Should I buy or rent?

[vip]

http://propertysoul.com/2015/11/24/s...i-buy-or-rent/

Should I buy or rent?

November 24, 2015

A friend recently moved from one rented home to another. The family of four is still staying in a condominium in the east side of Singapore, but this time a better one – it is newer, bigger, and asking for lower rent too.

According to the latest SRX Rental Market Flash Report, rents for non-landed private rentals in October 2015 has fallen 5.7 percent from a year ago. Overall, rents are down 13.7 percent compared to its peak in January 2013.


How to consider buying or renting?

It is a never-ending debate whether one should buy or rent. It is very much an individual choice.

As I have mentioned in my book No B.S. Guide to Property Investment, the rent or buy decision is often influenced by four factors: age, lifestyle, finances and the property cycle.



Where is the buy-rent breakeven point?

If you are a foreigner in Singapore, your rent or buy decision can be based on a comparison on the total costs of the two options.

The buying option involves fixed and variable costs. The fixed costs of buying a home include initial downpayment, buyer stamp duties, legal fee, renovation, etc. Variable costs are housing mortgage, management fee, property tax, etc.

On the other hand, renting a place implies only the monthly rental.

In Zillow Talk: The Rules of Real Estate, the authors Spencer Rascoff and Stan Humphries introduced a concept called the “buy-rent breakeven horizon” – the number of years it would take to make buying economically preferable to renting the same home.

The breakeven point will depend on where you choose to stay and how long you are planning to stay there.

Let’s look at a real-life scenario. You are renting a 958 sq ft 2-bedroom unit at Amaryllis Ville at $4,200 per month. The market price of the unit is now $1,470,000. This is your first purchase and you can borrow 80 percent (or $1,176,000) from the bank.

Assuming that both management fee and rent increase at an annual rate of 1.8 percent (the average inflation rate in Singapore for the last 25 years). Interest rates and property taxes fluctuate depending on the market situation. So let’s use the current ones for the ease of calculations.



As you can see from the table, even if we are comparing only the total variable costs with the total rent, the buy-rent breakeven horizon falls between the 23rd and 24th year. In other words, it will take 24 years to make buying more economical compared with renting the same place.

Even after 30 years, the total fixed and variable costs of owning the 2-bedroom unit ($2.3 million for a Singaporean) is still higher than renting it for 30 years ($1.98 million).

Of course, compared with renting, you own the place after you pay back the bank. But there is also opportunity cost of the huge initial investment you put in to buy your home. Not to mention paying $482,067 in total interest to the bank over 30 years.

Property prices and rents can go up and down over the years. Perhaps the question should be when you can buy and when you should rent. Afterall, the key to win the property game is to buy at the right time with the right price.


Why home purchase can’t be a rational decision?

For things that appeal to you emotionally, say, relationship or marriage, you don’t go for cost-benefit or breakeven analyses. You listen to your heart and make decisions based on what feels right. The same applies to buying a home.

It is the Asian culture to associate getting married with settling down and buying your own place. You need the abstract feeling of home or some call it the sense of belonging. Nothing beats coming back to the same place that is renovated to your own taste. One day when you retire, you can go back to a place that is fully paid for.

Singapore is a property-obsessed nation. The Singapore dream is to upgrade and stay in a condominium. As Rascoff and Humphries pointed out in the book,

“The upshot is that our homes are now much more than the places where we lay our heads at night. And they aren’t just where the heart is anymore, either. Homes are the object of our heart’s desire.”

You may be very sure that you won’t be wasting money to rent no matter what. But wait. There is one last thing that Rascoff and Humphries highlighted in their book that might change your mind: A US survey showed that tenants have higher weekly sexual activity compared with owners across all age groups until they reach the age of 60. No?

[Citizen]

Cars only 10 years life span and already more people buy then lease not to mention house. In Singapore 90% ownership, it is irrelevant to discuss this subject. Really has nothing to write. Sighs

[Kelonguni]

It's a good effort and in some cases might make sense.

I have a few questions though.

