Rental rates in Singapore are steadily increasing and it is getting expensive to rent a house in Singapore. This is true for both HDB and condo as rent prices have been rising for more than 18 months.
According to Business Times, condo prices increased by 21.1 per cent and HDB rent grew by 17.9 per cent. So why is this happening?
To understand the rise in rental prices, we have to look at 2001 when rent control was abolished. Back then, 90 per cent of Singaporeans had ownership of their own house. This meant that very few Singaporeans were renting and the majority of renters were expats or foreigners.
This meant that rent control was counterproductive and was abolished to make the renting market more competitive. However, after 20 years, the situation has changed. The number of expats in Singapore has increased over the years and more Singaporeans are looking for rental properties.
If you have seen the news recently, you would have come across the Federal Reserve rate hikes. As the Federal Reserve increases interest rates to curb inflation, what we observe domestically are home loans increasing and becoming more expensive.
As mortgage rates increase, buying a house may seem like a bad choice at this point in time and prospective buyers may consider renting for the time being till the prices of home loans come down. The demand for rental properties thus increases.
Beyond prospective buyers, landlords are also facing pressure as those who still have mortgage repayments are feeling the stress of high-interest rates and will be trying to get more rental income to cover the interest expense.
With the pandemic easing and expats returning to Singapore, the demand for rental properties will definitely increase. This is worsened by the large influx of Hong Kongers as they seek to escape the draconian Covid-19 rules set out by their government.
Expats are usually high earners and would usually be looking for more expensive properties. Furthermore, most of them are unable to get public housing due to citizenship requirements, thus, condo and expensive HDB flats are usually their targets.
Younger Singaporean adults are also looking to move out of their parent's place in search of their own private space away from their parents.
After two years of the pandemic, many young Singaporeans find themselves needing their own private spaces. Spending two years together cooped up under the same roof day-in and day out can put a strain on their relationship, thus there are a good number of young Singaporeans moving out.
These younger individuals will be looking at smaller and affordable HDB flats to rent, so as to meet their budget constraints.
These three reasons cover why the rental prices are rising from affordable HDB flats to condominiums.
With the rising interest rates making home ownership and rentals unaffordable, it is important to make the right choice for you before sinking your money into something that you will regret.
Whenever we look at such situations, it always boils down to your current situation and goals. Be it to save money, to start a family or to move out of your parent's house, there is always the best option you can take.
If your goal is to save money, the simplest thing you can do is to just stay with your parents. However, what if your goals are different or what if you do not wish to stay with your parents?
If you are getting married or building your own family, the better option may be to just bite the bullet and buy a house. There will be more stability in this option and ways you can make it work.
If you already have a BTO, you could either make the choice of staying with your parents for the time being or rent a small apartment to tide through until your new apartment is built.
If you are looking at a resale flat, you will have to be careful. Understand that should you use a bank mortgage with floating interest rates, the interest rates may climb up more as the bank adjusts to the market situation. In such cases, it is wise to buy a flat that is slightly below your budget so that you have some wiggle room should the mortgage repayment increase in the future.
Once the interest rates return back to normal, you can consider getting a mortgage refinancing to lower your interest rate payment.
For the younger adults looking to move out and gain independence from their parents, all hope is not lost. Consider sharing an apartment with close friends to offset the high rental cost. Alternatively, look for room rentals instead to save a bit of money before rental rates come down in the future.
As the Federal Reserve continues with its rate hikes, home ownership and rental will be the first few victims. As a result, it is up to us to be more financially prudent with our money and make the best decision at this point in time.
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This article was first published in ValueChampion.