The age-old debate between renting and buying one’s place of residence has been whipped to death and back constantly. Aside from the obvious fact that buyers are acquiring an asset while renters are left with little more than a temporary place to live, the pros of renting deserve a bit more attention than the mere dismissive glance it usually gets. Renters often have their own justifications, and we explore why being a tenant may just be the right option for you.
Reduced Capital Outlays
Renting doesn’t require large capital outlays in the form of a down payment that more often than not comes with a hefty renovation bill. Tenants are also not responsible for maintenance fees (beyond a certain basic amount depending on the tenancy lease) such as repairs to furniture, replacement of fittings, or even the repainting of walls. They don’t have to live with the buyer’s remorse that may be associated with the commitment of purchasing the most expensive asset they will ever own. Someone’s financial situation can change at any time, and mortgage commitments when times are tight can be a major stressor.
It takes a certain level of commitment to purchase a property. Assuming you take on a mortgage, you are locked in for decades in a contract with a bank or loan entity. Renters, on the other hand, are able to cut their shirt according to the cloth they have. If their financial situation goes south, they can choose to downsize after their lease ends – which typically lasts anywhere from 12 to 24 months in Singapore. Buyers must also be aware that in a case of a financial emergency, their property will not always have accrued in value – with the propensity to leave one with a mountain of debt.
Not Affected by Fluctuating Interest Rates
Renting encompasses signing a contract between owner and tenant for a fixed period of time at a fixed rate of (usually monthly) payments. Mortgage payments, on the other hand, are subject to fluctuating interest rates – Singapore banks more often than not offer fixed-term loans for the first 2-3 years before they become variable.
Singapore Banks mostly peg their interest rates to the Singapore Interbank Offered Rate (SIBOR), a publicly available rate at which banks lend to each other. Banks typically apply SIBOR rates on a specific date known as the Rate Review Date, and the bank adds on a specific percentage above SIBOR to be used as the interest rates.
For the common 3-month SIBOR, the rate will be reviewed every 3 months. This rate, along with the add-on percentage will be used as the interest rate for the following 3 months until the next Rate Review Date. This process is rinsed and repeated for the life of the mortgage. Increments in these rates affect the amount of repayment one makes monthly – an issue renters don’t have to contend with. Interest rates have gone as high as 14% in early 1998, causing considerable stress to many homeowners.
Possible Alternatives for CPF
Many proponents of buying – and there are a lot of them – cite the fact that Singaporeans can use their Central Provident Funds partially to make their loan repayments. Renters are not able to do this. A valid point. That being said, it is also true that one is able to invest these funds in a host of vehicles that may prove to earn higher interest as compared to the value that their place of residence may accrue. As always, using one’s CPF to invest in these investments come with terms and conditions.
It is an undisputable fact that buyers earn the security of having a roof over their head that is not subject to the mercy of their landlords that can oust them when a lease runs out. That being said, renting does have its advantages that go far beyond the ability to change one’s place of residence on a whim. At the very least, it gives one the luxury of time to sleep over what, where, and how one would like to purchase one’s property.