Homeownership is considered one of the metrics of success in Singapore. People who think that renting is a terrible waste of money would like to believe that renting a house is comparable to helping someone else pay off their mortgage instead of putting that money into your own property.
While owning a property may be a lifelong goal for many Singaporeans, home ownership doesn’t mean the same for everyone.
It’s hard to find an answer that fits all. Many financial experts back the idea of renting over buying. In this article, we will try to understand renting vs buying in more detail and provide answers to ease your rent-or-buy dilemma from a financial standpoint.
Buying or renting a home provides you with a place to live. Both actions require a regular income to take care of the payments and associated costs.
Buying a home – be it a BTO flat, EC, resale HDB flat, BUC condo, resale condo or any landed property – is not only a huge part of the Singaporean dream but also brings several tangible and intangible benefits.
Owning a housing property also makes for a good future investment. On the other hand, renting a property provides more predictable expenses and frees you from the responsibilities associated with home ownership.
Take time to think about the area/location you want to stay in, the number of bedrooms you need, whether the apartment should be furnished, how long you plan to stay in a rented flat, and if you want private or public housing. It will help you make an informed decision.
Purchasing a home is not always a better choice over renting, and renting is not always as uncomplicated as it seems like. Which option should you choose depends entirely on your lifestyle, personal goals and financial situation.
Here’s a quick overview of the key differences between buying and renting a home in Singapore.
|Buying a house||Renting a house|
|Asset as you will own the property after full mortgage repayment||Liability as you don’t own the property|
|Long-term financial commitment considering the 25- to 30-year home loan||Short-term financial commitment (usually up to 3 months)|
|Requires downpayment and monthly repayments (can use CPF savings)||No downpayment and monthly mortgage repayments required|
|Up to 5 years waiting time for new properties; resale flats are “move-in ready” though||Most rentals are in “move-in ready” condition|
|Buying and selling other property take time||Easy to find another place for rental|
|You are responsible for all home-related maintenance issues||Depends on the rental contract; usually, the landlord handles repairs & expenses|
|Eligible for certain government grants/subsidies||Government housing grants are not applicable|
|Renovations are allowed as long as in adherence to authority guidelines||Modifications are not allowed usually|
While renting a home may seem like an economical choice in the short term, the money spent on rent adds up in the long run. To make things worse, the rental price growth in Singapore has already reached 8.5%, accompanied by rising housing prices.
In the past 24 months, the steep rise in the Singaporean rental market is most likely due to an increase in rental demand coupled with a supply delay in new BTO flats and residential developments. Moreover, disruption in the global supply chains and labour shortage further contributed to the rise in the prices of rentals.
Singapore’s rental prices could get rise further owing to the most recent property curbs and a shrinking housing supply. In the last year, rents for private apartments in Singapore have surged almost 31% compared to September 2021.
According to property analysts, private residential rents in Singapore are likely to continue well into 2023 with a 5% on-year rise. This forecast came after the Urban Redevelopment Authority (URA) rental index for private residential properties rushed 6.4% in the first quarter of 2023.
One of the biggest myths about renting a home is that you are just throwing away money every month. This is not true. For some people, especially young Singaporeans, renting might make more sense. Renting comes with predictable costs, which allows you to plan for the future accordingly.
When you buy a property, you commit yourself to decades of debt. You have to save for the sizeable downpayment as well as for those burdensome upfront costs like renovations, furniture, electronics, etc.
In contrast, renting a property requires a far less financial commitment. Upfront costs of renting typically involve a rental deposit and the first month’s rent, which leaves you with more cash on hand to use or invest in other aspects of life.
It also allows you to set aside more cash for emergency household expenses. Moreover, tenants don’t have to worry about costs like property taxes, home maintenance, etc.
With rentals, you are not bound to property or location. You have the option of moving when your property’s lease is up.
On the other hand, there are some restrictions when buying a home, for example, a 5-year Minimum Occupation Period (MOP) for HDB flat owners. If you are weary of your once-charming neighbourhood, have received a job offer in another city, or simply looking to cut costs, renting a house would make a wiser choice.
For some people, being free to move to a place of choice is a priority that surpasses the pride in home ownership.
Buying takes a lot of time, including the time spent searching for a suitable property, attending viewings and waiting time while construction is in progress. Also, purchasing a home involves a lot of paperwork.
Renting, on the other hand, is a much faster process and more straightforward in terms of paperwork. Tenants can fulfil their need for urgent accommodation by renting a home by signing the rental tenancy agreement and paying a deposit before moving in.
Those who don’t have or want to invest in furniture and electronics right now can even go for a fully-furnished rental home.
It is tempting to buy real estate in Singapore for investment purposes, especially in good times. However, the housing crash proved that home ownership could be risky.
Due to adverse circumstances, your home might not value as much as you wished it would or even less than the price you bought it (considering inflation). But if you are renting a home, the risk belongs to someone else (your landlord). Even in an unsteady housing market, renters may not be as adversely affected due to decreasing property value as homeowners.
A tenant is usually not responsible for paying for the repair expenses of electricians, plumbers, air-conditioning guys, and so on. The burden of maintaining the property usually lies with the landlord. It is crucial to thoroughly read the rental contract terms to exactly know who is responsible for what.
Let’s break down the points into the pros and cons of renting a home in Singapore.
|Pros of Renting||Cons of Renting|
|Short-term financial commitment (> 3 months)||Liability, because you will never own the property|
|“Move-in ready” condition||Owned by landlord|
|A landlord usually handles maintenance||Not allowed to use CPF to pay rent|
|Renting a condo is cheaper than buying one||Cannot modify property without owner’s consent|
|Flexibility of location||No rental subsidies|
|No property taxes||No tax benefits|
Rental accommodation would be a great choice if you are:
Singapore is Southeast Asia’s de-facto financial centre and one of the richest nations in the world. Its small land area indicates a limited housing supply, and with the sudden spike in population in the past years, you can see a massive gap opened up between housing demand and supply. As a result, housing prices in Singapore are driving north.
