Buying vs Renting in Singapore

Welcome to my latest blog post, where we delve into one of the most critical decisions Australian expats face when moving to Singapore.

Should you rent or buy your new home?

This question is not only a financial one but also touches on lifestyle choices and future plans.

Singapore, known for its vibrant culture, excellent infrastructure, and high standard of living, has become a popular destination for Australian expats. However, the property market here can be quite different from what you're used to back home. This guide aims to demystify the process and provide a comprehensive comparison between renting and buying a property in Singapore.

We'll explore the financial implications of both options, taking into account factors such as purchase price, mortgage interest rates, rental yields, and property appreciation. We'll also consider non-financial aspects, such as flexibility, maintenance responsibilities, and the potential for home customisation.

Whether you're planning to stay in Singapore for a few years or considering it as your long-term home, this guide will equip you with the knowledge to make an informed decision. So, let's dive in and start exploring the pros and cons of renting vs buying a property in Singapore as an Australian expat.

Renting vs Buying in Singapore

In Singapore, the cost of living for Australian expats has been significantly impacted by the cost of rent, which is often their largest expense. This has been exacerbated by the recent surge in rental prices in 2023, which saw an increase of over 33%. This steep rise has understandably led many Australian expats to consider the option of buying property instead.

The high rental costs can be attributed to Singapore's status as a global financial hub, attracting a large number of expats. The city-state's limited land area and high demand for housing also contribute to the high rental prices. The recent increase in rental prices has put additional financial pressure on Australian expats, many of whom are already grappling with the high cost of living in Singapore.

In response to these escalating costs, many Australian expats have begun exploring the idea of buying property in Singapore. While this option requires a significant upfront investment, many have explored whether or not it could potentially offer long-term financial benefits. It also removes the hassle of having to move, however is it really a wise financial decision.

In this blog post, we're going to explore a simple case study of purchasing a property in Singapore for S$3,000,000, which is an average private condominium here. We will explore the comparison of all of the costs involved in the property when compared to rent to explore which may be the smarter choice.

Let’s explore a case study.

Case Study – S$3M private condo

In our example, we will assume a purchase price for a 2 – 3 bedroom private condominium for a purchase price of S$3 million. Here is a breakdown of the approximate costs below:

  • Purchase Price: This is the agreed-upon price of the property. In your case, it's $3 million.
  • Additional Buyer's Stamp Duty (ABSD): This is a tax imposed on certain categories of property buyers. For Singapore Permanent Residents buying their first residential property, the ABSD rate is 5%. For the second and subsequent properties, the rate is 15%.

Calculation: ABSD = Purchase Price * ABSD Rate

Example: If it's your first property, ABSD = $3,000,000 * 5% = $150,000

  • Buyer's Stamp Duty (BSD): This is a tax paid on the acceptance of an Option to Purchase (OTP) or Sales & Purchase Agreement (S&P). The BSD is calculated on the purchase price or market value of the property, whichever is higher. The rates are as follows:

First $180,000: 1%

Next $180,000: 2%

Next $640,000: 3%

Remaining amount: 4%

Calculation: BSD = (1% of first $180,000) + (2% of next $180,000) + (3% of next $640,000) + (4% of remaining amount)

Example: BSD = (1% of $180,000) + (2% of $180,000) + (3% of $640,000) + (4% of remaining $2,000,000) = $90,000

  • Legal Fees: These are the fees you pay to your lawyer to handle the legal work associated with buying a property. The cost can vary depending on the lawyer and complexity of the purchase, but it typically ranges from $2,500 to $3,000.
  • Valuation Fees: If you're taking a bank loan, the bank will require a valuation of the property. The fee for this is usually around $200 to $500.
  • Mortgage Insurance: If you're taking a bank loan, you may also want to consider getting mortgage insurance, which can help pay off your mortgage in case of death or total permanent disability. The cost of mortgage insurance varies depending on the loan amount, loan tenure, and your age and health.

Determining Break-even

Let’s assume that based on the above figures, we want to determine whether it’s smarter to rent or purchase the property. Let’s run the scenario based on the following figures:

  • Rental yield – 3.5% per annum
  • Mortgage interest rate – 4% per annum
  • Loan amount - $2,400,000 (80% LVR)
  • Deposit amount - $600,000
  • Capital growth rate – 5% per annum
  • Loan term – 25 years

For simplicity of the comparison, we will assume that the mortgage interest rate and rental yield don’t change over the projection to allow for a comparison.

