Conventional wisdom says that you should always buy a home rather than rent. Singaporeans tend to believe that renting keeps you in the poorhouse for the rest of your life, while buying means you’ll be sitting on a goldmine when property prices appreciate and you sell your home for a handsome sum.
That might have been true decades ago, but disturbingly enough, some analysts nowadays think that renting might be a better idea, given recent property trends. We’re not going to tell you one is better than the other, but here are a few reasons why renting could now be a smart financial decision.
1. Less financial commitment
Many Singaporeans spend their entire lives slaving away to pay off their mortgages. Recently, my friend’s father, who is in his mid-60s, got retrenched. At his age, it would be hard to find a decent-paying job, and he was still paying off the mortgage on his HDB flat. In the end, the family decided to sell the flat and move into a smaller one tthat my friend, who is over 35, got a loan for in his name.
Now, this does NOT sound like a property investment success story to me. The fact is, due to the gap between real wages and property prices in Singapore, many people end up taking up insanely long loans. Taking out a 30 or 35 year loan means you’ll be chained to a mortgage until you’re a senior citizen. Unless it’s an investment property you can rent out, you need to really think about the implications—that you’ll have to keep on working until you’re old. No further studies, no sabbatical, no breaks from work, no risky career switches. And good luck if you get retrenched.
That’s not to say renting isn’t a financial commitment in itself. But at the end of your lease you have the option of downgrading to a smaller property or even taking up the cheapest option, moving into a small room in a far flung HDB estate, should you get retrenched or run into other financial difficulties.
2. Most Singapore property is leasehold
It’s one thing to spend half your lifetime paying for a home that will stay in your family for generations. It’s quite another to spend half your lifetime paying for one that will be repossessed by the government after 99 years.
Many Singaporeans tend to overlook the fact that when you purchase a 99 year leasehold property, the value of your property will not appreciate as quickly in the long run as will that of a freehold property, and can depreciate more greatly if the property market goes south or when you reach the end of the lease.
In fact, buying leasehold property has been likened to simply obtaining long-term rental on a property. Whether or not you’ll actually be financially better off than if you just rented really depends, although the popular view is still that it’s better to buy. But just bear in mind that you’re taking on that financial commitment for a long lease, not a property that you can pass on to your grandchildren.
3. Sliding property prices might cancel out your gains
Given the sliding property prices in Singapore, analysts are now coming out of the woodwork to say that, surprise surprise, it might actually be cheaper to rent than buy, at least if current trends are anything to go by.
Due to the loan curbs of the past few years as well as the more onerous stamp duty rules, residential property prices have been on a downward slide. If the poor performance of the property market continues, it could actually be cheaper to rent than buy, since buyers would be forking out money for a very lousy or even negative investment.
Bear in mind that when you buy a home you are also paying stamp duty, interest to the bank, legal fees and other miscellaneous fees, all in the hopes that the appreciation of property value in future will compensate for these costs.
So, is it actually better to rent or buy?
Again, we’re not saying renting is definitely a better idea than buying. But if you are buying a property, bear in mind that your investment may not be as great as you think it is. There are other ways to invest the money, especially the downpayment sum. Of course, if you do happen to be getting a home, make sure you save as much as possible by comparing the best home loan packages on the market first before jumping right in.
Are you considering renting instead of buying? Tell us why in the comments!