To Rent or Own? Addressing Singapore’s soaring rental rates! | NOTG by PropertyLimBrothers | Melvin

Summary

This video script discusses the skyrocketing rental rates and their causes, particularly the impact of the COVID-19 pandemic and work-from-home trends. It explores the rental market in Singapore, comparing rental costs to property ownership and analyzing the benefits and drawbacks of both. The script provides insights into the rental situation's causes, the break-even point for renting versus buying, and the potential future of the rental market, offering valuable considerations for tenants and potential homeowners.

Takeaways

• 📈 Rental rates have significantly increased, with some HDB apartments in Pongo going up to $4,000 per month and condos like Park Esplanade reaching $7,000 for three-bedroom units.
• 🚀 The rental market has seen a 'Quantum Leap' since 2020, with the pandemic and work-from-home trends leading to increased demand for larger living spaces.
• 🏠 Home renovations surged during the pandemic as people were spending more time at home, contributing to the desire for more space and potentially leading to an upgrade in housing size.
• 🔄 Behavioral changes due to the pandemic included an uptick in people moving out of shared living situations, seeking more personal space, which increased demand for smaller apartments.
• 📊 A delay in BTO and new condo property completions has prolonged rental periods for families, contributing to increased rental demand.
• 🏢 The shift to remote work has influenced companies to reconsider office space needs and employee welfare, impacting the residential rental market.
• 💰 Landlords are benefiting from high rental rates, but they also face increased mortgage interest rates over the past year.
• 🔮 The speaker predicts that rental rates should stabilize over the next 12 to 24 months, influenced by the completion of new properties and a rebalancing of supply and demand.
• 🌐 Singapore's high homeownership rate, coupled with a land-scarce environment, suggests that owning property is more advantageous than renting for long-term residents.
• 🏦 Government policies in Singapore, such as CPF grants for first-time homebuyers, encourage homeownership and contribute to the high ownership rate.
• 📉 The comparison between renting and buying shows that the costs of renting for an extended period can accumulate to the point where purchasing a property becomes a more financially viable option.

Q & A

What is the current trend in rental rates mentioned in the script?

The script mentions that rental rates have significantly increased, with some areas experiencing a quantum leap in rental increments since 2020, and expectations of around 5% growth.

What factors have contributed to the high rental increases discussed in the script?

Factors contributing to high rental increases include the impact of the COVID-19 pandemic, work-from-home trends, behavior changes leading to more space within homes, and delays in BTO and new launch condo properties.

What is the rental rate for a 4-room HDB apartment in Pongo as per the script?

The rental rate for a 4-room HDB apartment in Pongo is transacted at about 3,008 to about four thousand dollars per month, according to the HDB website and other sources.

How has the pandemic influenced the rental market according to the script?

The pandemic has led to a significant increase in rental rates due to the circuit breaker measures, work-from-home trends, and the desire for more space within homes, which increased the demand for larger apartments.

What is the expected impact of the 38 projects hitting the market in 2023 on rental rates?

The script suggests that the completion of these projects may help balance the rental market by increasing the supply, potentially leading to a more stable rental situation.

What is the estimated number of BTO properties completed yearly, and how does it affect the rental market?

The script provides a chart indicating a drop in the number of BTO properties completed during the 2020 period, which signifies that many people had to continue renting, contributing to the rental demand.

What are the intangible benefits of renting a property as mentioned in the script?

The intangible benefits of renting include flexibility to move every one to two years, not being tied down to one property, and not having to worry about renovation costs or property taxes.

What are the tangible benefits of owning a property compared to renting, according to the script?

The tangible benefits of owning a property include building equity through mortgage payments, having security and longevity in the property, and potentially generating passive income through renting it out.

How does the script compare the cost of renting versus buying a property over a 38.5-year period?

The script illustrates that paying off a property over 30 years at a 4% interest rate is equivalent to 38.5 years of rental payments at the current market rate, suggesting it might be more cost-effective to buy in the long term.

What is the 'sweet spot' in terms of rental duration before considering buying a property as per the script?

The script suggests that after renting for 6.25 years, which is equivalent to the down payment for a property, it might be more beneficial to buy rather than continue renting.

