I was recently listening to a podcast episode about buying or renting private property in Singapore on The Business Times Podcast Channel. The podcast was done in reference with an article written by senior correspondent Leslie Yee with the inputs of several property analysts. You may find the article here.
This topic has always been of interest to me as I'm pondering over the same question on whether I should be buying or renting a private property if I were to sell my property next year. To set the context, the discussion here is limited to private property and not HDB. If you are getting a BTO, it's almost a no brainer that this will likely be a better financial choice as you are almost guaranteed to have a capital gain after you fulfil your Minimum Occupancy Period- unless you have super ambitious plans to grow your wealth and you can't for the 5 years of MOP plus maybe another 3 years to wait for its completion. I have more to share on this but that's for another day.
So, back to the topic of buying or renting private property. The article written by Leslie Yee showcased the simulations that he does for both buying a $2 million condominium unit with mortgage loan and renting a similar one for an initial rent of $3500 a month. If you are interested in the details of the simulation, you may also check out this article by Keith from Investment Moats.
At the end of the simulations, it's found that buying and renting yield similar financial outcomes and hence it's worthy to also consider renting when it comes to private property. Now, you might be thinking- what's the trick to it? How could you be getting the same financial outcomes when you are spending cold hard cash every month to rent a place?
The main reason behind it is on the huge downpayment you put forth in buying a private property at the beginning and the large amount of taxes you actually pay for stamp duties, agents commissions etc. In the renting scenario, you will not need to put down a huge downpayment and could instead put it into REITS which yield a much higher annual return of 7.5% (assumed). In comparison to the 2.2% growth (assumed) of a purchased property, the 7.5% from REITS investment will put you in a much better situation than the 2.2% growth of your property. Not to forget, you need not pay for the big taxes like stamp duties and that sum of money that you are supposed to pay for these taxes can in turn be used to buy the REITS. When compounded over a long duration like 20-30 years, the decision to rent might put you in a very favourable financial position.
Of course, the counter argument for most of us has always been the fact that you cannot use CPF funds to rent and this will definitely have an impact on your cash flow if you were to be renting regularly. To be honest, this has also been the main reason why I'm still hesitant to rent a property. Then again, we have to always remind ourselves that we are losing out on the risk-free annual growth of 2.5% when we utilise our CPF funds. By not touching your CPF funds in your renting journey, you are allowing your CPF funds to grow considerably. If you are young in your 20s or 30s, the long runway to compound your CPF funds will put you in a very nice situation when you retire. But time is a double edged sword- which means you won't be able to touch your CPF funds for a long period of time.
Now, it seems like there are pros and cons to either approach and they seem to be on both extreme ends. Is there a way to marry both and adopt a more balanced approach? I personally think that might be possible via a third way- that is to still buy a private property but refinance your mortgage loan every few years and use the fresh funds to invest in REITS or other financial instruments of higher yields. If your private property is appreciating well, there should be a considerable amount of funds you can loan whenever you max out your Loan to Value (LTV) in your mortgage refinancing. In this way, you do still get the best of both worlds in some sense. This is definitely not without any risks but I do consider this as a rather viable way to own a home yet still possibly achieve returns better than what the traditional way yields.
If you are looking to refinance your loan, do check out my article here on my experience with PropertyGuru Finance.
Great News! I have now published the latest version of Singapore Private Condominium Interactive Map for free! Just click on the button (circled in red) the you are on the main page and you will be brought to the map! Otherwise, you can also click here.
Please take note that it’s best viewed in desktop.
If you are looking to purchase a private property, you could easily used this to look for one that suits your budget. You could even filter it based on district and tenure you are looking at. Check it out!
I also do share some useful content or articles I have read in my Telegram channel. Do join the channel if you are interested.