Buying vs Renting

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CitizenOfTheWorld
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Buying vs Renting

Post by CitizenOfTheWorld » Mon, 21 Oct 2013 4:59 am

This is quite premature I grant you, but I was thinking how hard would it be to get a loan as a foreigner to buy a small studio rather than rent. I'll certainly rent the first year, but after that it seems like it makes more sense to buy, even a modest property if you can get the very low interest rates that are supposedly available.

Assuming I'll love it in Singapore and want to stay forever, and assuming that timing the market is impossible, so forget about booms and busts, how rational is the idea of buying? Let us assume 100-150k available for down payment and a good local salary. This would happen sometime around 2015 or later.

P.S. Thanks for all the advice on the previous thread on renting with/without an agent.
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Post by zzm9980 » Mon, 21 Oct 2013 8:57 am

It's not hard if you have a job and no bad marks on your credit. You need 20% down minimum for the loan, so you're pushing it even for the bottom tier shoebox range of properties. Plus all of the other various expenses (there were a few threads covering this in the past few months), you'd probably want at least 30-50k over the down payment.

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Re: Buying vs Renting

Post by PNGMK » Mon, 21 Oct 2013 9:04 am

CitizenOfTheWorld wrote:This is quite premature I grant you, but I was thinking how hard would it be to get a loan as a foreigner to buy a small studio rather than rent. I'll certainly rent the first year, but after that it seems like it makes more sense to buy, even a modest property if you can get the very low interest rates that are supposedly available.

Assuming I'll love it in Singapore and want to stay forever, and assuming that timing the market is impossible, so forget about booms and busts, how rational is the idea of buying? Let us assume 100-150k available for down payment and a good local salary. This would happen sometime around 2015 or later.

P.S. Thanks for all the advice on the previous thread on renting with/without an agent.
Well I wish I had bought when I moved back in 2005 (market was at the bottom) but due to a difficult divorce I didn't buy until 2010. No regrets though. Having your own shoebox in the sky is a good thing.

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Post by Wd40 » Mon, 21 Oct 2013 9:32 am

Being American is a sure win. No need to pay ABSD. The only resident foreigners I see buying in this market are the Americans, Swiss and Norwegians.

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Post by JR8 » Mon, 21 Oct 2013 10:27 am

Get here and rent for a year before considering it further. You're clearly a 'forward planner', but the question is extremely hypothetical. I mean what happens if you get here and decide you don't like it that much?

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Post by PNGMK » Mon, 21 Oct 2013 10:47 am

Wd40 wrote:Being American is a sure win. No need to pay ABSD. The only resident foreigners I see buying in this market are the Americans, Swiss and Norwegians.
Actually American (US citizens) are running into banks now who won't process the extra paper work as it's too onerous and this will include loans. My wife's workplace (a US school) here has moved all it's accounts to SCB because they are the only bank friendly to all the US citizens employed at said school.

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Post by PrimroseHill » Mon, 21 Oct 2013 11:04 am

Buying a place anywhere especially in an expensive property hub as SG is risky until you know that this is where you want to live. Unless you are from one of those exempted countries, with stamp duty and ABSD, it will work out to be 5%. There's an annual property tax to pay as well on top of any service charges.
Also because it is such a young country, no one can give you a definitive answer on leashold properties other than en bloc.

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Post by PNGMK » Mon, 21 Oct 2013 11:19 am

PrimroseHill wrote:Buying a place anywhere especially in an expensive property hub as SG is risky until you know that this is where you want to live. Unless you are from one of those exempted countries, with stamp duty and ABSD, it will work out to be 5%. There's an annual property tax to pay as well on top of any service charges.
Also because it is such a young country, no one can give you a definitive answer on leashold properties other than en bloc.
The trend on leasehold properties is pretty obvious tho - there are some coming up pretty soon for renewal in Geylang and the govt is quite clear that they will not be extended. The sales prices are now just a multiple of the forecast rent for the remaining lease. What will be interesting is the millions of HDB's coming up for lease renewal in about 60 years + (actually only 40 in some areas already).

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Post by zzm9980 » Mon, 21 Oct 2013 12:59 pm

PNGMK wrote:
Wd40 wrote:Being American is a sure win. No need to pay ABSD. The only resident foreigners I see buying in this market are the Americans, Swiss and Norwegians.
Actually American (US citizens) are running into banks now who won't process the extra paper work as it's too onerous and this will include loans. My wife's workplace (a US school) here has moved all it's accounts to SCB because they are the only bank friendly to all the US citizens employed at said school.
You can still get normal banking services at most banks, just not any type of investment service. I didn't know SCB offered these to Americans.

Anyway, WD40 was talking about ABSD. An individual can file their own paperwork for relief from it.

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Post by zzm9980 » Mon, 21 Oct 2013 1:02 pm

PNGMK wrote: What will be interesting is the millions of HDB's coming up for lease renewal in about 60 years + (actually only 40 in some areas already).
At what point will banks stop offering loans on those properties? I've been told when the lease has less than 50yrs remaining. That will be in the next 10-15 years for a lot of HDBs, even prime ones with current sky-high valuations like Marine Parade.

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Post by JR8 » Mon, 21 Oct 2013 6:24 pm

zzm9980 wrote:
PNGMK wrote: What will be interesting is the millions of HDB's coming up for lease renewal in about 60 years + (actually only 40 in some areas already).
At what point will banks stop offering loans on those properties? I've been told when the lease has less than 50yrs remaining. That will be in the next 10-15 years for a lot of HDBs, even prime ones with current sky-high valuations like Marine Parade.
Well I never, I wonder why they won't allow lease extensions. Maybe it's like compulsory lease expiry so HDB can repossess and en-bloc rebuild.