What advice does the script give regarding timing the market for primary residence versus investment properties?

The script advises against timing the market for primary residences due to the high opportunity cost, but suggests that analysis and timing could be applied to investment properties.

Outlines

00:00

📈 Surge in Rental Rates and Housing Market Analysis

The speaker discusses the alarming increase in rental rates, predicting a moderate growth of around five percent. They highlight the significant year-to-year rental increment since 2020 and provide specific examples of rental costs for different types of apartments in Pongo and Park Esta. The speaker also mentions the positive implications for landlords but acknowledges the challenges faced by renters due to increased mortgage interest rates. The video aims to explore the rental market, the break-even point between renting and buying, and the impact of the pandemic on rental trends.

05:00

🏢 Rental Rate Hikes and Market Dynamics in 2022

This paragraph delves into the drastic increase in rental rates that began in 2022, using the example of a condo project at Cosmopolitan to illustrate the 47% increase over a few months. It discusses the broader impact on various types of properties, including HDB apartments, condos, and landed properties. The speaker attributes the rental surge to several factors: the movement of single professionals seeking personal space, delays in BTO and new condo construction, and the extension of rental periods due to construction delays. The paragraph concludes with a forecast for rental stabilization by 2024, contingent on the completion of BTO and condo properties.

10:02

🏘️ Home Ownership vs. Renting in Singapore's Context

The speaker compares home ownership and renting in the context of Singapore's demographics, land scarcity, and high homeownership rate. They emphasize the benefits of owning property due to Singapore's small size, high ownership rate, and government policies that support home buying. The paragraph also touches on the potential for property appreciation and the psychological benefits of owning a home. The speaker suggests that owning is more advantageous than renting in Singapore, given the country's unique conditions and the government's support for homebuyers.

15:02

🌐 Global Perspectives on Renting and Ownership

This paragraph explores the cultural and practical reasons behind renting in countries like Japan and the United States, where mobility for work is common. It contrasts this with Singapore's situation, where a stable home environment is preferred due to the country's small size and the cultural emphasis on home ownership. The speaker also discusses the implications of Singapore's high population growth and the potential for becoming a landlord as a better financial decision than being a tenant, given the expected increase in demand for housing.

20:04

💰 Financial Breakdown of Renting vs. Buying a Home

The speaker provides a detailed financial comparison between renting and buying a home, using a hypothetical 1.8 million dollar property as an example. They calculate the total cost of ownership, including the mortgage and interest payments over 30 years, and compare it to the equivalent cost of renting for the same period. The paragraph highlights the value gap between renting for 38.5 years versus buying and owning the property, emphasizing the long-term financial benefits of homeownership, such as building equity and potential rental income from a second property.

25:05

🏢 The Decision to Rent or Buy: A Comprehensive Evaluation

In the final paragraph, the speaker summarizes the key points discussed in the video, including the Singapore demographics, the pros and cons of renting and buying, and the tangible benefits of homeownership. They stress the importance of considering the opportunity cost of renting versus buying, especially for primary residences, and advise against timing the market for primary home purchases. The speaker concludes by encouraging viewers to make informed decisions based on the information provided in the video.

Keywords

💡Rental Rates

Rental rates refer to the amount of money a tenant pays to a landlord for occupying a property. In the video, the speaker discusses how rental rates have significantly increased, with a mention of a possible five percent growth. This is a central theme as it sets the context for discussing the financial implications of renting versus buying property.

💡HDB Apartment

HDB stands for Housing and Development Board, which is a Singapore government agency responsible for public housing. An HDB apartment is a type of public housing in Singapore. The script mentions HDB apartments, particularly a four-room model, as an example of the properties experiencing rental rate increases.

💡Rental Increment

Rental increment refers to the increase in rental prices over time. The video discusses the significant 'Quantum Leap' of rental increments since 2020, indicating a substantial rise in rental costs. This is a key point as it highlights the financial burden on tenants and the potential benefits for landlords.

💡COVID-19 Circuit Breaker

The COVID-19 Circuit Breaker was a period of strict lockdown measures implemented in Singapore to curb the spread of the coronavirus. The script connects the rental situation to the pandemic, suggesting that the 'circuit breaker' and subsequent work-from-home trends influenced changes in rental demand and behavior.