Buying vs Renting in Singapore - Jarrad Brown

As you can see in the table above, the loan repayment, including the principal and interest falls below the rental repayment, assuming this increases also by 5% per year in line with the value of the property, between years 10 and 11. It may be excessive to assume that the rental would continue to increase at 5% per annum, which would mean that the breakeven point would be later, for the sake of simplicity, we'll keep it at 5%.

Renting and Investing Instead

Let’s have a look at the overall position we’d be in if we’d instead continued renting and invested the funds that would have gone in the property deposit and purchase costs instead into a diversified portfolio of shares.

Renting vs Buying in Singapore - Jarrad Brown

In the property table above, we have accumulated equity in the property that we have purchased of $1.187M, whereas if we’d instead invested these funds into the share portfolio, we would be projected to have a position of $1.82M, a staggering difference between the two.

This means that when comparing the option of purchasing your primary residence in Singapore to renting and investing the funds that are saved from taxes and the property deposit, you would be approximately $632,000 better off.

Repatriating to Australia

Repatriating to Australia while owning a property in Singapore presents a complex set of issues and tax considerations. One of the primary concerns is the potential liability for Capital Gains Tax (CGT) in Australia.

CGT is a tax on the profit made from the sale of any investment, including real estate. For Australian residents, this tax applies to assets anywhere in the world, including Singapore. Therefore, if an Australian expat sells their Singaporean property after repatriating, they may be liable for CGT on any profit made from the sale.

The amount of CGT payable depends on several factors, including the length of ownership and the amount of profit made. However, it's important to note that Australia's tax law provides a 50% discount on CGT for assets held for more than one year, which could significantly reduce the tax burden.

Another key consideration is the Main Residence Exemption (MRE). Under Australian tax law, the MRE can exempt a taxpayer from paying CGT on their primary residence. This exemption can apply to a property in Singapore if it was the expat's main residence while living there.

However, the application of the MRE is not straightforward. In 2020, the Australian government made changes to the MRE rules for foreign residents. Under the new rules, foreign residents can no longer claim the MRE unless certain life events occur during their period of foreign residency.

Furthermore, the Australian Taxation Office (ATO) considers several factors when determining whether a property qualifies as a main residence. These include the length of time you live in the home, whether your family lives there, whether you have moved your personal belongings into the home, and whether you have made it your address for correspondence.

Seller’s Stamp Duty

Yet another consideration and drawback for many Australian expats when considering buying property in Singapore is the Seller’s Stamp Duty, which is imposed if the property is sold within a certain time frame. The purpose of this tax is to discourage short-term property speculation and stabilise the property market.

The SSD rates are structured in a tiered system based on the holding period of the property.

  • 12% if the property is sold in the first year of purchase
  • 8% if the property is sold in the second year of purchase
  • 4% if the property is sold in the third year of purchase
  • There is no SSD if the property is sold in the fourth year of purchase or later.

The SSD can present several problems for property owners. Firstly, it can significantly reduce the profits from the sale of a property, especially if the property is sold within the first year of purchase. This can be a significant financial burden for property owners who need to sell their property due to unforeseen circumstances such as financial hardship or a change in personal circumstances.

Secondly, the SSD can deter potential buyers, as they would need to factor in the potential SSD liability if they need to sell the property within a few years. This can make it more difficult for property owners to sell their property, especially in a slow property market.

Lastly, the SSD can complicate the process of buying and selling property, as property owners need to carefully consider the timing of their property transactions to minimise their SSD liability. This can make property investment in Singapore less attractive, especially for short-term investors.

The Bottom Line

As you can see, it is challenging to make a strong case for buying relative to renting a property in Singapore, particularly for Australian expats who are not 100% certain of how long they will live and work here. Whilst there is no one size fits all approach to whether you should rent or buy, one key take-away from this blog post is that you must crunch your numbers and consider the alternative scenarios.


To Your Financial Success!

Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3

To learn more about how we may be able to help you, please contact us:

✆         +65 8282 5702

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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.

*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.

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