Singapore property prices have surged each quarter since the Circuit Breaker in Q2 2020. Although at a slower pace, property prices are set to rise for most of 2023. According to the Urban Redevelopment Authority (URA), Singapore property prices rose by 2.6% for Q1 2023.
The private residential property prices jumped by 10.6% in 2021, property prices could rise further between 1% to 4% in 2023, according to Singapore real estate agencies Knight Frank and JLL.
As an estimated 31,000 HDB flats will complete their MOP in 2022, the impact on HDB upgraders is likely to continue. However, property analysts are confident that the Singapore property market will make it through this tough phase.
According to a forecasting service Trading Economics, Singapore’s house price index, as of Sept 2023, is expected to hit 192 points by Q3 2023, 197 points in 2024 and 198 points in 2025. That would denote a 3.2% growth by the end of 2023 and a 2.1% growth in 2024.
Prospective homebuyers looking to buy a new home in 2023 should check their risk appetite and room for affordability.
It is crucial to understand how a home-buying decision can benefit your finances and lifestyle. Let’s look at the various advantages of purchasing a home over renting.
A sense of security & stability. When you own the roof over your head and are not at the mercy of your landlord, it provides a sense of security and stability, especially to couples with kids. Besides, it is an asset under your name, and you can renovate and design its interior as per your wishes.
Build equity. Your home equity is the difference between what you can sell the home for and what you owe. Every monthly instalment paid goes toward building up your equity in the house. Over time, more of what you pay every month goes to the remaining loan amount rather than the interest, building more equity. In the case of renting, you make monthly payments, but it doesn’t build your equity.
Chance to use CPF funds. One of the few ways of using your CPF monies is to buy a property, or your money is just sitting – locked up – earning a 2.5% interest. The government in Singapore allows homebuyers to use CPF to make home loan repayments and thus use their CPF monies to pay for an appreciating asset which can grow faster than 2.5%. Renters cannot use CPF OA savings to pay for accommodation, which means they would be parting with their hard-earned cash.
Potential of capital appreciation. The possibility of selling your house for a higher price in the future is one of the biggest things most of us look out for when investing in a property. While there is no guarantee that your home investment will always make a profitable deal, it is highly likely to be. Moreover, you can also choose to rent out your whole property or even those extra rooms if you want and earn passive income while living somewhere else.
A home can be inherited. Since there is no inheritance tax when you pass your property on to your spouse or kids after your death, consider buying a home for them. When you buy a home, you provide your family with a place they can continue to live in after you are gone. However, bear in mind that many condos and most HDB flats follow a 99-year lease system, so they will not be passed down to your grandchildren or great-grandchildren.
Housing subsidies. Depending on your eligibility, you can apply for government housing grants when buying public housing or executive condominiums, which could lower your housing costs significantly.
|Pros of Buying||Cons of Buying|
|A good long-term investment||Long-term financial commitment|
|Building equity||Less mobility|
|Stable payments with a fixed-rate mortgage||High upfront costs; hefty downpayment|
|Able to use your CPF monies||Repair and maintenance costs|
|Free to customise your living space||Property values can fall|
|Pride of ownership||Property taxes like SSD and ABSD can add up|
|Tax benefits||Takes time to buy and sell a property|
A home purchase makes more sense if you are:
While owning a home is a way of life in Singapore, renting has become more commonplace in recent years, mostly due to the work-from-home culture and millennials wanting to move out of their family home.
Unfortunately, there is no one-size-fits-all solution to the buy-or-rent conundrum. Renting and buying both have their advantages and disadvantages. With rising interest rates and surging resale and rental prices, the pick between buying and renting a home isn’t so simple.
The following factors should affect your decision to buy or rent a home:
Term of stay. Ask yourself how long you will be staying in one place. Many experts suggest that if you are planning to stay in a place for less than 5 years, it is okay to rent. If you are staying for five years or longer, it is financially prudent to purchase a house.
Affordability. Think if you can afford the 25% downpayment and other upfront costs of buying the property. Don’t forget to consider the recurring costs. When you rent, you pay the monthly rent only – no HOA fees, no property taxes, and no maintenance costs. Before buying a home, look brutally hard at your monthly spending.
Level of commitment. Do you seek more flexibility and less commitment? Renting offers a relatively stable place to live in with minimal lease as short as three months for private condos or six months for public housing. Buying a home would demand a longer commitment – even if you decide to sell, you must abide by the MOP of 5 years.
Purchase intention. Be clear about why you are buying a property. Are you buying it for a living or as an investment, or both? Once your intent behind purchasing a home is clear, you can make a better decision for yourself.
Future plans. If your life is in flux or expected to change dramatically anytime soon, there is nothing wrong with continuing to rent. If you plan to take a new job overseas or want to move to a different country, it is suggested to rent a home while you are in Singapore.
Are you planning to buy or rent property at some point in the future? Bear in mind that there is no definitive answer to the rent vs. buy question. It just depends on your personal situation and finances. Try to look beyond convenience and on-the-spot price comparisons when finding an answer to your rent-or-buy dilemma.
At Dollarback Mortgage, we have a team of experienced and talented mortgage consultants who can help you make an informed decision on whether to buy or rent a home based on your current financial situation. Should you need help on the best home loans for your property purchase, please contact us to learn more about the best deals!
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