💡Work from Home

Work from home (WFH) is a practice where employees perform their work outside of the traditional office or workplace. The video script mentions WFH as a trend that emerged during the pandemic, affecting people's preferences for more space in their living quarters and potentially contributing to increased rental demand.

💡Behavioral Change

Behavioral change in this context refers to shifts in how people live and work due to external factors, such as the pandemic. The script discusses how the pandemic led to changes in living arrangements, with more people renovating their homes and seeking larger spaces, which influenced the rental market.

💡BTO Properties

BTO stands for Build-To-Order, a housing scheme in Singapore where the government constructs homes that are sold to eligible citizens. The script mentions delays in BTO properties, which affected the rental market by prolonging the rental periods for those waiting for their new homes.

💡Rental Supply

Rental supply refers to the availability of rental properties in the market. The video discusses how delays in new property developments and the extension of existing leases due to construction delays have impacted rental supply, contributing to increased rental rates.

💡Home Ownership

Home ownership is the legal right to own a property, which is a significant theme in the video. The script contrasts renting with buying, discussing the benefits of owning a home in Singapore, including long-term security and the potential for passive income through rental of the property.

💡Interest Rate

The interest rate is the percentage of a loan that a borrower pays to a lender for the privilege of using the loan's money. The script discusses how interest rates affect mortgage payments and the overall cost of owning a property, emphasizing the importance of low interest rates in making property ownership more affordable.

💡Opportunity Cost

Opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen. In the context of the video, opportunity cost is mentioned in relation to timing the market for buying a primary residence, suggesting that the costs of waiting to buy can be high, especially in terms of rental payments.

Highlights

Rental rates have increased significantly, with some areas experiencing a quantum leap since 2020.

Moderate to high rental growth is expected, potentially around five percent.

The rental market has seen a surge, with rates for a four-room HDB apartment in Pongo ranging from $3,008 to $4,000 per month.

High-end properties like Park Esplanade can cost over $5,000 for a two-bedroom unit and up to $7,000 for a three-bedroom.

Landlords face challenges with increasing mortgage interest rates despite rental income.

The pandemic and work-from-home trend have influenced the rental market, with people seeking more space.

There was an uptick in home renovations during the pandemic as people spent more time at home.

Behavioral changes led to an increase in people upgrading to bigger homes or moving out to have their own space.

Delays in BTO and new condo property constructions have prolonged rental durations for some families.

The speaker forecasts a stabilization in rental rates over the next 12 to 24 months due to new property completions.

Singapore's high homeownership rate and government policies support owning rather than renting.

The value gap between renting and buying is highlighted, with buying potentially being more cost-effective in the long term.

Renting offers flexibility but lacks the security and control of owning a property.

Owning a property allows for potential passive income through renting it out.

The tangible benefits of owning include building equity and having a physical asset.

Renting can be more cost-effective in the short term, but owning may be more beneficial over a 50-year horizon.

The opportunity cost of renting versus buying is discussed, emphasizing the risks of timing the market for a primary residence.

A detailed analysis comparing the costs of renting for 38.5 years versus buying a property is presented.

The episode concludes with advice on considering the long-term implications of renting versus buying in Singapore's market.

Transcripts

rental rates has shot through the roof

honestly it's very scary

do expect rain growth through moderate

to perhaps around five percent this time

around for episode number five we're

gonna talk about the rental rate it can

go upwards around like five thousand wow

where else are we seeing such high

rental increases

[Music]

