Rentals in Singapore

[the observer]

The whole reason I decided to buy here (after renting for 16 years) was precisely because I could no longer afford to rent, mortgage rates had dropped to nothing and the numbers finally added up (prior to that, the rent I was paying was definitely a negative rental yield for the LL, so I gladly paid it).

If I was renting today, I would still be inclined to buy in the current market, even with the rising mortgage rates.

Wow. 16 years ago, most mass market condos were in the region of 500-750k for 3 bedders.
Minimum down payment was just 10% back then.

[NYY1]

I agree, back when I rented, I did so because when I added up the mortgage interest, maintenance fees and property taxes (which all go “poof” when you own), it was more $’s than renting back then.

However, one thing I didn’t factor in was the value of leverage. Taking that same $2m condo example, if you borrow $1.5m, you only have $500k “invested” in the home initially. If the value increases by 10%, that is +$200k, representing a 40% gain on the $500k you have invested (3x leveraged). And while you can use leverage with other investments, property is special because of the lower rates on mortgages.

Yes, I was going to post again saying the case I had shown was for unleveraged buyer. For leveraged buyer, say I have $500k and I can either use it as a down payment and make mortgage payments or invest it and rent. Assuming mortgage interest + maintenance fees + taxes are roughly equivalent to rent (all things that are 100% gone to someone else), then it is just a comparison of a) leverage equity in the property return vs. b) (likely) unleveraged investment return.

I'd say the own also has advantage in stability over time (mortgage payment will reset but it will move less than rents over extended periods. Stay here long enough and rents will go higher with wages, etc). Similarly, avoid lifestyle inflation and the mortgage payment should become more manageable if your salary increases. Downside is less flexibility.

And of course one needs to not be forced to sell for whatever reason along the way (disruptions to employment etc). So potentially a higher return, how much more risk was taken is a bit of a gray area. For any one individual it may have little risk but in the aggregate there is some risk (unfortunately, not everyone will be so lucky in the job market).

Lastly, over time the additional mortgage payments (principal) are buying into a less leveraged property and eventually the asset may go up a bit slower due to age. Probably still works out OK but it is putting more and more money into one illiquid asset. Great as long as the trend continues, if something strange happens who knows.

[the observer]

I agree, back when I rented, I did so because when I added up the mortgage interest, maintenance fees and property taxes (which all go “poof” when you own), it was more $’s than renting back then.

However, one thing I didn’t factor in was the value of leverage. Taking that same $2m condo example, if you borrow $1.5m, you only have $500k “invested” in the home initially. If the value increases by 10%, that is +$200k, representing a 40% gain on the $500k you have invested (3x leveraged). And while you can use leverage with other investments, property is special because of the lower rates on mortgages.

Yes, I was going to post again saying the case I had shown was for unleveraged buyer. For leveraged buyer, say I have $500k and I can either use it as a down payment and make mortgage payments or invest it and rent. Assuming mortgage interest + maintenance fees + taxes are roughly equivalent to rent (all things that are 100% gone to someone else), then it is just a comparison of a) leverage equity in the property return vs. b) (likely) unleveraged investment return.

I'd say the own also has advantage in stability over time (mortgage payment will reset but it will move less than rents over extended periods. Stay here long enough and rents will go higher with wages, etc). Similarly, avoid lifestyle inflation and the mortgage payment should become more manageable if your salary increases. Downside is less flexibility.

And of course one needs to not be forced to sell for whatever reason along the way (disruptions to employment etc). So potentially a higher return, how much more risk was taken is a bit of a gray area. For any one individual it may have little risk but in the aggregate there is some risk (unfortunately, not everyone will be so lucky in the job market).

Lastly, over time the additional mortgage payments (principal) are buying into a less leveraged property and eventually the asset may go up a bit slower due to age. Probably still works out OK but it is putting more and more money into one illiquid asset. Great as long as the trend continues, if something strange happens who knows.

So long as there’s a population ponzi, the game goes on.

[Swn4]

Property is a shitty investment. If you want to invest in property, I'd rather suggest REITs instead. And did you factor in ABSD which is a killer of profits and is even higher for foreigners?

I walked the talk - sold our house last year and am now renting now. No regrets!


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No judgment but I'm just wondering why you would do that? Seems like you gave up all your equity just to burn money every month.

Lisa,
Everyone’s situation and opinions are different.

I have never been interested in buying additional properties since I think the effort of being a landlord is high versus the rental yield. And on average, the capital gain over 10 years in non-HDB is not that great (timing is everything!).

