While Singapore has one of the highest home ownership rates in the world, many young people are increasingly looking at rental instead of home ownership due to rising house prices. Does the conventional wisdom of owning a home if you can still hold true? Here are 5 reasons why you should still aim to buy your home.
1. Properties Serve As Hedge against Inflation
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One of the key considerations in the long term would be inflation. All things kept constant, barring an economic downturn, property values will go up in the long term. That’s because properties are known as a good hedge against inflation. The combination of lower supply of land, increased demand through population increase, rising construction costs all will push property prices up. Inflation is generally at an average of 2-4% per year; as such one would expect property prices to go up in at least the same proportion. When property prices increase, rental prices will go up as well and it can be really tough to still be paying higher rents especially when in retirement.
2. Acts as a Saving Tool
If you do not own a home, you would have to rent and that would make the landlord rich by giving your hard earned money to the landlord every month as rental. You should always pay yourself first and that’s to pay yourself rent for staying in the house. You will save a lot of money by paying installment for a housing loan as opposed to paying rental. Firstly, you will save money on the differential between the installment and the rental; rental is higher than installment in most cases. Secondly, you will save money on the principal portion of the installment as that money goes towards reducing your loan instead. The only true cost for owning a home is the interest charges on your bank loan and of course the opportunity cost of not investing the money is other assets. The capital appreciation of the property and the reduction of loan will increase your net asset values faster than you can imagine.
3. You Can Renovate To Your Heart’s Content
Everybody has a dream house in their heart and that usually requires some form of renovation other than just decorations. With a rental home, you would generally not be allowed to perform renovations. Even if you could renovate, you be less inclined to spend too much since the owner gets the benefits of the renovations and you can’t bring them along with you when you move.
4. Sense of Achievement and Belonging
People who have already bought their house will know this feeling. There is a sense of achievement when you finally get your own home, one of the significant milestones in life. When you intend to start a family, a home is essential as it allows the whole family to feel a sense of belonging. It is also for this reason many people tend to stay in their house for a long time instead of move around.
5. Use Bank Loans To Build Up Your Net Worth
When it comes to properties, the bank is willing to lend between 70 to 90% of the purchase value. Reason is simple, banks also recognize the long term value of properties and getting a housing loan may be the only way for most people to acquire a home when they most need it. By coming up with only 10-30% of the total capital required and other transaction costs, you will be able to purchase a house which will appreciate in value over time. Since the property value is increasing, you will be be paying down your loans which will speed up the rate at which you build your net worth.