one of the most horrific things that uh

has happened over the past 24 months was

that in terms of the amount of Quantum

Leap of rental increment ever since 2020

until today the amount of percentage

will calculate on the year-to-year basis

is actually pretty significant and if

you look at the current rates right now

for a hdb apartment in Pongo for example

a four room hdb follow me in a sense

that if we talk about 4A model is about

92 square meters with three bedrooms and

a whole kitchen and of course a home

shelter the rental right now transacted

if you refer to hdb website as well as

some other sources is ongoing at about

3008 to about four thousand dollars per

month and if you don't look at uh for

example the RCR region just have a look

at this newly top property at Park esta

a two-bedroom right there will easily

cost you about 5 000 odd dollars per

month and the three beta will easily

cost about six thousand to some of the

land starting seven thousand dollars of

course this are great news for landlords

and of course landlords are battling

with the increment in terms of the

mortgage interest rates over the past

year however I think if um you are

renting an apartment this is definitely

a disadvantage for you in this sense so

we're going to talk about rental today

and what is the break-even point if

let's say you are currently renting

you're waiting on the market and you're

not buying a property we have done some

calculations from our research team and

this is something that I want to talk

about on the second part of today's

video first part I want to head back to

us 2020 and try to route back on the

monsters on why rental has sought over

the past three years basically the

entire rental situation could have

sprouted from one key source which was

covered now ever since covet circuit

breaker was announced and that started

on the whole entire pandemic issue

around the entire world what has

happened was that over this past three

years I think all of us experienced a

lot of change firstly

we went through circuit breaker so about

two and a half months we were at home

the next thing was that the new trending

started coming out which is the work

from home kind of trending and I think

over the past six months a lot of

businesses and companies are having

issues uh with a mindset shift in the

sense that they definitely want to take

out the welfare of our employees but at

the same time they're also having issues

about having the mindset shift of their

their teammates coming back to the

office for physical meetings and

physical presence and of course I think

in terms of productivity there's a whole

new topic altogether but I think over

the entire past three years what has

happened was that covet circuit breaker

pandemic work from home and that was a

behavior change not just in families

wanting more space within their own

apartments and uh during 2020 or 2021

there was an uptick in terms of the

number of renovation that people have

done within their own home because

everybody was trapped by home they're

trying their own country they're not

allowed to travel so I think a lot of a

lot of savings were reinvested into

their own homes to renovate that place

to make it a better home to live in

because you're going to spend more time

at home during the pandemic season and

that also sprouted out a lot of

upgrading movement with people buying

bigger homes having one more bedrooms if

you have seen some of our episodes we

talked about fact that a lot of our

clients actually contacted us and we've

helped them did successful shifts to

sell their current property in the same

condominium and upgrade to a bigger one

for example like a three beta to a four

beta or two bitter to three beta within

the same development so this was some of

the behavioral change that everybody and

you and me has experienced over the past

couple of years and one thing that we

noticed was also the uptick in the

amount of people moving out of their

home so there was also a season I think

that was in 2021 that a lot of single

professionals were actually moving out

of their homes that they were occupying

together with their parents and their

siblings and because everybody was

working from home you get to rub

shoulders every single day and I think

thing that also gave rise to a lot of

um new Newfound needs that you want your

own space and you want like your own

private space you want a bigger space

for you to to work from home exercise

from home and then you want to rest well

as well and thus um I think there was a

season whereby the one betas and the two

betas and studio apartments were

actually taken up very rapidly I believe

that was the key onset of the entire

rental situation because we only started

to feel that rental rate started to

increase drastically in the year 2022.

