Retirement Planning for Millennials: Property Renting vs Buying

The traditional path to retirement security in Singapore is shifting dramatically. Moreover, millennials are questioning whether property ownership remains the golden ticket to financial freedom.

The Property Ownership Challenge Today's reality is stark. HDB resale flats now command prices exceeding SGD 1 million, placing significant financial strain on prospective buyers. This surge reflects rising property values across Singapore, narrowing options for affordable homeownership for many Singaporeans.

There are undeniable pros and cons to buying property in Singapore. On the plus side, property values have appreciated significantly, making real estate an attractive vehicle for profit, financial stability, and wealth-building over time.

But the costs of purchasing can place a serious strain on one’s finances, leading to challenges such as:

• Long-term mortgage commitments can become unmanageable if income levels change unexpectedly
• Potential market downturns, which could leave homeowners with properties worth less than their mortgage

For those still keen on HDB resale flats, take note: as of Q3 2024, prices have climbed for 18 straight quarters:

Fast Facts on the HDB Resale Market in Q3 2024:

1. More people are buying resale flats (up 10.7% from Q2 2024)
2. The most expensive areas were Geylang, Central Area, and Jurong East
3. Popular areas for buying were Sengkang, Punggol, Woodlands, Jurong West, and Tampines
4. Bigger flats (4 and 5-room) were in high demand
5. 311 flats sold for SGD 1 million or more, mostly in mature estates
6. A limited supply of new resale flats is driving prices up

Renting: A Strategic Choice?

Contrary to conventional wisdom, renting whilst building your investment portfolio can be surprisingly advantageous. Here's why:

• Lower upfront costs
• Greater mobility for global career moves
• No property maintenance headaches
• More capital available for diverse investments

However, there's a catch. Without property equity, you'll need robust alternative investment strategies. Consider channelling your "non-property" funds into:

• Global stock portfolios
• S-REITs (Real Estate Investment Trusts)
• High-yield savings accounts in multiple currencies

Making the Right Choice Your decision should align with your personal circumstances. Consider these factors:

• Current career trajectory
• Investment goals
• Desired lifestyle flexibility

The Hybrid Solution A balanced approach might work best. Picture this: Own an HDB flat to earn rental income and rent for your own stay in a cheaper neighbouring country. Or perhaps purchase a private property (for own living) and rent out a portion. These strategies can provide both stability and rental income.

Evaluating Returns and Costs in HDB Investments

Rental Income: HDBs typically yield around 5% to 8% annually based on resale value. Ongoing Costs: Average annual costs (property taxes, maintenance, insurance) are about SGD 13,900 for an SGD 500,000 flat. Estimated Returns: According to Value Champion, the annual return from renting a HDB for 15 years and then reselling it averages around a modest 3.3%. Minimum Occupancy Period (MOP): enting out a standard flat is prohibited for the first 5 years. For Prime Location Housing (PLH) flats, this restriction extends to 10 years, delaying rental income potential. Full guidelines are available in the government’s HDB rental guide.

Expert Tip: Don't overlook the power of diversification. Property ownership shouldn't consume all your retirement planning resources. Consider spreading investments across various asset classes for optimal returns.