loan, but in Coimbra the difference is smaller.

The final decision, whether to buy a house or rent, depends on the area and the market, when making choices.

It is necessary to know if we have the capacity to obtain the loan and to consider that, since the property is ours, there are other maintenance expenses that we have not considered.

However, at the end of the loan period, exemplified here with a period of 30 years, the house becomes our property, and the amortization value is no longer maintained, which in the case of the urban lease contract will be maintained and eventually may increase. during this period.

Anyway, any decision has risks, but life is made of challenges.

Good choice!

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