Don’t Rent – It’s Better To BUY

Source: Weekend Today, 07 July 2007

… but buying your own home ensures you’re not at the mercy of fluctuating rental prices, says VASU MENON

BUYING a home is probably one of the most important financial decisions an individual will make in his lifetime, especially since the outlay is significant and the decision involves a long-term commitment.

But if you plan to stay in your country of residence for the long haul and make it your home, a good way to invest in your future is to invest in a home. It not only assures you of a roof over your head, it also protects you from the vagaries of the property market, as many expatriates and even some Singaporeans have discovered in the past nine months.

Let’s set aside the expatriates for now and just look at a Singaporean who chose to rent a property instead of buying one because he felt that his money wouldn’t be tied up in bricks and mortar. To him, renting offered financial flexibility and greater peace of mind.

I personally know of such a Singaporean, a colleague who was leasing an apartment near Orchard Road. He chose the apartment because it was large and comfortable and he managed to negotiate a “good” rental a couple of years ago.

The apartment was also centrally located and a short walk from the MRT station, which meant that he didn’t need to own a car and could travel to work and get back home fairly quickly. It all seemed ideal, except that he didn’t own the apartment and when his two-year lease came up for renewal recently, his landlord was asking for a rent that was 60 per cent higher.

The tide in the property market had turned against him as prices and rents surged, especially in the past nine months. Unfortunately, my colleague wasn’t able to stomach the sharply higher rent and had little choice but to move out. He relocated to an apartment in an outlying area, which was less convenient.

Fortunately for him, being single, he was the only one affected by the relocation. If he were married with children, the decision to relocate would have been a lot more painful.

For married Singaporeans with kids, owning a home is also one way to ensure financial security and a roof over the head for their families should they pass on unexpectedly. With mortgage insurance, a home can become fully paid for should the owner of the property pass away. This can help to alleviate the financial burden on the late owner’s family and give them some peace of mind — a benefit that the family may not enjoy if the property had been rented.

My local colleague isn’t the only one suffering from the surge in rents. Many expatriates here are also feeling the pain. In fact, some are even thinking of leaving Singapore to work elsewhere just because the additional rents they have to fork out are eating significantly into their pay packets.

Among expatriates who have chosen to stay and work in Singapore for a few more years, I know of some who are looking to buy properties here as a way of safeguarding themselves against the risk of further increases in rents.

One could always argue that property markets are cyclical and consequently, prices and rents could fall in future, which could diminish the attraction of owning a property. But if you look at the history of Singapore’s property market, you’ll see that property prices are much higher today compared to 15 to 20 years ago. So, if you’re prepared to take a long-term view and plan to live here for many more years, investing in a roof over your head would seem like a better proposition than renting a home.

If you haven’t already taken the plunge and intend to buy a property, be sure that you don’t get caught up in the euphoria and over-extend yourself — buy something that’s within your means so that you’re not financially strained and will have peace of mind while enjoying a roof over your head.

Often people run into financial trouble because they borrow too much to buy properties and have difficulties repaying their debts. This can happen if you lose your job and have insufficient savings to continue your mortgage payments. To avoid the debt trap, make sure that your total debts (including your mortgage) are less than 50 per cent of your total assets.

Also, make sure your annual loan payments are less than 35 per cent of your annual take-home pay. These are two simple ratios that you can apply to make sure you don’t over-borrow when purchasing property.

Also, as with all investments, never over-invest in anything, including properties. Be sure to spread your bets to protect your downside. So, aside from the property market, also look at investing elsewhere into other assets like stocks, bonds and unit trusts, to enhance the returns on your funds.