Us -
1. We are (almost) retired so no long mortgages possible
2. We have no kids, so no worries about leaving anything behind (Ie; we can eat into capital if financial returns don’t cover the rent)
Specific to our old home
1. We bought our house right after Lehman crashed and realized a significant gain when selling in 2021.
2. After 12 years, things needed fixing and would have required us to move out while they were repaired (roof, concealed wiring under driveway/walls, A/C ducting, water seepage, etc). All not immediately visible issues but very expensive to fix right.
3. Stairs - it would not have been a home to age in. So it did not seem worth while to put in more dollars to fix things now to only have the same discussion in another 10-15 years.
Specific to where we live now (or would want to live)
1. Monthly maintenance fees are high
2. Rent < maintenance fees + property tax + opportunity cost of tying up capital (since we would not be able to borrow)
While I fully expect my rent to increase next year, I still expect ‘Rent < maintenance fees + property tax + opportunity cost (or interest if we could borrow)’ to hold.


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[NYY1]

Not being able to borrow much or at all later in life is a big factor and pushes things more towards the unleveraged example I had posted above.

One can try to buy a unit and borrow as much as one can before it's too late. However, repairs and depreciating grounds are still a headwind. For later stages, I think peoples' desires change more frequently too (at least vs. what people anticipate). Want to be by kids/grandkids, need more convenience to stores/food, want easier access to parks, outdoors, etc can all ebb and flow. I'm not sure thinking something is going to be "forever" is the only plan.

Some areas in Singapore have had better long-term returns (2 plus decades) than others. Some of the drivers probably still exist, although eventually there may be a limit. There are also a lot of very low returning (like negligible) units for extended periods of time. Of course, everyone will be smart enough not to buy those right?

There are pros and cons to each strategy, and I can see why both fit certain people at different points in time. We are also shaped by the current landscape as to what is good; ask these same questions from 2013 to 2017 and the response will be different.

[Swn4]

Not being able to borrow much or at all later in life is a big factor and pushes things more towards the unleveraged example I had posted above.

One can try to buy a unit and borrow as much as one can before it's too late. However, repairs and depreciating grounds are still a headwind. For later stages, I think peoples' desires change more frequently too (at least vs. what people anticipate). Want to be by kids/grandkids, need more convenience to stores/food, want easier access to parks, outdoors, etc can all ebb and flow. I'm not sure thinking something is going to be "forever" is the only plan.

Some areas in Singapore have had better long-term returns (2 plus decades) than others. Some of the drivers probably still exist, although eventually there may be a limit. There are also a lot of very low returning (like negligible) units for extended periods of time. Of course, everyone will be smart enough not to buy those right?

There are pros and cons to each strategy, and I can see why both fit certain people at different points in time. We are also shaped by the current landscape as to what is good; ask these same questions from 2013 to 2017 and the response will be different.

Agree about needs changing. We moved to bigger and bigger homes during our 20s/30s/40s. And now in our 50s, we have halved our living space and I anticipate that we will move to smaller & smaller units (and maybe a retirement village if that ever develops in SG!) as we age. We now also value having amenities in walking distance over the nice big house in the burbs.
Another thing to consider is how illiquid property can be (again timing). We had been told that it might take up to a year to sell our house and we were pleasantly surprised that we sold in 6 weeks.


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[malcontent]

Having rented here for over a decade and now having owned for over a decade, I have to say owning also comes with many intangible perks. We renovated when we first moved in and were able to create the layout we wanted — e.g. busting down walls and making a great room, adding wall-to-wall built-ins with an integrated entertainment center, and countless other little design details that I appreciate on a daily basis.

Has it really paid off financially versus putting the rent-delta into the market? It’s hard to say, because the S&P 500 is about 3x where it was when I bought this place… that is a lot of opportunity cost. I guess it depends if you count the property exposure as a form of diversification. It has cushioned things during bear markets.

[NYY1]

Having rented here for over a decade and now having owned for over a decade, I have to say owning also comes with many intangible perks. We renovated when we first moved in and were able to create the layout we wanted — e.g. busting down walls and making a great room, adding wall-to-wall built-ins with an integrated entertainment center, and countless other little design details that I appreciate on a daily basis.

Has it really paid off financially versus putting the rent-delta into the market? It’s hard to say, because the S&P 500 is about 3x where it was when I bought this place… that is a lot of opportunity cost. I guess it depends if you count the property exposure as a form of diversification. It has cushioned things during bear markets.

If the property is up 1.5x - 2.0x over a decade plus, the leverage equity return should be in the same rough area as the equity market (again, making some approximations because more equity was put into the property via principal repayments).

So again, call it close enough and the trade-offs are reno/customization and stability vs. flexibility.

I think one negative of renting is that you almost inevitably get stuck with some stuff that is tolerable but not ideal. On the other hand, for our own place, we often live with declines in condition more than what we would accept for a rental or what we would buy and move into as is.