1. Why must buy condo based on these calculations? If switch the calculations to hdb for sure buy better than rent.

2. Why choose 1.47mil instead of 1 to 1.2mil which might still meet the needs of the potential renters / buyers?

3. Why not calculate up to 40 or 45 years (based on life expectancy of 80+ years)?

4. What about the potential increase in home prices and equity due to inflation? Or we expect the pricing situation to be identical as today 20+ years down the road?

5. Can pay rent with CPF? If pay rent with cash is it better to keep lots of CPF when retire?

[Arcachon]

I know little about property investment, what I know is Billion of Singapore Dollars is spent on infrastructure in Singapore.

After spending Billion of Singapore Dollar and the property price still remain the same, I wonder how long can it last.

In 2006, Billion was spent on the MRT and the price of the property did not move much since AFC in 1997.

I ask myself the same question, how long can it last.

2006, 2 Bedroom at Southbank cost SGD 535,000. Now it is cheaper to buy a 2 Bedroom at Southbank and wonder how many did buy.

Money in the Bank can only depreciate because inflation needs to keep at 2%.

[Kelonguni]

But bro Arcachon, money in CPF is 2.6%.

And the loan interest should trend towards 2% or more in the long run, negating the effects of the gain via inflation.

Solely referring to inflation is insufficient justification.

But I can say for sure, renting is not in my consideration.

I know little about property investment, what I know is Billion of Singapore Dollars is spent on infrastructure in Singapore.

After spending Billion of Singapore Dollar and the property price still remain the same, I wonder how long can it last.

In 2006, Billion was spent on the MRT and the price of the property did not move much since AFC in 1997.

I ask myself the same question, how long can it last.

2006, 2 Bedroom at Southbank cost SGD 535,000. Now it is cheaper to buy a 2 Bedroom at Southbank and wonder how many did buy.

Money in the Bank can only depreciate because inflation needs to keep at 2%.

[Arcachon]

But bro Arcachon, money in CPF is 2.6%.

And the loan interest should trend towards 2% or more in the long run, negating the effects of the gain via inflation.

Solely referring to inflation is insufficient justification.

But I can say for sure, renting is not in my consideration.

Solely referring to inflation is insufficient justification. - Official Inflation was never accurate and alway under-declare.

[DC33_2008]

Good news! Just received property tax. So far most of them have NAV drop by 10%.

[Citizen]

After seeing some of the new launches. The writer should change the title to should I buy 2nd unit or 2 units at 1 go or at least write something on the new title. Therefore I said the writer miscues and have nothing better to write.

[azeoprop]

After seeing some of the new launches. The writer should change the title to should I buy 2nd unit or 2 units at 1 go or at least write something on the new title. Therefore I said the writer miscues and have nothing better to write.

Just wondering is it worth to pay ABSD to buy a new unit at today's current prices? Or kiv till this cooling measure is removed?

[Arcachon]

A Few of my friend pay, it depends on your age, future income, commitment etc.

If Bank can loan me money I will still buy.

[Amber Woods]

Just wondering is it worth to pay ABSD to buy a new unit at today's current prices? Or kiv till this cooling measure is removed?

This soft landing is going to take quite a few years unless the government does more for prices to decline faster. I doubt the government will do that since a soft landing will allow people more time to buy and sell with prices moderating over an extended period of time.

The million dollar question is when is the time to unwind some of the cooling measures? If crisis hits and prices plunge, some of the measures such as ABSD will definitely be removed. If economy slows as it is the case now, measures are not likely to be removed because Singapore has too many rich people and any removal now or in the near term will send the wrong signal to the market and all the efforts to tame property prices the last few years will be wasted. Base on the same thinking, prices should come down close to 2009/2010 level before any measures will be removed. However, any removal must not cause prices to jump again like the case between 2009 to 2012. Hence, any removal of cooling measures will be measured as the market finds its footing.

[Amber Woods]

This soft landing is going to take quite a few years unless the government does more for prices to decline faster. I doubt the government will do that since a soft landing will allow people more time to buy and sell with prices moderating over an extended period of time.

