Buying versus Renting?
What are the advantages of buying versus renting? Consider the pros and cons of each and whether your motivation to buy matches the lifestyle you have or want to have. Why buy?
There seems to be an inherent desire in most of us to eventually 'nest' and make our home somewhere. This usually means that buying a home is more desirable than renting and brings a sense of satisfaction and security that cannot be matched. Unfortunately, the rapid increase of values in the property market in recent years has pushed home ownership out of reach for some would-be first time buyers. However affordability does not necessarily equate with having a high income. Home ownership is a long-term goal, and requires planning, tight budgeting and saving strategies. Not everyone is willing to make the types of sacrifices this can sometimes require so it helps to consider some of the pros and cons of buying in order to examine your own priorities.
Advantages:
Security: Owning your own home brings a sense of satisfaction, security and stability. There are no lease conditions to worry about and you are no longer subject to the whims of a landlord who has control over the length of your tenancy and the cost of rent.
Investment: As long as your home is appreciating or maintaining value, you are growing equity (ownership) in your home. This equity can be later used to secure further loans and will also provide security in retirement.
Savings strategy: In a sense, making repayments is like a type of forced savings strategy. The more you pay off, the more of your home you will own. Furthermore, once you have paid off your mortgage, you will free up a large portion of your income which will lighten your financial responsibilities.
Lifestyle: Choosing the style and type of home for your lifestyle (or changing it to fit) is a huge incentive for many people to become home owners. In rented premises, time, money and effort spent on decoration and gardening will not return to you beyond the length of your lease and in most cases, the landlord will be very particular about any modifications you make in the first place. Owning your own home not only provides the freedom to change and improve your house as you like, but the process can become a productive hobby which may increase the value of your property at the same time.
Tax incentives: If you purchase a property for investment purposes, the interest on your mortgage payments is tax deductible. Likewise, an investor who lets their property to tenants can take advantage of the tax benefits of negative gearing.
Status: The status of being a home owner is not only satisfying inwardly, but it provides other benefits from a financial viewpoint. As you make regular mortgage payments, you will establish a favourable credit rating with financial institutions which may be useful for future borrowing.
Disadvantages:
Struggle to save deposit: Depending on the market you are hoping to buy in, getting a deposit together can take several years of saving every spare cent of your income and changing your view of 'essential' spending quite severely. It can mean a lot more than taking cheap holidays, cutting out take-aways or limiting going to the restaurant. Buying in bulk, taking lunch to work, getting rid of credit cards and forgoing expensive outings might be just the beginning, not to mention switching to public transport if you have a second car or giving up expensive habits.
High Costs: Home-ownership can be more expensive than renting because you are responsible for the maintenance and repairs of the property, insurance, paying council rates, plus any improvements you want to make. If you have a large mortgage you may find more than half of your income going into repayments - a huge financial commitment.
Price Depreciation: There is a risk in any investment that its value will depreciate. If this happens to your property you stand to make a loss in the event you decide to sell.
Interest rates: If your mortgage is subject to a rise in interest rates, you may struggle to continue making your repayments if interest rates increase. While renters can also face rent increases, it is possible to negotiate this with your landlord - or otherwise move.
Location bound: Some people are not settlers. They like to move around regularly. Whether it be for career or lifestyle reasons, the thought of being bound to one place seems boring or threatening to their sense of freedom. Moving regularly is expensive in itself, but the transaction costs buying and selling every few years is likely to cancel out any appreciation of the property.
Procedure to Buy/Sell
Who Can Buy Private Property? All Singapore citizens and companies can freely buy any type of private residential property. However, there are HDB and CPF restrictions that may affect you when you buy a private property.
For flats bought directly from HDB (including flats bought from the open market with CPF Housing Grant)
a) The flats lessees must satisfy the required occupation period for the flat before acquiring the private property
b) The flat lessees must continue to stay in the HDB flat after acquiring the private property.
For flats bought from the open market without CPF Housing Grant
There is no need to satisfy the required occupation period for the flat before acquiring the private property. However, the flat lessees must continue to stay in the HDB flat after acquiring the private property.
Foreigners or foreign companies can buy certain types of residential property.
The Buying / Selling Process:
1) Select an agent
Recommended. A professional agent will not only help you to find the right property, but also ensure you get the right price, ensure all small details are covered prior to purchase, guide you through the process and make recommendations on financing and legal representation.
2) Find your property and agree a price
When reaching a preliminary agreement to buy, ensure that all important points have been discussed and agreed, including any repairs or changes prior to purchase, what stays and what goes, any special requirements from both side and the anticipated schedule.
3) Sign an Option to Purchase
For Private Property - This is obtained from the seller through their lawyer or agent. At this point you are required to pay a non-refundable option fee (normally 1% of purchase price). The option period is usually 14 days.
For HDB Property - Since 15 April 2003, the HDB standard Option to Purchase has replaced the Sale & Purchase Agreement as the form of contract to be used in resale flat transactions. Buyers and sellers should not enter into any other forms of agreement or supplementary agreements.
4) Appoint a Lawyer
You now need to appoint a lawyer to make legal enquiries on the status of the seller, the title of the property and the terms of the sale.
5) Arranging Financing
Compare interest rates and special terms when choosing your finance scheme. You can apply for withdrawal of CPF savings by completing an application together with a valuation report prepared by a licensed valuer who is on the CPF panel of valuers. As a valued added service, I can help you to source for the right bank and loan type to suit your needs.
6) Exercise the Option / HDB 1st Appointment
For Private Property - If all is well you sign the sales contract, and pay 5% of the purchase price (less the option fee).
For HDB Property - Both buyer and seller are to mutually agree on when to submit the resale application to HDB. After the application is registered, buyer and seller will attend a 1st Appointment at HDB Resale Office at HDB Hub Toa Payoh, usually about 4 -6 weeks after the registration is done.
7) Legal Inspection & Completion
Your lawyer will carry out an investigation of title deeds and send requisitions to various government departments. The seller’s lawyer will also prepare the completion statement and send documents for stamping to effect completion.
8) Settle Payment and Handover / HDB 2nd Appointment
For Private Property - You now settle the outstanding balance of the purchase price. This might be 8 to 12 weeks after exercising the option. The seller’s lawyer will then handover the keys and title deed of conveyance, and you become the owner of your new home.
For HDB Property - Completion takes place usually within 8 weeks after the 1st Appointment. The agent fees are paid. The sale is completed and arrangements are made for moving into your new home.
Entire Process Time: Usually between 10 to 14 weeks.
