The common wisdom in Singapore is to purchase a home rather than rent. Monthly mortgage payments add to your home equity while renting does not, and the home can later be be right-sized or liquidated for retirement funds.
Nevertheless, buying a private property in a prime district comes with one distinct downside – the downpayment is a large lump sum which immediately disqualifies many new buyers. A $2,000,000 property will require a $500,000 downpayment which cannot be applied to other uses, including investments.
Investing The Downpayment
In the table below, we compare the compounded return of investment of the downpayment (in %) to see what percentage of the original property price this will be after the various time periods.
| 5 years | 10 years | 20 years | |||||||
| 4% | 6% | 8% | 4% | 6% | 8% | 4% | 6% | 8% | |
| Compounded ROI(%) | 121.67% | 133.82% | 146.93% | 148.02% | 179.08% | 215.89% | 219.11% | 320.71% | 466.10% |
| Vs property price | 30.42% | 33.46% | 36.73% | 37.01% | 44.77% | 53.97% | 54.78% | 80.18% | 116.52% |
If invested over a 20-year period, a 4% p.a. investment will yield 54.78% of the property’s price at purchase. Savvy investors may be able to achieve more, and at 7-8% p.a., this will be equivalent to the original purchase price of the private property.
With that said, the assumptions here that we are making is that the property’s value does not change over the investment period. In reality, property prices may increase (or decline) depending on market demand. For those intending to treat their home as a real estate investment, the projected appreciation or depreciation should be studied carefully.
Rent vs Mortgage
The other opportunity cost is the difference between rent and mortgage. The table below shows data for private property units for rent compared to units for sale with similar floorspace across various developments.
| Development | Freehold | Size(sqft) | Selling Price | Mortgage (4.0% p.a) | Rent | Rent-to-Mortgage ratio (%) |
| Suites at Bukit Timah | Y | 440 | $770,000.00 | $2,757.00 | $3,000.00 | 108.81% |
| The Creek @ Bukit | Y | 450 | $918,000.00 | $3,287.00 | $3,200.00 | 97.35% |
| 26 Newton | Y | 480 | $1,180,000.00 | $4,225.00 | $3,950.00 | 93.49% |
| Fourth Avenue Residences | 484 | $1,260,000.00 | $4,511.00 | $4,760.00 | 105.52% | |
| Suites at Orchard | 500 | $1,200,000.00 | $4,618.00 | $4,900.00 | 106.11% | |
| Scotts Square | Y | 600 | $2,600,000.00 | $9,417.00 | $5,600.00 | 59.47% |
| Suites @ Newton | Y | 603 | $1,388,000.00 | $4,969.00 | $3,800.00 | 76.47% |
| The M Condo | 635 | $1,680,000.00 | $6,015.00 | $4,700.00 | 78.14% | |
| Draycott | Y | 700 | $2,300,000.00 | $8,300.00 | $5,300.00 | 63.86% |
| Commonwealth Towers | 750 | $1,750,000.00 | $6,266.00 | $5,780.00 | 92.24% | |
| Centrepoint | 750 | $2,200,000.00 | $6,266.00 | $4,200.00 | 67.03% | |
| Suites at Orchard | 828 | $2,150,000.00 | $7,698.00 | $5,000.00 | 64.95% | |
| Icon | 1,050 | $1,880,000.00 | $6,731.00 | $6,500.00 | 96.57% | |
| Orchard Scotts | 1,100 | $2,500,000.00 | $8,951.00 | $8,000.00 | 89.38% | |
| 26 Newton | Y | 1,150 | $2,562,368.00 | $9,174.00 | $6,000.00 | 65.40% |
| The Creek @ Bukit | Y | 1,200 | $2,480,000.00 | $7,046.00 | $6,500.00 | 92.25% |
| Newton Suites | Y | 1,240 | $3,000,000.00 | $10,741.00 | $7,500.00 | 69.83% |
| Spring Grove | 1,300 | $2,700,000.00 | $9,667.00 | $7,600.00 | 78.62% | |
| Suites @ Newton | Y | 1,335 | $2,000,000.00 | $7,161.00 | $6,500.00 | 90.77% |
| Pinetree Condo | Y | 1,350 | $3,400,000.00 | $12,174.00 | $5,700.00 | 46.82% |
| The Creek @ Bukit | Y | 1,600 | $2,600,000.00 | $9,327.00 | $5,500.00 | 58.97% |
Based on the data, the rent for units smaller than 500sqft tend to be equivalent to the monthly mortgage instalment. However, for larger floorspace units, the monthly mortgage instalment tend to be higher than the monthly rental, with rent being 45-80% of the mortgage payment for most units.
Mileage may vary between developments and units with different floorspace, but in general, a family’s monthly expenditure will be lower if they chose to rent a prime district property rather than buy it.
However, it’s worth noting that when interest rates are lower, monthly mortgage instalment would reduce and this could make buying a property more attractive as opposed to renting.
Read Also: Renting Or Buying A Property: Which Has Become More Expensive In With Interest Rate Rising
Pros And Cons Of Renting A Private Property
Renting a private property provides some flexibility to relocate to be nearer to schools or work. Renting a new place is less hassle compared to buying and selling a house. There may be some wait time to find a suitable buyer. On the flip side, you may have to move house if the owner wishes to sell or raise rent.
Another consideration about renting is that it usually means that you cannot renovate, and this can be quite limiting if you have certain unique design specifications for how you wish to live. For instance, cat owners will find themselves limited by being unable to drill holes, because this limits their ability to build climbing features for their cats. While you can use furniture to create a certain vibe in your living space, you are still limited to fixtures and design elements that are part of the flat.
Read Also: Are You Better Off Renting While You Wait For Your BTO Flat Or Buy A Resale HDB Immediately
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