Daddy, Should I Buy or Rent a Home?

Here’s what I would advice my kids to buy or rent property in Singapore today

A few of my colleagues have been looking to purchase their 1st property, as this is the biggest purchased in their life, they reached out for my advice on which areas and thoughts. This is an exciting time for them, as they start to build their own nest egg and start their adulthood. Not wanting to impose my views on them, I provided 2 points of view, directing the advice to my kids.

One POV is to Buy & an alternative POV is to Rent instead, read on to see why…

In my reply, I shared that conventional wisdom (our parents) would advocate for every generation to purchase their own home. Owning something that is yours, is very satisfying and has pros like

Why Buy?

Financial Security: Owning your own home can provide immense satisfaction not just in a psychological way but in a financial aspect as well. Property is more often an asset than a liability and is perhaps one of the best assets that you can keep until your golden years. There are no monthly rents to worry about after you’ve paid off your mortgage in your younger days and you can even rent a room out to earn some rental income!

Privacy & Freedom: Most Singaporeans live with their parents until they get married and we all know that the average age for marriage in Singapore is pushing nearer to the 30s. One may not appreciate staying at home with parents who still look upon you like a child – nagging about you coming back late, chiding you for your habits and simply not giving you the privacy you need. Having your own place will free you from the nest! Getting married is a compelling reason to buy a home as well – building a love nest together and sharing the cost of buying between two person will make it more affordable. 

Investment: You do know that Singapore has one of the highest millionaires per capita, but do you know that many of them became rich due to investments in real estate? While the landscape for investing in property has changed much, land scarce Singapore still provides property owners with a huge capital gain potential depending on the time of investment and location of your property.

But with today’s property prices, aging population, slow increments and accelerating globalization, does it make sense to purchase your home? Maybe renting makes more sense.

Why Rent?

Affordability: As much as we all love to have a place to call home, affordability can be an issue here. Home prices in Singapore are ridiculously high and despite prices declining in the past year, analysts expect that property prices will decline another 20-30%. Except if you are getting married and do not mind staying at the far-off end of Singapore(ie Punggol or Sengkang), HDB nearer to town area or resale prices is still around the $600,000 to $900,000 range.

If you are thinking of private homes or condominiums, a major concern will be the downpayment, which is 25% with 5% strictly to be paid in cash. Take for instance you are looking to buy a condominium which costs around $1 million, you will need to pay up $250,000 in downpayment with $50,000 in cash. That’s a lot of money and renting can obviously be a cheaper alternative. 

Renting could be a better deal: Research by property research firm Square Foot Research found that ‘if prices stay flat, or appreciate anything less than 2 percent over the next 4-5 years, renting could prove more cost-effective than buying a property’. Gone are the days where property was seen as a sure-bet as you can still suffer capital losses. If you are a foreigner or owning more than one property, you also need to contend with additional fees such as the exorbitant Additional Buyer’s Stamp Duty(ABSD). 

Flexible Lifestyle: Renting a place requires less commitment to buying one. If you fly often, or are considering moving to another country sometime later your life, renting provides you that flexibility you need without having to be burdened by a mortgage loan. Another advantage to renting is that you may not need to deal with any maintenance costs as the landlord will most likely take care of it. 

Of course, given a choice, most of us would perhaps prefer to own a place to call our own, but the reality is that Singapore’s property prices aren’t anywhere near the cheapest in the world. Would we see the same amount of appreciation for properties our forefathers saw during the 90s, 2000s? I highly doubt it. If we can get 1-2% growth that would already be a win.

Don’t get me wrong, there will be pockets of locations that will appreciate faster and better than others. But overall as an average prices should not appreciate too much given all the cooling measures being in place.

What will I tell my kids to buy or to rent?

Here’s my view, unless prices drop by 15-20% I would advice my kids to stay with me or rent and house hack to minimize cost. Then utilize their CPF to purchase equities like STI etf ES3 which pays a 4-5% dividend and its priced at an affordable price now due to COVID-19 pullback.

If they don’t have enough money in the CPF to invest, I would suggest just keeping the money in CPF as they are guaranteed a 2.5% interest which is great. The only downside with this plan, is we are only using own money and not OPM (other people’s money) as renting doesn’t allow you to leverage, but good thing is house hacking can. 🙂 If its not because of the high property prices in Singapore today and the potential of diverting funds into the stock market, cryptocurrency or exploring overseas property investments. I wouldn’t recommend renting, so this might change once the dynamics changes.

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