To me, there are big pros and cons going both ways, and timing will make the numbers swing one way or the other.

[Lisafuller]

Well not in most cases (including mine). These ‘expat package’ benefits these days are generally given only to EP holders from western/developed countries.

That's tough, but on the other hand, if you're on EP, there is a chance that your employer is footing, or at least supplementing the cost of housing, which is always helpful.

Yes, I'm well aware.

[Lisafuller]

Rent is not just burning money every month. One needs to consider the opportunity cost of tying up money into one property. We can calculate rent vs. interest + maintenance fees + taxes and that will give you a number to look at. We can also look at money "saved" (or avoided spending) via owning vs returns on investment portfolio.

Additionally, owning offers (more) stability and the ability to reno a unit to your liking while renting offers flexibility (change location when jobs/schools change) and the ability to consume something new/different. People will have different views about spreadsheet monkey math and utility from actual living.

Also, the rental yield (positive or negative) needs to include capital appreciation or depreciation. Can swing wildly for or against you depending on the cycle. Truthfully, a factor that is hard to know for certain ex-ante.

I believe a more Singaporean consideration is value, which in this case, I believe refers to the equity one has in their home. Regardless of how inexpensive renting may be, at the end of the day the money still goes poof and you are left with nothing.

I don't know why you think things go "poof." Example, one owns a $2 MM condo that would cost $80k to rent per year. By owning it looks like they "save $80k per year) and the value of the condo grows over time. Win-win right? Alternatively, sell the condo and invest the $2 MM. Say it throws off $150k per year; you pay the rent and the $2 MM base grows as well (by the $70k difference between investment return and cost of rent, hence the $150k it throws off will grow too). At the end of 20 years one strategy gives you the value of an aging property. The other gives you the value of investments.

I'm not saying the above (invest and rent) is universally better. Owning offers stability. But if real estate is a "low yielding asset" (mentioned in these threads many times by various people), why is everyone so proud to have the return of a low yielding asset (in just monetary terms, not owning a home itself)? Reason? Most people accept a "lower" return on the property that they live in for a number of reasons ("roof over your head" being one).

Again, I'm not sure you understand the concept of opportunity cost. It's not the only consideration (investments can have crummy returns too), but to ignore it completely doesn't make sense either. The timeframe one looks at is also key. Invest and rent was great from 2013-2020, absolutely terrible over the last 12-18 months or so.

Yes, I've taken economics (albeit donkey years ago). I think I've been far removed from the property market for so long as I haven't been an active renter for over two decades. When I bought my unit over 20 years ago, interest rates were good, and the down payment was one I was comfortable with. I had just gotten married, and we were ready to settle down and start a family. This explains my decision to buy, but of course I understand there are many factors that would prevent such a move from being the right choice for others.

[Lisafuller]

The whole reason I decided to buy here (after renting for 16 years) was precisely because I could no longer afford to rent, mortgage rates had dropped to nothing and the numbers finally added up (prior to that, the rent I was paying was definitely a negative rental yield for the LL, so I gladly paid it).

If I was renting today, I would still be inclined to buy in the current market, even with the rising mortgage rates.

Wow. 16 years ago, most mass market condos were in the region of 500-750k for 3 bedders.
Minimum down payment was just 10% back then.

Absolutely right. I bought my unit around 23 years ago in the Bukit Timah area. Can't remember the exact price but it was in the mid 700s.

[Lisafuller]

I walked the talk - sold our house last year and am now renting now. No regrets!


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No judgment but I'm just wondering why you would do that? Seems like you gave up all your equity just to burn money every month.

Lisa,
Everyone’s situation and opinions are different.

I have never been interested in buying additional properties since I think the effort of being a landlord is high versus the rental yield. And on average, the capital gain over 10 years in non-HDB is not that great (timing is everything!).

Us -
1. We are (almost) retired so no long mortgages possible
2. We have no kids, so no worries about leaving anything behind (Ie; we can eat into capital if financial returns don’t cover the rent)
Specific to our old home
1. We bought our house right after Lehman crashed and realized a significant gain when selling in 2021.
2. After 12 years, things needed fixing and would have required us to move out while they were repaired (roof, concealed wiring under driveway/walls, A/C ducting, water seepage, etc). All not immediately visible issues but very expensive to fix right.
3. Stairs - it would not have been a home to age in. So it did not seem worth while to put in more dollars to fix things now to only have the same discussion in another 10-15 years.
Specific to where we live now (or would want to live)
1. Monthly maintenance fees are high
2. Rent < maintenance fees + property tax + opportunity cost of tying up capital (since we would not be able to borrow)
While I fully expect my rent to increase next year, I still expect ‘Rent < maintenance fees + property tax + opportunity cost (or interest if we could borrow)’ to hold.


