INVEST IN SINGAPORE PROPERTY OR RENT ONE

INVEST IN SINGAPORE PROPERTY OR RENT ONE

There are many factors to consider whether to buy or rent a house. If you are a foreigner, you may be tempted to buy a house.
For own stay, you need to first like the place then you are buying. You need to be emotional and you need the house to “talk to you”, you need to feel good about the place. If you are buying for investment, you need to be as unemotional as possible. It’s all about safety, yield and capital appreciation.

Everyone needs a roof over their heads. Hence a residential home is first and foremost a consumption.

By Property Buyer Mortgage Brokers

When you rent a house

When you rent a house, you pay rent, rental stamping fee and some routine maintenance.

When you buy a house

When you buy a house, you pay interest costs for the housing loan, property tax, maintenance and repairs and many other associated costs.

Should you buy a house or Rent a house?

Let us examine the cost of renting a house versus that of owning a house.


There are of course price considerations. Timing is quite important as well as negotiation skills. Most people are disadvantaged when they deal with property agents alone.

RENTING COST



As the cost of renting a house will also change over time, we have factored in a +/- 30% renting cost so that you can compare the relative cost and hence savings.


WILL YOU SAVE MONEY THROUGH BUYING A HOUSE?

Assume you will now buy a house at Park Infinia at Wee Nam say at $1666 per square feet. How much will you save?



We worked out a few interest rates scenario and it’s various yearly housing cost.

We also worked out the rental costs over a 3 years period on both high, low and current scenario.

Rental Cost over 3 years (Ignoring time-value of money)

If you have a 3 to 5 years horizon, let’s say you sit out of the market for 3 years, this will be your cost over 3 years.

Current: 3 x $67,142 = $201,426
+30% : 3 x $85,844 = $257,532
-30%: 3 x $48,439 = $145,317

Cost of Buying a House over 3 years

If you are buying a house, let’s assume a 3 year horizon. Based on repayment, the amount will be almost the same as renting a place.
The cost over 3 years using various interest rates: -
Based on 1.5%: 3 x $31,278 = $ 93,834
Based on 2.5%: 3 x $44,622 = $134,064
Based on 3.5%: 3 x $57,966 = $173,898

Savings From buying a house versus renting (3 year horizon)

Rental cost Current price: 3 x $67,142 = $201,426
Housing loan cost
Based on 1.5%: 3 x $31,278 = $ 93,834
Based on 2.5%: 3 x $44,622 = $134,064
Based on 3.5%: 3 x $57,966 = $173,898

Savings from buying a place ranges from $27,528 to $107,592.
Based on 1.5%: $201,426 - $93,834 = $107,592
Based on 2.5%: $201,426 - $134,064 = $ 67,362
Based on 3.5%: $201,426 - $173,898 = $ 27,528

So it would seem that there will definitely be savings from buying a house compared to renting. Is that really the case?

If all property prices stayed stagnant, that would definitely be the case. However, prices of properties tend to fluctuate.

As you can see from the above chart that, if you buy at a wrong time, the difference can be easily a $321 psf difference within a 1 year period.

In other words, a 1001 sq feet condo would cost you $321,321 more.

Your savings ranging from $27,528 to $107,592 would be wiped out by getting in at a wrong price by overpaying $321,321.

Therefore, when property agents tell you it's cheaper to buy a house than renting, it's only half the story.
The other half of the story is still about buying at the right price, obviously this half, they don't want you to know.

Please note:
Calculations ignore time-value of money as well as the opportunity cost of sum of money repaid through principle repayment.

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