Singapore is unique in that most Singaporeans tend to prefer buying to renting. Scoot over to Germany, France and Switzerland, and you’ll find that the rental market there supersedes homeownership. Why? For one, Europe has way better regulations that are “Renter-friendly” and house prices are too high for any normal income person to afford. For example, in Germany, the government doesn’t let homeowners deduct mortgage-interest payments from their taxes. That’s a pretty good reason not to buy a house, especially when your government doesn’t encourage it.
But here in this little red dot, the view that we should buy a property is deeply entrenched, despite the high cost of owning one and many being on “lease” for 99 years. Of course, the main reason for this mentality could be linked back to our Asian roots where families should always own a house for future generations. On top of that, our government encourages homeownership. Take a look at our housing policies. For instance, The Central Provident Fund (CPF) savings is used to support Singaporeans in buying properties. Many believe that buying a property would serve as a good investment in the long run. On the other hand, rental money effectively gives you nothing. But stop for a second and think, do you really need to buy a house? What’s stopping you from renting one? Is it pressure from parents? Pressure from your peers (applying for BTO)? Age? Girlfriend wants to get married? Renting is not “cool” enough?
So under what circumstances should you buy or rent? Read on to find out.
Buying a house is a huge long term commitment. Most young Singaporeans looking at getting their own place would likely need to take a loan. And these loans aren’t exactly small. Some of them can last up to 30 years. That means you’ll be stuck with your mortgage even until your late 50’s. You have to be sure that you can secure financial stability in the many years to come. Hate your job? You might have to think twice about career switches that might put your mortgage at risk. Always wanted to take a gap year overseas to further your education for a year or so? Not with that debt you have. Renting proves to be a better idea for those who are starting earlier in their careers. You get the freedom to pursue your relevant interests. If you’re making a risky career switch and things don’t go your way, you would have the option to move to a smaller place to ease the financial load temporarily.
On the other hand, if you’re planning to start a family in Singapore with no migration plans in the next 10 years, and your cumulative household income is comfortable. Then buying a house would be the right path to go.
99 YEAR LEASE
In most cases, the 99-year lease might prove unfavorable for families planning to buy a house. It is important to note that most of the properties in Singapore are leasehold properties. This means that when the lease ends, the property goes back to the government. Frankly speaking, you’re technically paying “rent” to live in a house you believe is yours. On top of that, the plan to provide a house for the next 5 generations may not be possible. Assuming you bought the house at year 0, 99 years would probably max out to only three generations before the government claims it back. The worse news is that the value of your property would have dropped by then. Properties on a 99-year lease are more vulnerable to sliding prices as compared to the 999-year lease or Freehold properties. Of course, if you have grand plans to move overseas or upgrade your HDB to a 999-year lease or freehold property, then this will not be an issue.
Renting a property protects you from the fear of sliding property prices. While your rent might fluctuate, you will always have more flexibility to choose a new place.
That said, I don’t encourage local families to rent and hop. Keep in mind that it is extremely exhausting to move all the time, especially for the children. Children also need a proper environment where they can grow and develop. And trust me, a constant change of environment is not good for them.
More often than not, when something in the house needs fixing or attention, it is usually sudden and unprecedented. In your own property, this would incur further costs on top of your loan.
With rental however, depending on your tenancy agreement, the landlord will pay for replacement of household appliances. For example, if your air conditioner is literally falling apart, your landlord will be in charge of getting it fixed. While this might seem insignificant, every problem you face will set you back a little bit more. While this might not be the strongest pull factor to rent, it still represents the up side to renting.
Anna (the friendly neighbor and I’m not an agent)