The million dollar question is when is the time to unwind some of the cooling measures? If crisis hits and prices plunge, some of the measures such as ABSD will definitely be removed. If economy slows as it is the case now, measures are not likely to be removed because Singapore has too many rich people and any removal now or in the near term will send the wrong signal to the market and all the efforts to tame property prices the last few years will be wasted. Base on the same thinking, prices should come down close to 2009/2010 level before any measures will be removed. However, any removal must not cause prices to jump again like the case between 2009 to 2012. Hence, any removal of cooling measures will be measured as the market finds its footing.

If the Singapore government had not introduced a series of cooling measures to control the growth of private home prices following the 2008 Global Financial Crisis, such properties would have been more expensive than the current norm by up to a third, revealed a study conducted by the Monetary Authority of Singapore (MAS), and reported by TODAYonline.

Similarly, the number of private housing deals and the volume of mortgages in the city-state would have risen by a similar level, added the MAS.

The central bank also discovered that tax measures, like the Seller’s Stamp Duty (SSD) and the Additional Buyer’s Stamp Duty (ABSD), had a more significant effect on prices and transaction levels as compared to land supply policies and lending curbs like the loan-to-value (LTV) ceiling and Total Debt Servicing Ratio (TDSR) framework.

“The SSD reduced sub-sales significantly, whereas the ABSD raised the hurdle rate of return for property investors.”

This has led to an exodus of foreign property buyers. In Q4 2011, the share of private residential purchases by this group peaked at nearly 20 percent, but it plummeted after the ABSD was implemented.

As a result, weaker buying activity has dragged down property prices and mortgage lending, noted the MAS.

Meanwhile, the soft drop in home prices signals that Singapore’s housing market is moving to a more sustainable state over time, said the central bank, signifying that the authorities will likely keep the cooling measures in place.

In Q3 2015, private residential prices declined by eight percent from its peak in the third quarter of 2013.

However, MAS is still on the lookout for signs of renewed activity in the market in light of the continuing high prices in particular areas, such as those in the Outside Central Region, where it is still 30 percent above levels seen before the 2008 global economic downturn.



Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story.

[indomie]

Property price can be expensive but affordable (easy to get loan) or cheap but unaffordable (cooling measures). If you still qualify for long term loan or get tax benefits, you still can consider property as a long term investment.

[teddybear]

On the look out, but do nothing, since that is where they made the most money from???

If the Singapore government had not introduced a series of cooling measures to control the growth of private home prices following the 2008 Global Financial Crisis, such properties would have been more expensive than the current norm by up to a third, revealed a study conducted by the Monetary Authority of Singapore (MAS), and reported by TODAYonline.

Similarly, the number of private housing deals and the volume of mortgages in the city-state would have risen by a similar level, added the MAS.

The central bank also discovered that tax measures, like the Seller’s Stamp Duty (SSD) and the Additional Buyer’s Stamp Duty (ABSD), had a more significant effect on prices and transaction levels as compared to land supply policies and lending curbs like the loan-to-value (LTV) ceiling and Total Debt Servicing Ratio (TDSR) framework.

“The SSD reduced sub-sales significantly, whereas the ABSD raised the hurdle rate of return for property investors.”

This has led to an exodus of foreign property buyers. In Q4 2011, the share of private residential purchases by this group peaked at nearly 20 percent, but it plummeted after the ABSD was implemented.

As a result, weaker buying activity has dragged down property prices and mortgage lending, noted the MAS.

Meanwhile, the soft drop in home prices signals that Singapore’s housing market is moving to a more sustainable state over time, said the central bank, signifying that the authorities will likely keep the cooling measures in place.

In Q3 2015, private residential prices declined by eight percent from its peak in the third quarter of 2013.

However, MAS is still on the lookout for signs of renewed activity in the market in light of the continuing high prices in particular areas, such as those in the Outside Central Region, where it is still 30 percent above levels seen before the 2008 global economic downturn.



Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story.

[Arcachon]

http://www.businesstimes.com.sg/real...sir-snapped-up

Nearly 75% of Poiz Residences units in Potong Pasir snapped up

[Citizen]

On the look out, but do nothing, since that is where they made the most money from???

Buyers want low low low , sellers want high high high. 鹬蚌相争，渔翁得利. cm removal have to wait long long long.