Renting a house was never a option to most Singaporeans. But with the property price falling for nearly 3 years and some signs of recovery, you may start to ask yourself if it is wise to buy or rent a house.
80% Singaporeans already own a house, but there are reasons you got to move.
- Maybe your child is going to primary school next year and you need to move nearer to the school
- Maybe you just change job and you don’t want to spend 2 hours a day for travelling to work
- Maybe you want to upgrade your HDB to a condominium and you need to make arrangement for the transition period.
- Maybe you just want to stay nearer to your parents
No matter what the reason is, you only have two choices: buy or rent. Each option offers a different set of benefits and challenges and you got to figure out which is the right one for you.
I have spent a lot of time studying
And I have found a lot of differences which I would like to share.
In this article, I will particularly talk about 5 questions which you must ask yourself, before you decide to buy or rent a condominium for own stay. Let’s move on to the first question…
#1 Will buying a house kill your savings?
You may or may not believe that a house for own stay, especially with mortgage, is a liability. This is because an asset is supposed to generate positive cash flow, where a owner staying house does not.
In Singapore, private property is severely overpriced comparing to average income. Buying a house will not only wipe out your years of CPF and Cash savings, it will also create a long term cash commitment. When I was considering to buy a house, I did a simple worksheet below. This has not even considered any Buyer Stamp Duty (BSD) because I do not have any property. But the figure speaks by itself.
You can see clearly that the cost of taking over a property in Singapore is not only the 20% mortgage down payment, but a lot more.
Buying a house is a fantasy for everybody, but the question you should ask yourself is that if you have enough cash reserve and future cash flow to afford this financial responsibility.
#2 Are you comfortable with the ongoing commitment?
The cost of buying a house does not stop at paying off the loan. Given the contractors’ workmanship today, very soon your house will start to fall apart. The ongoing expenses will just keep coming
- Repair costs on paint, wall crack and water leak
- Replace old furniture with new one
- Maintenance fees
- Property taxes
When you are a private property owner, you are essentially on your own. You can no longer dump your bulky item below your HDB, but to pay someone to dispose them.
If you think you are ready to commit to all that, then buying a house is fine. But if you
- Barely make ends meet
- Don’t want the hassle of taking care of a home
- Appreciate the fact that all of the upkeep is handled by your landlord
Then renting is a solid solution.
Bear in mind for most rental contracts, you merely have to pay $200 minor repair cost. The rest are all born by the landlord.
#3 What kind of living arrangement works for you?
It is not all bad for owning a house. The most beautiful part is that you have complete control over your living space. From your interiors design to furniture, everything is your choice. You can even knock down some walls to have a total face lift of the house.
If that is the case, buying property suits your needs and purposes better.
However, if all you want is a place to stay in to be close and convenient to your work place or your children’s school, renting is an excellent solution too.
In case you are not aware, nowadays filtering down property in your ideal location is so easy at PropertyGuru. Even if you are going to live in Malaysia, you got real estate website such as PropertyGuru Malaysia too.
#4 Are you new to the area?
Sometimes you have to buy a house in a completely new estate than where you were living. if you know little about the neighborhood, it’s probably better to rent first.
For example, I don’t like the first estate where I rented. It was a small and critical community which I struggled to fit in. Luckily I could pack and leave anytime.
So before you make a costly mistake, make sure your house is really located where you like. You can always rent first to experience living there. I have heard many tenant-turn-home-owner stories during my hunting for property, some estates are just excellent for living where some are totally not.
Compare it to the cost of buying a home, renting a house is at such a low cost and it’s a great way to get your feet wet.
#5 Do you have other financial goals?
Do you have some aspirations in your life? Do you have a personal mission statement? I bet you do.
- Maybe you want to travel around the world
- Maybe you want to stop working for a while and spend time with your children
- Maybe you want to pursue some personal passion
- Maybe you just want to retire earlier
Buying a house could create such a liability in your life that you have to postpone all your plans. No matter what potential return this piece of land can generate for you in the future, you have to ask yourself if it is worth it.
Would you want to exchange your house with a nine-seater station wagon? Some Singaporeans have already taken the leap.
If you don’t want to put your dreams on hold just because you have to pay off the outstanding loan, then renting should be your next move.
Take your time to consider these factors closely
Study shows that on average, women spend one month worth of hours to prepare their wedding gowns, guys spend one week worth of hours to choose a car.
But in Singapore, many people spend less than a day to decide which house they will to buy.
If you are planning to put down roots, you must think carefully about your financial liabilities, your desired lifestyle and your goals in your life.
And if you really want to buy a house, it is best to start saving up and taking steps to ensure your financial capability is at its best. Having strong finances is the first requirement in any home ownership, because the price of your house will very likely determine your spending budget for the next ten years.
What if you are unsure
It may be the first time you start thinking about this seriously, and you are not sure if you are going to make the right financial decision.
I have a solution for you. As an independent financial planner, I help property buyers work out all the financial aspects of purchasing a property. That includes
- Home affordability analysis
- Cash flow analysis
- Total debt servicing Ratio (TDSR) or mortgage servicing ratio (MSR) analysis
And if you like this article, don’t forget to share it or leave your comment below.
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