Property

3 Surprising Reasons Singaporeans Might Want to Choose Renting Rather Than Buying a Home

renting home singapore

Joanne Poh

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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!

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Joanne Poh

In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.

  • Shaun Lim

    Joanne Poh wrote that our property will be repossessed by the government after 99 years. Does she have any hard data to back it up? Since it is a hard fact that most Singaporeans, rich or poor, live in HDB flats, we can safely reckon the writer is referring to HDB flat owners since all HDB flats’ leaseholds are 99 years. By her logic, properties (or HDB flats) should be depreciating in the long run due to its 99 years leasehold. That being said, has Joanne Poh heard of SERS? Does she know how much the government compensate the flat owners who are under SERS? My last question would be, is Joanne Poh and her article a reflection of the cedibility of MoneySmart? Digest and discuss.

  • curious99

    This article is silly and shows the writer is 0 moneysmart. I would say that if his friend’s father didn’t buy his HDB flat and when he was retrenched in his mid-60s, he would have left with zilch if he had been renting for the past 30-35 yrs. At least with his HDB property which he had slaved for 30-35 yrs paying off his mortgage instalments, he would have left with a tidy profit. After downsizing, he can safely retire and enjoy the finer things in life. He made a wise decision. You would do, if you had continued with your job as a property lawyer.

  • Wing Yew

    For a 99 years HDB flat, it is a home where most Singaporeans will start out with unless they are born with a silverspoon. Paying HDB loans is probably as good as paying rentals for a HDB flat. I have not heard of repossession of HDB flats due to nit being able to pay HDB loans, but I know there were some that were told to downgrade to a smaller flat. We should not think of using our home as a investment property.

    Look around in the private property market for those that are 99 years. Look at its value, even though its price had appreciated (due to inflation) but it will slowdown and may even depreciate as it age closer to the 40 years mark or finding it more difficult to sell in the market.

  • tang lynnette

    renting a home is even very hard , i once ask for a rented flat but was decline as they
    say we could stay with my daughter who has a flat my reason being my daughter has
    left us for 15 years and iwe dnt know the whereabout of her as she dinnt want to contact
    us due to reasion of her own
    furthermore she is married and the other party was the reason which we would be unwelcome
    due to our status we cannot apply for any rented flats
    we have no choices

  • Angela

    So paying for someone else mortgage is a better idea than paying for your own place? Ridiculous. Renting a room without a/c for 1/3 of my salary and living with owner with zero freedom is apparently better than getting your own place.

  • Lee

    If you look at those 99 years leasehold private property that are more than 35 years old, it is very difficult to find buyers who are willing to pay the valuation price because buyer unable to get bank loan due to the remaining lease of the property. Buyer will have to fork out more cash due to much lower quantum bank loan and CPF rules on using CPF money for payment
    For HDB, the situation is totally different. Buyer can still obtain HDB loan and servicing with CPF money.
    In next 15 years, when more and more 99 years leasehold private property cross the 40 years mark, sellers will be competing for buyers and prices of 40 years old private property selling lower than a HDB 5 room flat