This has all kinds of ramifications, people being evicted from their family homes of generations. People expecting to inherit a flat now worth nothing. People who get evicted when the lease expires and can't afford a new place, as they have no capital. And on and on ... the social consequences are enormous.

Which is curious, as extending a lease is quite a pig of a process (I'm doing one back one back home right now, and it's already been in-process for maybe 2 years between lawyers, valuers, fellow owners...), but it's pretty much standard under UK law (upon which SG law is based, including 'Landlord + Tenant' law).

What you tend to find is that the market appeal/value of a property drops right off when it's remaining lease drops below a person's '''**perceived** average lifespan''', which in my home market translates into about 75 years unexpired. The drop-off in value as time go by is exponential, increasing as time passes. 50-60 years left? Most people already wouldn't touch it, unless it was ultra-ultra prime city-centre.

Banks' mortgages by standard are 25-30 years. If it's an interest-only loan, they need to know their security, your home, will be worth more the capital outstanding when the loan expires. If your home has say 25 years on it's lease unexpired, odds on it won't cover it. It's become very niche market on a lease that short (cash buyers etc). I forget what the average unexpired term required is for a mortgage, but it is somewhere around 60 years IIRC.

I am very surprised to hear of this policy. If this is true, there is a great deal of trouble ahead.

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Post by Wd40 » Mon, 21 Oct 2013 6:33 pm

PrimroseHill wrote:Buying a place anywhere especially in an expensive property hub as SG is risky until you know that this is where you want to live. Unless you are from one of those exempted countries, with stamp duty and ABSD, it will work out to be 5%. There's an annual property tax to pay as well on top of any service charges.
Also because it is such a young country, no one can give you a definitive answer on leashold properties other than en bloc.
ABSD for non-exempt foreigners is now 15%. If I were an American I would jump and buy a property just to make use of that 15% arbitrage. OP is American so he is exempt.

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Post by JR8 » Mon, 21 Oct 2013 7:11 pm

Wd40 wrote:ABSD for non-exempt foreigners is now 15%. If I were an American I would jump and buy a property just to make use of that 15% arbitrage. OP is American so he is exempt.
[Squint] I don't see any arbitrage here. Do you mean 'opportunity to not have to pay a tax?' If so why does that alone motivate you to buy, when 95% [?] of the buyers already don't pay this tax?

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Post by CitizenOfTheWorld » Mon, 21 Oct 2013 9:35 pm

Thanks, everyone, for the very useful info. Re credit checking, will they have access to, or care about, my US credit history or do I have to build one in Singapore?

The plan right now is to rent cheap for the first 1-2 years while saving for a down payment, along with what little savings I have from home (it should have been a lot, but bad investments, divorce, etc.)

Of course, if I hate it there, then this all is moot. But assuming the best...

P.S. While looking on line, I make sure to search only freehold or 999 year leases. I will not put money on a 99 year lease that likely started 30 years ago.
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Post by PNGMK » Mon, 21 Oct 2013 9:52 pm

JR8 wrote:
zzm9980 wrote:
PNGMK wrote: What will be interesting is the millions of HDB's coming up for lease renewal in about 60 years + (actually only 40 in some areas already).
At what point will banks stop offering loans on those properties? I've been told when the lease has less than 50yrs remaining. That will be in the next 10-15 years for a lot of HDBs, even prime ones with current sky-high valuations like Marine Parade.
Well I never, I wonder why they won't allow lease extensions. Maybe it's like compulsory lease expiry so HDB can repossess and en-bloc rebuild.

This has all kinds of ramifications, people being evicted from their family homes of generations. People expecting to inherit a flat now worth nothing. People who get evicted when the lease expires and can't afford a new place, as they have no capital. And on and on ... the social consequences are enormous.

Which is curious, as extending a lease is quite a pig of a process (I'm doing one back one back home right now, and it's already been in-process for maybe 2 years between lawyers, valuers, fellow owners...), but it's pretty much standard under UK law (upon which SG law is based, including 'Landlord + Tenant' law).

What you tend to find is that the market appeal/value of a property drops right off when it's remaining lease drops below a person's '''**perceived** average lifespan''', which in my home market translates into about 75 years unexpired. The drop-off in value as time go by is exponential, increasing as time passes. 50-60 years left? Most people already wouldn't touch it, unless it was ultra-ultra prime city-centre.

Banks' mortgages by standard are 25-30 years. If it's an interest-only loan, they need to know their security, your home, will be worth more the capital outstanding when the loan expires. If your home has say 25 years on it's lease unexpired, odds on it won't cover it. It's become very niche market on a lease that short (cash buyers etc). I forget what the average unexpired term required is for a mortgage, but it is somewhere around 60 years IIRC.

I am very surprised to hear of this policy. If this is true, there is a great deal of trouble ahead.
1. It's the very big elephant in the room no one will talk about officially.
2. The leases we're talking about are state land leases, not private owner to tenant.
3. The govt here has been pretty insistent it will not renew leases on some leases coming up - however when faced with huge numbers of leases expiring around 2050 onwards I imagine the tune will have to change or perhaps as you hint there may be a mass enbloc repurchase started.
4. When I first moved here 20 years ago I looked at place (and old pre-HDB lease hold - was it called SPD or something?)... it had 65 years left and the bank told me not to touch it as after 60 years it would be impossible to remortgage - I believe this has changed - some of the Jalan Bahagia and Stirling Road places are around the 40 year mark and are still being able to be mortgaged from what I can tell.
5. There are also some curious 'peony' or peppercorn leases expiring this decade and next - highly valuable land that was leased on fixed amounts that didn't have indexing built in!

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