Buy property or rent? The decision could rest of a myriad of factors

Buy property or rent? This is a question on the minds all potential first time home buyers

So many people come to ask us, is now the right time to buy property?

The question we always ask is, “Are you buying to invest or to stay in?”

If you are buying to invest, then you need to study the cash flow, rental, vacancy rate, Masterplan, future development and so on. And of course, you also want it to be in an area that appreciates over time.

If you are buying to stay, then you should instead not ask us if this is the right time to buy a property.

The answer is, “Anytime is a good time to buy property, it depends on what price.” and also answer the questions below truthfully, you will know if now is the best time to buy or not.

Questions you should ask yourself if you are buying a property in Singapore to stay in: –

• Can I afford the property?
• Can I raise the down-payment amount?
• Is my CPF sufficient to cushion the monthly installment?
• Am I renting or staying with parents?
• Am I moving house to stay near my work place?
• Am I moving house to stay near my parents?
• Am I moving house to stay near my child’s school?
• Is this a convenient place for the whole family?
• Can I wait to buy a property?
• Is my job and income stable? Should I buy a smaller one instead of a bigger one?
• Will my wife/girl friend husband/boy friend leave me if we do not have a place?
• Do we need a place to start a family?
• Are the kids outgrowing their space?
• How much is it costing me to rent a place now?
• How much rental can I save if I buy my own place?
• Am I staying with the parents or in-laws? If yes, is it bearable? (If staying with your parents or your in-laws is painful, how much rental are you willing to “pay” to move out?
• When do I need to move in order to qualify for 1km for the schools admission?

Stop being greedy and do stop asking, “Is this the right time to buy?” or “When would be the lowest price?” or “Will this area appreciate in value?”.

Answer the above questions truthfully and you will have an answer.

If you are satisfied with your own answer, all you need to do is to buy a place that you like at a valuation that is reasonable. Just check with a mortgage broker who can help you assess the property valuation with a bank.

I am currently Renting? Should I Buy a house?

If you are currently renting a place for $2500 a month. When you buy a place, you will pay installment instead of rental. So the more you should not worry.

The biggest challenge with buying an investment property in Singapore is finding tenants.

Challenge of finding a tenant

Let us assume a vacancy rate close to 8% for a particular area. Let’s just say that, that area has 100,000 units. 8% means 8,000 units vacant.

If that area that has 100,000 units of housing and only 30,000 units are bought by investors for renting out and the 70,000 are for own stay. Then those who bought for own stay will be close to 100% occupied. Whereas those who are buying for investment, in this case, 30,000 units will be for rental.

• Vacancy rate for investors will be 8,000/ 30,000 = 26.67% vacancy

If you are renting out this place at $2,500 a month, at an average of 26.67% vacancy, you will expect this place to be vacant 3 months out of every 12 months. In short, your evened out rental is more like 73.33% x $2,500 or $1,833.25 a month. And sometimes tenant expect landlords to pay the MCST maintenance fees. So buying a Singapore property to invest is a different ball game compared to buying to stay.

You can read more about this vacancy rate for investor phenomenon.

What If you buy property for own stay?

In this case, you can consider yourself the “landlord” where you are the guaranteed tenant. You will definitely pay rent on time. Not only that, your vacancy rate will be effectively ZERO. You will fully occupy the unit.

• Vacancy rate for own stay will be = 0% vacancy.

If you have to spend on rental anyway, and you buy your own Singapore dream property, then you are your own Guaranteed tenant.

Assuming Property Price at $937,500

• $   750,000 at 1.5% (30 years tenure)  =          $ 2,588.4 Installment (pm)
• Down-payment                                     =          $46,875 (5% cash)
• CPF for down-payment                        =          $140,625
• Stamp Duty                                           =          $ 22,725

Instead of paying $2,500 in rental, you are now paying $2,588.40 in installment.

But out of the $2,588.40 per month of installment, it is made up of;

• $937.50 Interest cost and;
• $1,650.90 of principle repayment (month one).

So you can consider $1,650.90 as forced Savings while $937.50 as rental.

Where can you get such cheap rental at $937.50 for a housing unit?

However you do need to consider the CPF Interest Rate forgone 2.5% to 4% interest from CPF from $140,625.

• $140,625 @ 2.5% = $3,515.63 per year or $292.97 per month.

Once you determine your affordability, all you need to do is to negotiate to buy a good property.

I am currently staying with my Parents? Should I buy my own place?

If you are currently not renting a place, that means your cost is much lower. You could be staying at your parent’s or in-law’s place. Though you are generally required to help with the bills, but I suspect those will be very cheap.

Then the question is, “Do you need to incur this expense to buy a house?”

If you are currently staying with your parents or in-laws, is $937.50 a month in rental and a forced savings of $1,650.90 per month acceptable to you?

If you have answered the questions above honestly, you will know whether this is an expense worth spending or not.

When is the best time to buy property for own stay?

It is surely not a question about residential property investment such as “How high a rent can I get” or “Where is the future MRT” or Where is the future Shopping Centre going to be” or “Where is the next international school located”, etc.

It is a place where you call your own, without over-stretching your finances, and are able to pay for the down-payment, etc.

Find out if you can afford to buy a property in Singapore from a mortgage broker as they have all the necessary tools and home loan reports to assist you. Moreover they also work with a lot of property agents who can assist you to zoom in on your price range, budget and choice of properties.