In Singapore, most of us live with our parents until we get married and buy a matrimonial home. But given the pandemic-induced lack of space now, it’s becoming more common for young adults to fly solo and find a place of their own early on.
The inevitable question then arises: do you rent or buy?
With property prices increasing for six straight quarters now, the cost of homeownership may be going up faster than our salaries. But the rental market might not be that much better in the long run either — it really depends on your situation.
Today, we’ll outline the debate on buying vs renting in Singapore:
- Pros and cons of buying a home
- Pros and cons of renting
- Key questions to ask yourself to help you decide
- Summary: who should rent and who should buy
The Advantages of Buying a Home
Buying a house earlier can come with a big advantage: you’ll probably qualify for more government grants with a lower salary. Over time, when your income rises, the subsidies you can get will dwindle. Besides, if you plan to eventually buy a house it’s very unlikely that property prices will go down ten years from now.
- Owning your own place: The biggest draw of buying a house is that you will “own” the property after fully repaying your mortgage — provided the lease is still running, that is.
- Government grants/ subsidies: As of 2021, you can get up to 80k or 160k in CPF grants if you’re buying a BTO or resale flat respectively. Even ECs qualify for grant money, making them a more wallet-friendly option than condos.
- Use of CPF: Home purchases are one of the few things you can tap on your CPF for — otherwise, you may not be able to touch that money for decades. If your CPF can cover most of your down payment and mortgage, you’ll only need a minimal cash outlay.
- Capital appreciation: As your property’s value rises over the years, you have the possibility of selling your home at a much higher price.
- Tax savings: Unlike other countries, you won’t be taxed for selling your property. There’s no capital gains tax when selling properties in Singapore (as long as you’re not a property trader).
- Rental income: You can rent out your spare room and earn extra income if you have your own home. (Keep in mind that you have to adhere to HDB’s occupancy cap if you live in a flat.)
- Protection against inflation: During severe inflation, the value of hard assets like real estate tend to fare better and continue rising alongside the Consumer Price Index. If you’re holding all that money in cash on the other hand, inflation will reduce the value of your cash as the prices of goods go up.
Key Disadvantages of Buying a Home
That said, if your financial situation isn’t stable, investing in a house will break the bank. Buying a home requires stable monthly payments for the next 30 years or so. Before you commit to a home purchase, carefully consider if you can afford it.
- The burden of home loans: Most of us will have to apply for a loan to buy a home in Singapore. That’s a huge commitment you may regret, given that you’ll have to spend the next few decades paying it off. You may also need to refinance/reprice your loan every few years, which is a lot of extra work.
- Taxes: Additional Buyer Stamp Duty (ABSD) and Seller Stamp Duty (SSD) can add up considerably. The Additional Buyer’s Stamp Duty is a tax that Singaporeans pay when buying two or more properties, while the Seller’s Stamp Duty is a tax for selling a home less than three years after buying it.
- Renovation and repair costs: You’re bound to spend at least a small amount on renovation and repair works, as well as any monthly maintenance fees.
The Advantages of Renting a Home
If you want your own place without the financial commitment just yet, renting is a more affordable option in the short term. You won’t face the stress of monthly housing loans and repairs, which is a relief if you already have other bills to pay off. Renting also comes with the freedom of relocating once your lease expires.
- Less financial commitment: Rentals can be as short as three months, so it’s a lot less of a burden than a 25-year loan tenure. This is especially useful if you need temporary lodging arrangements — or if you’re waiting for the right opportunities to open up.
- No maintenance/repair costs: With rentals, most large maintenance and repair works are borne by the landlord. Just note that many tenancy agreements state that you’ll have to cover smaller repairs on your own (e.g. <$150).
- Easier to relocate: You’re not bound to a property or location. Moving after your lease is up is convenient for those who want to explore new environments.
Key Disadvantages of Renting a Home
The desire for freedom does come at a price. One of the biggest bummers of renting is that you can’t use your CPF to finance your rentals. And while you get more flexibility with renting, the months and years of rental payments won’t bring you closer to homeownership.
- No equity building: When you buy a house, your equity grows with every monthly instalment paid on your loan — meaning you own more of your home each month. With rentals, every payment helps the landlord build equity, not you.
- Possibility of bad roommates/landlords: Living with strangers can be tough. Renting means you might get stuck with personalities you can’t get along with, making you yearn for your own private space instead.
- No rental subsidies/CPF: You can’t get subsidies, but you may be able to get rental assistance if eligible.
- Modifications/renovations: Not allowed, so there’s limited opportunity for personalising your living space.
Renting vs Buying: Key Financial Considerations
Because buying a house is a heavy commitment that will affect your lifestyle, you’ll need to be realistic about your current financial situation before making a decision. Here are some key financial considerations when deciding whether to rent or buy:
- Initial cash outlay
- Recurring costs
- Capital appreciation
1. Initial cash down payment
How much in savings do you have? If you’ll likely have none left after you fork out the down payment, it’s probably best to rent first.
