Coming to Singapore to work on an expat assignment? There are many things to look forward to working in Singapore.
The tropical weather (if you like the heat more than the cold)
Awesome cheap and local food.
World class transport system.
Very clean, green and orderly.
However, things are not so rosy when it comes to buying or renting in Singapore.
As space is at a premium here, if you want to live in the city centre it does not come cheap.
So if you are planning to work in Singapore for the foreseeable future, the question “to buy or to rent in Singapore” might have popped up in your mind at least once or twice.
In other countries, this might actually be an easy question to answer. But Singapore’s property market has lots of little rules and nuances so it is not easy to understand and keep track of.
Not to mention, Singapore is well known for its expensive real estate. (Crazy Rich Asians will certainly further accentuate that notion)
A report by Demographia in 2018 has also classified Singapore’s housing affordability as “seriously unaffordable”.
To be honest, the situation would be a lot simpler if you could buy public housing (HDB) in Singapore.
But as that is not an option available to you as an expat, you are limited to just private apartments and condominiums in Singapore.
The good news is that rent in Singapore has been falling.
So to rent or to buy in Singapore?
Let us break it down for you.
Cost of buying a private property
Before we begin, there are a few assumptions that we are making here
1. You are a foreigner but not from Iceland, Liechetenstein, Norway, Switzerland or USA (the lucky ones from these countries have the same stamp duty treatment as Singapore Citizens)
2. You have enough salary to qualify for the loan
3. You have enough cash for the 20% downpayment required for a private property purchase
4. You will be staying for at least 3 years as there are significant taxes on selling in the first 3 years
5. The annual value of the property is estimated in order to get the tax figures
6. We did not take into account property appreciation
7. Rental is the same amount over the next 3 years
In this scenario, we are looking at the housing requirements for you as a single expat.
So yes basically, a 1 bedroom unit.
We will look at the cheapest possible condo purchase for a 1 bedroom unit, one outside the central area and one in the city centre to make for a better comparison.
So the cheapest option we could find outside the central region was a small 366 square feet condo called Kovan Grandeur at $480,000.
Here are the costs you are looking at upfront.
Kovan Grandeur Upfront Costs
Bear in mind that the ABSD (Additional Buyer Stamp Duty) for foreigners has recently increased, all this means is just higher costs for you to buy a property in Singapore.
For a condo 1 bedroom unit in the central area we found a 388 square feet condo called Spottiswoode 18 at $762,000. There was actually a cheaper unit at People’s Park at $420,000. But seeing as that is a much older development, it would not be a fair comparison here.
Spottiswoode 18 Upfront Costs
Now let us take a look at how much it would cost to maintain a unit in these developments for 3 years.
Kovan Grandeur Running Costs
Spottiswoode 18 Running Costs
Now lets compare the cost of renting these developments for the next 3 years.
Kovan Grandeur Cost of Renting
Spottiswoode 18 Cost of Renting
Finally, a comparison to show the results on whether to buy or to rent.
As you can see, it is definitely cheaper to rent than to buy in Singapore.
But the gap for areas outside of the central region is smaller than if you were to stay in the city.
It could be possible that there are other units that have an even smaller difference.
However, if you are looking to stay in Singapore for a lengthy period then things might be a little different.
No matter what, you still have to consider the additional taxes that Singapore places on foreigners buying private property.
The extra 20 per cent tax really puts a dent on things.
So that makes it an easy decision to rent if you are only looking to stay in Singapore for a couple of years.
If not, buying a property here is not worth considering for most people.
That is not to say that Singapore property is not a good investment.
If you are here on a really long term basis and can take property appreciation into account (that the property will appreciate past all the additional taxes), buying a property in Singapore can still make sense.
With that said let us now go into the pros and cons of buying in Singapore.
To buy or to rent in Singapore?
Pros of Buying
1. Capital Gain
This is probably the number 1 reason why many foreigners are investing in Singapore property other than the stable political scene that Singapore offers.
Your monthly mortgage payments go towards paying for an asset which can appreciate in value, instead of the liability of rental payments.
Although the en bloc scene seems to be cooling in Singapore, if you were around the past year you would have seen how much people have made from an en bloc sale.
As the property market is a cycle, if you can hold your property for the long term, there are always chances of en bloc in the future due to limited space in Singapore.
Don’t forget, Singapore has no capital gains tax.
So after deducting all the usual fees and property taxes, you get to keep every single cent.
Having your own space to call home can be very liberating.
If you are very particular about how your home looks then renting might not be the best option as landlords can be very sticky about doing any extra works to the house.
So things like hanging up art of painting the walls a different colour might not go so well with most landlords.
Additionally as you own the property, you never have to worry about having a hard to deal with landlord.
Thus if you want a place that you can really call home and the freedom to do whatever you like in your own house, buying would be a better option.
3. Income Generating
Although this is not an option for the 1 bedroom example that we have shown, if you have the financial capacity to buy a 2 bedroom and above, you can also make some additional income by renting out the spare bedrooms.
Of course, this comes at the expense of your privacy but many people like the additional income to help pay for extra expenses like the monthly maintenance of the condo as well as go towards the loan repayments.
Cons of Buying
1. Major Financial Commitment
Buying a home is the biggest financial commitment most people would ever have to take in their lives.
Seeing as a property loan is usually at least 25 years long, that would mean paying off a debt that would span almost their entire working career for many people.
So to many, this can be a very big and risky step to take.
2. Uncertainty due to country’s currency, economy and political environment
For many wealthy individuals, Singapore is seen as a safe haven to park their money.
The political scene here is known to be very stable, and Singapore is not flippant on its law changes.
However, there will always be risks that you as a expat would have to undertake in buying a foreign property.
This includes the possibility of rising interest rates, or foreign exchange risks.
This arises from a movement in the price of one currency against another.
Another example could be if one day Singapore decides to introduce a capital gains tax for foreigners.
That could severely impact your own timeline as well as spook other investors from coming in, which in turn would affect the property prices as well.
3. Risk of Capital Loss
As the saying goes ” What goes up, can also come down”.
So as much as there is a lot of capital upside to gain from buying a property, you have as much to lose when the property prices come tumbling.
Property prices are one of an economy’s main economic indicators.
So when property prices are low it indicates that the economy is in a recession.