so take a look at an example in our

previous webinar that we talk about the

rental is in this particular condo

project at Cosmopolitan so the amount of

increment that has went up was like 47

over a period of a couple of months and

uh four beta back then was about seven

thousand dollars and then at the point

of rental it was already about 11 to 12K

now it's about 14 000 for four beta

right there in River Valley and if we

were to look at a cross-bought hdb

Apartments condo apartments and land the

properties they have all sought in terms

of rental prices and contributing to

this was not just the movement of single

professionals running their own space it

was also because of the delay in BTO

properties as well as new launch condo

properties because the construction

phase of BTO properties as well as brand

new condo projects that was sold during

the show flat season was technically

delayed and when these properties are

being delayed the families that have

already solved their homes their resale

homes and then they are renting in the

market they have to prolong their rental

so for example somebody that have sold

their condominium and they have bought

into a new launch they might have just

signed a one-year lease or maybe a

two-year lease because maybe they bought

into a balanced inventory unit but the

top date was supposed to be at this

particular date but it was further

delayed by another one and a half years

for example that means that they have to

extend their rental for one and a half

to two years because even after you take

possession of your new home keys you

still have to spend time for defects

check you still have to spend time for

renovation and then you need to add a

couple of months to complete that

process and uh because of that a lot of

existing families have extended their

their rental and thus that then created

a lot more demand in the market the

third one was also coupled with families

that went out to rent for a short period

of time for example six months because

they want to do their renovation for

their existing home on video went out to

rent for one year because they don't

want to do a and a for their existing

landed home or maybe uh they want to go

through like a full-on Renault vision

for their landed property that takes a

longer period of time so all this has

then created like a newfound demand and

uh what is potentially going to happen

this year to year 2026 is that if you

look at our latest webinar so there's

there's going to be plus minus about 38

projects that will hit the top date this

year in the year 2023. what might

potentially happen is that uh the

investors has bought into this 38

projects if they're bought into one to

two betas they will most likely want to

rent them out now if

um their buyers they're bought into

let's say the two-bit three-bit or four

betas they might move into state but

when they move it and stay they will

then complete their existing lease and

task that would then free up a little

bit more Supply in the existing rental

market and when they move in all these

properties will then become fresh Supply

in the Market at the same time this 38

projects that will hit the top basically

if it's one to two betas uh being rental

on the market that should also satisfy a

little bit more demand in the rental

market so if these two confidence

balancing out my forecast is that the

rental situation towards 3 and 24 should

taper off to a more stable level and

what this means is that if your

attendant do not lose hope because uh

rental rates will start to taper off in

the next 12 to 24 months uh very lightly

but of course that is also contingent on

whether is there any video properties

that will be completed not just on on

the condos top portion but also on the

BTO properties part so let's just have a

look at this chart here

so this is the estimated number of btos

completed by year-to-year basis as you

can see during the 2020 period that was

actually a drop in the blue bar and uh

this drop in the blue bar basically

signifies the part during the pandemic

season and um this was the estimated

number of units versus the actual number

of BTU that was being completed of

course this this drop actually signifies

that a lot of people would then not get

their keys and they have to continue to

stay with their parents for a longer

period of time or maybe they are already

renting outside and that gave us of

course to some of the rental demand of

course we do not have the full numbers

but that is basically the entire field

on the ground and uh if we were to now

move on to the second segment of course

this is an ho question is that should I

rent versus buying and I think in order

to answer that question there's a lot of

debate on this two portions of course

there are a lot of intangible kind of

comparison and pros and cons there's

also a lot of tangible reasons in terms

of renting versus buying and I think to

add to these two components whether it's

the intangible reasons or tangible

reasons there's also a third component

is to see which country are you in so

for example if you look at Japan and

when you look at United States you

realize that there is actually a large

proportion of

um the residents within that these two

countries that they actually ran within

their own country because the country is

huge they move around different states

for work and um let's just take for

example Japan the largest pool of

tenants are actually Japanese themselves

because they come from other parts of

Japan to maybe World in Tokyo and then

thus they have to rent in Tokyo and

because they are young working

professionals they might not have the

capability to buy a property and they

are also not sure whether they will stay

in in central Tokyo for a long time

because of their work and traveling

reasons so with that when we look at

Singapore Singapore is already a very

small country in fact a lot of people

call us a city T and with that when you

compare that to our existing ownership

rate so we have one of the highest home

