Advantages of buying versus renting

Pros:

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  • Security – Owning a property to stay in provides protection, stability and assurance as it’s not subject to rental fluctuations and lease terms set by the Landlords.
  • Investment – Property in Singapore will appreciate over time due to limited land usage. Property can also be used to hedge high inflation where cost of living goes up with real income.
  • Forced Savings – Repayments of mortgage loans are a type of forced savings strategy. It helps to instill proper money management and discipline through forced savings.
  • Investment returns – Renovating a rented place is a sunk cost as the property will be returned to the Landlord when the lease ends. However, owning a property and renovating it would increase the value of the property and thus increases the investment returns.
  • Succession Planning – Owning a property(Freehold) can be passed on to future generations as compared to renting a place and returning the property to the Landlord when the lease ends.

Cons:

  • Deposit / Downpayment – It takes time to accumulate deposit/downpayment to purchase a property thus it can take years of prudent spending and changing of lifestyle to save up on the deposit.
  • High Costs – Owning a property can be more expensive than renting because of high maintenance fees, repairs of the property, house insurance and property tax etc. If the mortgage loan amount is high, the monthly repayment might be more than half of the income which might pose a huge financial strain on the owner.
  • Price Depreciation –  Property market moves in cycles. Any investment will carry a certain amount of risks. Thus, if  there is a downturn in the market, the property value will depreciate. If the owner is unable to service the mortgage loan, the banks will foreclose the property and the owner might have to incur heavy losses from the event.
  • Interest rates risk – Mortgage repayment is subject to the interest rates risk. Repayments of the loan increases if the bank interest rates increase. However, as compare to renting a property, the renter can choose another property to stay should the owner increase the rental amount due to an increase in the repayment loan amount.