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Completely get it, and you're right, timing is everything. You raise a really good point about how needs shift as one transitions into retirement. Same thing happened with my parents, they lived in a two-story, but moved to a single-story home around five years ago (both were getting bad knees - nothing serious, just typical aging). Since you don't have kids, you're free to spend your money down to the very last cent (not that you couldn't if you did, but you get my point). Makes perfect sense for you, but wouldn't for me (I've got a daughter and I'm not quite at retirement age yet). Good example of how priorities change depending on age/circumstances.

[Lisafuller]

Not being able to borrow much or at all later in life is a big factor and pushes things more towards the unleveraged example I had posted above.

One can try to buy a unit and borrow as much as one can before it's too late. However, repairs and depreciating grounds are still a headwind. For later stages, I think peoples' desires change more frequently too (at least vs. what people anticipate). Want to be by kids/grandkids, need more convenience to stores/food, want easier access to parks, outdoors, etc can all ebb and flow. I'm not sure thinking something is going to be "forever" is the only plan.

Some areas in Singapore have had better long-term returns (2 plus decades) than others. Some of the drivers probably still exist, although eventually there may be a limit. There are also a lot of very low returning (like negligible) units for extended periods of time. Of course, everyone will be smart enough not to buy those right?

There are pros and cons to each strategy, and I can see why both fit certain people at different points in time. We are also shaped by the current landscape as to what is good; ask these same questions from 2013 to 2017 and the response will be different.

Agree about needs changing. We moved to bigger and bigger homes during our 20s/30s/40s. And now in our 50s, we have halved our living space and I anticipate that we will move to smaller & smaller units (and maybe a retirement village if that ever develops in SG!) as we age. We now also value having amenities in walking distance over the nice big house in the burbs.
Another thing to consider is how illiquid property can be (again timing). We had been told that it might take up to a year to sell our house and we were pleasantly surprised that we sold in 6 weeks.


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Yes! Your home value can change in the blink of an eye, and that volatility can be very damaging if you ever needed to liquidate assets quickly at a time when the market was not in favor of your home. Something we rarely think about unless we need to make urgent moves.

[Lisafuller]

Having rented here for over a decade and now having owned for over a decade, I have to say owning also comes with many intangible perks. We renovated when we first moved in and were able to create the layout we wanted — e.g. busting down walls and making a great room, adding wall-to-wall built-ins with an integrated entertainment center, and countless other little design details that I appreciate on a daily basis.

Has it really paid off financially versus putting the rent-delta into the market? It’s hard to say, because the S&P 500 is about 3x where it was when I bought this place… that is a lot of opportunity cost. I guess it depends if you count the property exposure as a form of diversification. It has cushioned things during bear markets.

Yup, the ability to modify your home to really make it yours is a privilege that very few renters enjoy. This is one reason why it might be preferable to buy if you manage to find a house that is truly perfect for you (at a time when market conditions are favorable as well).

[NYY1]

...
However, one thing I didn’t factor in was the value of leverage. Taking that same $2m condo example, if you borrow $1.5m, you only have $500k “invested” in the home initially. If the value increases by 10%, that is +$200k, representing a 40% gain on the $500k you have invested (3x leveraged). And while you can use leverage with other investments, property is special because of the lower rates on mortgages.

Yes, I was going to post again saying the case I had shown was for unleveraged buyer. For leveraged buyer, say I have $500k and I can either use it as a down payment and make mortgage payments or invest it and rent. Assuming mortgage interest + maintenance fees + taxes are roughly equivalent to rent (all things that are 100% gone to someone else), then it is just a comparison of a) leverage equity in the property return vs. b) (likely) unleveraged investment return.
...
Lastly, over time the additional mortgage payments (principal) are buying into a less leveraged property and eventually the asset may go up a bit slower due to age. Probably still works out OK but it is putting more and more money into one illiquid asset. Great as long as the trend continues, if something strange happens who knows.

Back to rent vs. own...

I was curious how the additional principal payments impacted the leveraged return of the property over time. For example, assume you buy a property for $1.00 and put up $0.25 of equity. On $0.75 of debt you pay interest and amortization payments for 30 years. So at the end of the 30 years you have invested $1.00 of equity in the property. Most likely, the property will be worth more than a $1.00 after 30 years.

Assuming the property is worth $2.00, $2.50, $3.00, $4.00, etc, one can easily calculate the unleveraged CAGR on the property and the equity IRR (initial down payment, add'l amortization payments, and what you get back after the loan has been repaid).

Again, there are other pros (and cons) to owning but my guess is the opportunity cost has been under appreciated.