ownership rate in the world we have over

90 percent of whole industry in the

sense that when you look at the entire

available stock based on properties

types the entire residential market then

you will get to understand why actually

it's important to own if you happen to

stay in Singapore for a long duration if

you are permanent resident if you're a

foreigner or if you're a Singaporean you

need to understand that because of this

demographics this service our land size

as well as residential inventory and the

way on how our Market moves is actually

more beneficial to own than to rent so

if you don't look at the entire pool of

properties that's available and uh we

have about 1.2 million hdb apartments

with about 340 000 condo apartments and

ECS which are technically exactly

Condominiums and then we only have 73

000 landed properties and ninety percent

of the residents here own properties and

it is also our government policy to

support singaporeans to own properties

because if you look at the amount of

first-timer Grant which our government

has just introduced through budget 2023

they have further raised the amount of

Grant support for first-time home buyers

in order to encourage people to build

families and they have also even

increased amount of grants for

first-time singles as well so the

government's direction is that through

cpf grants with the fact that every

working adult in Singapore if you're a

Singaporean or PR you get cpf

contribution from yourself a part of a

salary of 20 plus your employer have to

top up additional amount into your cpf

account in order to help you take care

of your ordinary account for housing

special account for retirement medicine

account for your health care needs so

the direction is that this is to Aid you

towards having that first set of down

payment to own your hdb apartment so the

direction that actually to own your

property and with that if you are in

Singapore and if 90 of the residents

here own their homes that technically is

not advantageous to become a tenant

situation and the third thing is because

of the fact that when we look at how

property prices have moved over the past

year so firstly rental and the price of

the property are core related when

property prices move up because of the

fact that the mortgage monthly mortgage

that the the landlord if they buy the

property for investment also increases

they will have a graduous uh increment

in expectation for the rental that they

want to fetch and of course the LA the

last thing is also if you were to look

at a white paper we're going to hit 7

million population within the next seven

years right now we are technically close

to about 6 million we have about a

million more to go and first after 20 30

there might be new white papers that

will grow up to eight nine or ten

million in terms of population and with

that with our scars landscape and

everybody in in Singapore having a home

ownership mindset it means that it might

be better to be a landlord than to be a

tenant the key thing to take away is

that in terms of demographics in

Singapore is a little bit different

because singaporeans grow up the mindset

of home ownership from a very very young

age and then couple of the fact that we

are in a land-scares country and the

third thing is that the setup of our

residential choices here is being

largely dominated by hdb apartments and

hdb apartments are largely being stayed

on by the homeowner itself it's not an

investment property people own hdb

apartments for their own stay as their

own home shelter to build their family

and landed properties are also largely

owned State as well and it's a very

small quantity it only represents about

five percent of the overall stock of

Residential Properties and that leaves

the condo Apartments having that 340 000

quantity in the market largely

circulating for own State as well as

rental and times if you don't look at

that in terms of the Rental Supply

sometimes a little bit more limit better

in the sense that you will largely be

catered towards that 340 000 pool but

not forgetting that oh this 340 000

there's a port there's a large portion

of it that is being owned by families

that are living in them and that's the

last piece of the picture is to look at

the population growth chart as well and

for the fact that Singapore now is

having that safe haven status and that

concludes the point that actually in

Singapore just by all these factors

itself as a big rock it might be better

to own a property than to be a tenant

and let's move on to of course the

intangible plus tangible

um pros and cons of course intangible

has been ho kind of debate people who

love to rent of course they were they

were the main the big Pros is that you

are not being tied down to just one

property you can of course switch around

once every one to two years you can

enjoy different types of properties in

different locations you have that

flexibility and of course when Market

situation is down you gotta enjoy low

rental market situation is up the

downside is that you have to pay higher

rental rates the good thing is as well

is that you don't have spend renovation

costs because as a tenant you cannot

renovate the place and thus you will not

even invest in renovating the place for

your landlord you will basically I mean

most tenants they are very experienced

they'll dress up the place themselves

with nice Furnitures and accessories and

carpets and paintings and stuff and

making a home very beautiful I've seen a

lot of homes that are being talented

actually looks better than homes that

are being owned and of course one more

thing is that you don't have to pay

money maintenance fee no property tax

you don't have to pay mortgage insurance

you don't have to pay the bank interest

you just need to take care of the

monthly rental to your landlord as long

as you pay the rent on time you can stay

in the home in a very secure fashion and

of course the downside is that there are

changes to your landlord's interest for

