Tuesday, February 21, 2006

Buying vs renting property - which is better? by itrealtor

Buying vs renting property - which is better? Looking for property in Singapore? Still deep in thoughts about whether buying or renting is the better option? Here are some points that you could consider in your decision-making process. Hopefully, it will help you will to select the option that is suitable to your needs.

Do you have sufficient initial capital?

When you make a property purchase, your initial capital outlay is 10% (out of which 5% can be from your CPF and the remaining 5% is to be in cash). For renting purposes, you would typically be looking at somewhere between 1 to 3 months rental value for the security deposit (depending on lease terms and the landlord's requirements).

Tax and depreciation shelter

Property buyers enjoy tax and depreciation shelter whereas tenants do not. If a loan was taken up for the purchase, the interest component (being an expense item) reduces the taxable income.

Looking at it from an investment point of view

It has been well documented that there is strong correlation between real estate growth and the country's economy. If the GDP is expected to rise significantly in the mid to long term, it would be quite likely that home prices follow suit and this will give home buyers potential on getting good returns for their investments whereas tenants do not enjoy any returns on the rental paid out.

Using real estate as a inflation-hedging tool

Real estate has often been used as a hedge against inflation - the effects are transferred onto the tenants through rental increments. Inflation will work against the tenants when the market rises, landlords will increase rents during lease renewals and this becomes additional cost to the tenants.




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