Renting allows you to improve your financial situation before you commit to buying. It’s advisable to save up at least six months’ worth of home loan repayments before purchasing your first home.
Example Scenario 1:
Tommy is single and plans to live on his own. He chooses a $700,000 studio apartment in a condominium outside of town. In that case, he can expect to pay a downpayment of at least 25% of the home price, with at least 5% ($35,000) paid in cash and the remaining 20% ($140,000) paid with a mix of cash and CPF OA funds.
Tommy’s $525,000 bank loan has a 30-year tenure and an interest rate of about 2%. He’ll need to make over $1,500 in mortgage payments every month. On top of that, he still needs to pay legal fees, home insurance premiums, renovation and furnishing costs, maintenance fees, and property taxes.
Tommy can also choose to purchase a 2-room HDB flat averaging about $280,000 under the Singles scheme, but he needs to earn less than $7,000 to qualify for grants and HDB loans among other requirements. If he doesn’t qualify, he needs to make a downpayment of at least 25% of the price with at least 5% in cash.
If Tommy decides to rent instead, a similarly-sized compact condo unit outside the city area would cost him about $1,935 a month, not including the security deposit. An HDB flat would cost around $1,304 a month.
Example Scenario 2:
Adam and his wife are working adults with two young kids. A 4-room HDB flat outside of town would set him back about $500,000. If Adam takes on the HDB loan, he can expect to pay 10% of the purchase price ($50,000) as a downpayment along with about $ 1,525/month in loan repayments. Unlike with rentals, these loan repayments can be taken from his CPF.
If Adam and his wife choose to buy a condo instead, they’re looking at a home worth at least a cool $2,000,000. Adam will be paying about $500,000 (25%) as a downpayment, of which $100,000 (5%) has to be in cash. The couple will have to fork out at least $5,544 in mortgage repayments every month.
Instead, renting a 4-room HDB flat would cost Adam about $1,909 a month, not including the security deposit.
In comparison, 3-bedroom condos outside the city average $3,899 per month, with a likely initial cost of $7,348. As with all rental expenses, these must be paid in cash.
Like Adam, if you’re married or looking to start a family, you probably want to buy a home to call your own. Staying put in one place for the long-term is also less disruptive for your children.
The most significant advantage of buying over renting is that your monthly mortgage payments will build equity. In other words, your home will become an asset that can appreciate in value. In contrast, you’ll get no return on investment when choosing to rent.
2. Recurring costs
Condos come with maintenance fees of between $200 to $600 a month, depending on the development. HDBs also have something similar called conservancy charges, with rates generally between $20 to $90 per month for Singaporean citizens.
Tenants don’t have to pay maintenance fees like these.
If you’re renting a whole unit, you’ll need to factor utility bills into your rental costs. You should also consider how to split the bill if you’re sharing with other tenants.
Though uncommon, landlords may agree to absorb utility bills or cover a certain amount because it’s tax-deductible for them.
Repairs and furnishing
A fridge breaks down. An air-conditioner needs replacing. These are big expenses that landlords or homeowners typically bear, but tenants don’t have to worry about as much. (Just note that on rare occasions as a tenant, you may encounter a miserly landlord who wants to scrape by with the bare minimum in repairs!)
3. Capital appreciation
In Singapore, property prices tend to keep pace with inflation (and may even grow faster). This is why property has been the perennially popular choice for those with a lot of capital to spare.
Buying vs Renting: The Verdict
Unfortunately, there really isn’t a one-size-fits-all solution to the buy or rent question. You’ll have to consider the pros and cons of each choice and how they fit into your financial situation.
Buying a home can be a great investment, but you’ll need to have enough capital to cover the upfront and recurring costs of owning a home. You’ll also need to stick with it for the long term to see any meaningful capital gains.
Who should consider buying?
- Families (and families-to-be): If you’re looking to get married and start a family, you probably want to buy a stable home to call your own.
- The CPF-rich: If you have enough CPF monies and you’ve done your calculations, buying an HDB flat with government grants costs practically nothing because there’s no cash outlay on your end.
- Future upgrader: Buying a home can be a valuable asset. You could even consider getting an executive condominium since it’s eligible for government subsidies yet can become a private property asset in the future.
Who should consider renting?
- Singles: If you’re single with a well-paid job and want to live on your own, renting could be for you.
- Short-term needs: You might need a temporary place to stay while your own home undergoes renovations (or is still under construction).
- Couples who aren’t ready to settle down: Perhaps you want to experience living with your partner before committing to buy a house.
- Overseas work commitments: You may be in Singapore temporarily as an expat. Or you could be a Singaporean who’s considering migrating and doesn’t want to be tied down with a costly asset.