example when they want to sell their

property sometimes the downside is that

you get Disturbed as a tenant because

the landlord will need their agents and

Brokers to bring buyers to view the

place during the weekends and most of

the various takes place during the

weekends because buyers are usually free

on the weekends as most will work on the

weekdays so so weekends is your rest

time as a tenant but then you have to

cater time for home viewings and tasks

that might disrupt your schedule and

your own rest time and of course

um the downside of being a tenant of

course is that you cannot have the

luxury to design and renovate and hack

down walls and thus there might be a

certain layout that you want to do there

might be a bookshelf that you want to

create for your your kids but you can't

do that you can't renovate the place and

you are also at the mercy of rental

increment if you are kids and yourself

fall in love with the property and you

want to renew for another two years and

if the landlord was to increase the

rental then of course the negotiation

has to take place once every one or two

years which can be a hassle and then of

course if you look at the other side of

the tangible benefits of pros and cons

of rental versus purchase is that the

moment you purchase a property

technically speaking the monthly

mortgage that you pay is not gone to

waste because there's always this

principle plus interest portion

principle is your savings into the asset

and take note that real estate is an

asset class that allows you to own the

physical asset you own the title to that

property if you buy a strata title

property you own the title to the strata

space to the apartment it belongs to you

if you buy a lender property the land

title belongs to you the building

sitting on the land belongs to you as

well and of course when you own the

property the upside is that you don't

have to be at the mercy of a landlord

you have longevity you have security and

sometimes ownership creates a secure

feeling for your family especially if

you have children and you just don't

want to have that feeling that every two

years you have this numbing feeling that

you know I might need to move because my

landlord might want to take back the

place my landlord might want to move in

my landlord might want to sell the place

or my landlord might even want to raise

my rent and thus there's a lot of

intangible benefits to owning as well

and of course the next thing is that on

top of that ownership feeling and on top

of having that principal plus interest

portion you can also you utilize that

property to be a sub investment property

in the sense that if let's say you have

the ability to own a second property you

can move up to your new property you can

rent out this place and let your tenant

contribute towards the p and I portion

every month so your tenant technically

will pay for the interest the balance

will go into your principal if there are

excess if let's say rental exceeds your

mortgage that becomes a passive income

to pay off some of the monthly mcsd fee

and if you still have passive income

then that technically becomes a positive

cash flow property that contributes to

these four components the interest to

the bank the principal as your Equity

savings the mcst fees to maintain the

property and of course last but not

least your passive income in terms of

excess cash that you can utilize for any

other things of course for ownership you

have to pay property tax you have to of

course maintain your property and of

course as the owner in exchange for

ownership these are definitely the

things that every homeowner will need to

do but we'll leave that to you to weigh

the tangible level and an intangible

portion but most importantly is that if

you were to look at this data point that

we have

uh we actually wrought up an assumption

and we're just taking an assumption of

this particular property for example a

three beta at 1.8 million now and we put

in this this few parameters in the sense

that if you were to be a buyer and you

put in a 25 down payment you take a loan

of four percent for the next 30 Years

and assuming that interest rate stays

the same at four percent

how is this going to compare being

owning it and renting it and um based on

our prb research team

basically by assuming this parameters

what we realize is that there is a value

Gap in

buying versus renting so what is this

value Gap technically speaking what

happens over here is this is that paying

off this 1.8 million dollar property is

equivalent to 38.5 years of rental so

assuming that the purchase price is 1.8

million dollars this being broken down

into 25 big down payment 1.35 being the

amount that you loan from the bank and

because you're low for a bank for 30

years you need to pay the bank a four

percent interest of this 30 years which

amounts to 970 000 so all in this entire

amount which is 1.8 million dollars of a

purchase price plus the bank interest is

in totality worth worth 38.5 years of

rent assuming that the rental rate is at

six thousand dollars a month so if

you're to pay 1.8 million dollars at

four percent interest rate for the next

30 Years assuming that interest stays

the same what's going to happen is that

your monthly mortgage is going to be

6445 per month however that's being

segregated in the two portion one is the

principal payment which is at about

1945 a month and the other part which is

4005 is actually payment of interest to

the bank so you will start to notice as

well that in the high interest rate

environment you actually pay more

interest in the low interest rate

environment if I were to swap this

into a two percent and um what is going

to happen is that your monthly mortgage

instantly dropped to 4989 per month with

2007 into your principal and 2250 into

your interest so that's the core reason

why also a lot of people prefer to buy a

property in a low interest rate

environment however in Singapore we

technically pay interest from between

