The home ownership rate in Singapore stands at 90.7% as of 2017, making it one of the highest in the world. However, with the large number of Permanent Residents and foreign workers living in the city (about 64% of the population as of 2017), as well as strict controls on who can buy HDB properties, the question of whether to buy or rent is increasingly salient.

Buying vs renting: financial costs

The choice between buying and renting depends on your financial situation and other life circumstances. But first, let’s compare the financial costs of each:

The cost of buying (in the first 5 years)

Let’s say you’re buying your first property in Singapore – it’s a small, 517-square-feet private condo located at Bukit Merah, valued at S$767,000. You take a 30-year loan at an interest rate of 2.5%. Here’s how much you may have to pay in upfront costs:

Here’s the estimated annual cost you may have to pay for the first 5 years, assuming an annual 2.5% increase on property tax and maintenance cost to account for inflation:

The cost of renting (in the first 5 years)

 Here is the estimated cost of renting the same property (based on median rental price data from URA SPACE), with an annual rental increase of 2.5% to account for inflation:

The total cost of renting over 5 years (S$166,962) is cheaper than the recurring cost of buying over 5 years (S$169,171), but not by much.

The cost of buying vs renting (over 35 years)

Over time, the recurring cost of buying will become cheaper than the cost of renting:

A few observations from the chart above:

• The cost of renting is cheaper than the recurring cost of buying in the first few years.
• In the 4^th year, buying starts to become cheaper than renting.
• In the 31^st year (after the mortgage loan has been paid off), buying becomes S$76,336 cheaper than renting.

Looking at the costs of buying versus renting, it would be more cost-efficient to rent if you’re only planning to stay in the property for a few years. However, if you’re planning to settle down for the long-term, you should consider buying instead – assuming that you have enough capital to cover the upfront and recurring costs.

Buying vs renting: factors to consider

The cost of buying or renting is just one aspect to consider. You should also weigh up these factors when deciding to buy or rent:

1. Capital gain

The biggest advantage of buying over renting is that your monthly mortgage payments will go towards building equity – your home will become an asset that can appreciate in value. While residential property prices (both HDB flats and private properties) in Singapore have been in a slump for the past few years, the property market has picked up at the start of the year and is expected to continue to rise. Morgan Stanley expects home prices to double by 2030, implying a 5% or 6% increase per annum.

In contrast, you’ll get no return on investment when choosing to rent. In fact, by paying rent, you’ll be helping your landlord service their mortgage loan.

2. Mobility

Renting a property lets you test the waters without having to commit to something as large as a mortgage loan. If you’re new to the area, or if you’re an expat moving to Singapore, then you should consider renting if you’re unsure of whether or how long you might stay there. In Singapore, the minimum rental period is 3 months for private properties and 6 months for HDB flats, so you can move out relatively quickly if you find that the area isn’t a good fit.

In contrast, moving out of an owned property means having to find a tenant or selling the property (unless, of course, you have deep pockets). If you choose to sell your property, the selling price would have to cover the upfront costs you’ve forked out (such as the stamp duty, legal fees and valuation fees), as well as costs associated with selling (such as the seller’s stamp duty and legal fees) – otherwise, you would be selling your property at a loss.

3. Housing subsidies

If you are a Singapore citizen, you may be eligible for certain housing subsidies when buying resale flats:

* Grant amount depends on flat type and household/individual income

If you meet the eligibility requirements for these grants, a significant amount of the cost of purchasing a property may be subsidised. On the other hand, you won’t receive any subsidies for choosing to rent.

4. Home decoration/renovation

If you rent a property, you’ll have limited choices when it comes to decorating your property, and almost no freedom in making structural changes. You might not, for example, be able to hang frames that require the use of nails, install shelves, paint the walls or refloor ghastly kitchen tiles. If home decoration or renovation is important to you (and if can’t be bothered to find creative workarounds to bypass rental limitations), then you should consider buying a property instead.

5. Maintenance

Leaky ceilings, faulty electrical wiring and spalling concrete – these are just some of the maintenance concerns you might have to deal with as a homeowner. You could, of course, engage in external home repair services, but it’ll still be a hassle to deal with. However, if you’re renting, major repair works will be handled by your landlord.

Buying vs renting: verdict

There isn’t a one-size-fits-all answer to the buy or rent conundrum – you’ll have to consider the advantages and disadvantages of each, and how they fit into your financial situation and other circumstances.

A home purchase can be a great investment, but you’ll need to have enough capital to cover the upfront and recurring costs owning a home. You may also need to stick with it for the long term to see any meaningful capital gain.

To ease the decision-making process, we’ve summarised what you’ll need to take into account below:

A version of this article first appeared on iMoney.SG.

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