one to about four over percent and um

you can take the average about two and a

half percent because even if you don't

buy property this year at let's say four

percent interest rate is not going to be

forever because next year for example if

fat would reduce interest rate you will

then be able to refinance your your loan

if provided you don't take a lock-in

period loan right now and you can

refinance it at three and a half percent

following by three percent two and a

half percent and things like that so on

and so forth so it's not going to be a

Perpetual kind of thing but what I'm

trying to illustrate is that if you were

to buy a 1.8 million dollars property

now your money mortgage is six thousand

four if the rent is same apartment in

this particular condominium is going to

be about 6 thousand dollars so when we

take that and then we we permit into

basically our data engine

what we realized is this few things if

you were to pay rent for 38.5 years

is going to complete

um the full payment of this home which

means that technically speaking if you

continue to rent for 38.5 years you

might as well just buy this home because

if you own this property you can still

continue to live in it until the 99

years lease runs down and uh assuming

let's say you have lived in this

property for 38.5 you can still continue

to to stay for another 10 15 20 30 years

until you you pass on right but if you

were to rent for 38 by five years what

this means is that for the next 16.5

years you are going to continue to pay

ongoing rental assuming that your age

and in this particular scenario is that

if we calculate a horizon of about 50

years and um if and this is based on

Horizon of 50 years so for example if

you started to rent at 30 years old and

you live under age 80. what's going to

happen is that if you are a tenant for

30 over Years you'll still have to

continue to rent all the way and take

note that if you want to purchase a

property the bank will take note of your

age until age 65 to issue you out a loan

for your loan Channel period and we also

back calculated in the sense that

for 75 months of rental about 6.25 years

of rental

you already have accumulated the same

amount for the down payment of a 1.8

million dollars home so that means that

if you have rented more than six years

you might as well just buy a property

because that six years of rental is

equivalent to the 25 down payment of

this 1.8 million dollars property so you

need to take note of this sweet spot

because if you were to continue to rent

one year two year and then you renew for

another two is four years take note that

the moment you hit six years you have

already paid enough rental to pay a down

payment of a home and you might as well

take a loan because speaking of which if

you can afford a six thousand dollars

rental a month that means that you can

also afford a six thousand four hundred

dollars mortgage a month and that means

that in terms of income level and most

of the time the calculation is that your

monthly mortgage or monthly renter

should not exceed about 35 of the total

income that you bring home uh per month

because if more than that is going to be

in a very unhealthy Zone that you have

no other disposable income for your

insurance for your food you're traveling

your clothing your kids education and

your savings and stuff like that so with

that this 6.25 years is a very nice

indication because the moment you are

very near to the six year mark you need

to take note that you should actually be

buying rather than renting and if you

have rented for 13.5 years technically

speaking you have already fulfilled the

entire 30 years of mortgage interest

rate that you're supposed to pay to the

bank which is that 970 000 that we talk

about so if you rent for 13.5 years

you've already paid 900 over a thousand

dollars of rental and you might as well

just buy a property so before you even

start the rental journey of course

there's a lot of argument on that

because for rental you also uh will mean

that maybe at the point of renting you

do not have the level of down payment to

down pay your home but this applies to

families that are trying to time the

market so some families they maybe are

trying to try to Market understand that

they want to sell off their landed or

condominium or the hdb and they only

wait for a downturn or recession in

Singapore hopefully uh to hope for the

price of properties to come now and then

buy but they find themselves renting and

renting and renewing and renewing for

years and then that amount render that

you're paid actually could have been a

down payment for your home that you

should have bought almost immediately in

the back to back transaction because in

Singapore we talk about it a lot of

times it's very risky to time your

Market especially if you're timing your

market and you are trying to time your

primary residence and take note that

primary residence has an opportunity

cost and you have the opportunity cost

that you either own or you have to rent

or you have to stay with your parents or

somebody else so we only suggest that

you should time your Market by doing

analysis looking for opportunities for

your second third fourth property

investment your primary residence you

should not time the market because the

op cost is just technically too high so

for this episode we'll talk about the

third component which is the big road of

the Singapore demographics we'll talk

about the intangible benefits and pros

and cons we'll talk about the tangible

benefits and pros and cons of renting

and buying and we hope that this

particular episode will help you to make

a decision whether you're currently

renting your timing the market or your

home owner as a landlord we go to this

episode on nangasunago will give you

value and I want to see you on the next

one because the next episode is a banter

series that we'll talk about very

interesting topics and we'll see you on

the next notg take care

[Music]

right so this is episode five

let's do it