Should Singapore millennials (and Gen Z) buy or rent their homes?

THIS WEEK'S TOPIC: From a financial standpoint, should millennials (and Gen Z) in Singapore buy or rent their home?

Lawrence Loh Director, Centre for Governance and Sustainability NUS Business School

The traditional thinking is that rent payments are wasted outlays but home ownership will bring capital gains. Sustained property price appreciation is not a given, so the financial balance may not tilt towards the purchase mode. The decision to buy or rent, particularly for the younger generations, will have to depend on various non-financial factors. These include location flexibility, job mobility and lifestyle choices. We have to weigh the trade-offs holistically. Indeed, a policy sacred cow we have to review is whether home ownership necessarily equates to a strengthening of the social compact, as this comes with both benefits and burdens at the individual level.

David Sandison Singapore Practice Leader Grant Thornton Singapore

Whatever your generation: Buy. Three reasons: Discipline, inflation, peace of mind.

The cash flow constraints of a mortgage mean enforced saving. It is cheaper to rent initially, of course. But human nature suggests you will spend the difference. So how do you save enough for the rent from age 65 to 90, which will have probably doubled through inflation by then - for the same place. And that is just at the beginning of retirement.

Pay off the mortgage though, and it is all yours. Even if everything else goes to hell in a handbasket, you still have somewhere to live. And that lifelong desire to have your own dream kitchen can be satisfied.

David Kuo Co-founder The Smart Investor

People who hope to capitalise on a rising property market should remember that the roof over our heads is our home. We do not need to own the asset for it to be so. Arguably, a rent-paying tenant may be better off than a mortgage-paying homeowner in the short term, because the outgoings are lower. But unless the tenant consciously saves the difference, they are unlikely to be better off in the long term. Homeowners will gain in the long run because they are forced to save through the discipline of a mortgage. But the danger then is that the home could become the biggest asset in an asset-rich, cash-poor retirement, which could open up an even bigger can of worms.

Long Jek Aun Singapore Office Head Simmons & Simmons JWS

Home is where the heart is. For millennials (and Gen Z) who are committed to building their long-term future in Singapore and ultimately settling down and retiring here, there are strong reasons to buy their home - of course, buy within one's means. If possible, seek to get started on the home ownership ladder and build from where one stands financially. If not, then renting can be the starting point and, should it ever be an option in the longer term, save towards that first home. Start somewhere, from where you are.

Giselle Makarachvili Chief Executive Officer Hmlet

Over the past 2 years, a combination of factors, including the need for more privacy and space, has led to millennials and Gen Z embracing renting. And now that they have got a taste of independence, individuals are more confident about leading ''asset-light'' lives.

Indeed, with increasing property prices, the burden of mortgage and the rise of flexible living alternatives (especially if work-from-home-friendly), the advantages of renting are apparent to many and result in the most financially viable option in today's climate.

Jeffery Tan Group General Counsel and Chief Sustainability Officer Jardine Cycle & Carriage

In many respects, the purchase of a leasehold property is already a form of ''rental'' - limited to a fixed period of ownership, for example, 99-year leasehold properties. The advantage ownership offers over a pure lease is the residual value on the purchased property and its potential for capital appreciation.

For millennials and Gen Z who live in Singapore, it would make financial sense to buy instead of renting their homes.

For those who may subsequently decide to live and work abroad to satisfy their appetite for global experience and exposure, one wonders, whether from a selfish Singaporean policy perspective, we should also actively encourage ownership over rental - if only to ensure they have an ''asset anchor'' to Singapore: That way, when their overseas living and work journeys end, any desire to return home will have the assurance of a roof over their heads on this little red dot.

Helen Ng Chief Executive Officer Lock+Store

Millennials should rent their first home if they have not experienced living independently before. This would equip them with an awareness of home maintenance costs. Only then can they make an informed decision about home ownership. Given the risks for future inflation, they should still aim to buy their home.

Victor Mills Chief Executive Singapore International Chamber of Commerce

Whether you choose to buy or rent a home depends on many factors: affordability, income and personal preferences for location. Singapore citizens have an advantage not enjoyed by citizens of most countries: affordable, well-built Housing Board flats subsidised by the taxpayer. It makes sense for citizens to buy a HDB flat, provided they remember they are not buying a guaranteed, appreciating asset. Renting a home is a choice which, obviously, does not provide the potential upside of property appreciation, but does provide protection from maintenance costs and any drop in property value. Most people choose to buy because of the potential upside property ownership currently offers.

Chia Ngiang Hong President Real Estate Developers' Association of Singapore (Redas)

Home ownership is a long-term investment and a major financial commitment for many. Given land scarcity in Singapore and its economic development and position as a global financial and business hub, millennials (and Gen Z) in Singapore have to consider carefully their financial planning and capability/constraints, as well as their current and expected future circumstances when deciding to buy or rent a home. My take is that renting a home could be an interim alternative for those who are constrained financially, or it could even be a viable business model to cater to those who prefer an asset-light lifestyle. Ultimately, the decision to rent or to own a home is not just financial; it is also about aspiration and your vision for your future and family.

Laletha Nithiyanandan Managing Director Behavioural Consulting Group

If home ownership is a basic tenet in Singapore, then there is a huge disconnect, as most people actually do not own their HDB flats - leasehold is but another way to describe ''rental'' over a longer period. Gen Z can see through this and will not buy it. Gen Z is more likely to rent, and they should; there are many places they can live outside Singapore that are more affordable. It makes sense to live in a nicer property than to stay in a ''shoebox'' you own, especially when you do not really own it in the first place. Financially, it makes sense for Gen Z to invest in enriching experiences, education and networking, as the world is more accessible to them.

Gavin Chia Managing Director Futu Singapore

The pursuit of property has many paths. A home purchase usually requires significant down payment and long-term mortgage commitment. Some choose to rent and reallocate their capital towards more liquid investments like property stocks and funds, as well as Reits, which could offer faster and greater investment returns compared to home ownership. In fact, we have observed growth in investing on our moomoo platform, and for the quarter ended Sep 30, our total and average client assets in Singapore increased sequentially, up 52.4 per cent and 11.5 per cent respectively. Ultimately, the approach towards property will be guided by the individual's comfortable spot between current liquidity needs and future financial goals.

Mohd Ismail Gafoor Chief Executive Officer PropNex

In Singapore, home ownership has always been a source of pride for many Singaporeans. Apart from having a roof over one's head, a property is a tangible legacy that one can pass down to future generations.

For young Singaporeans, the entry barrier in purchasing a property is low due to our public housing policies, which have been designed to make housing affordable - some features include subsidised housing prices and generous government grants.

One of the biggest benefits to owning a property is that it is a good store of wealth that can keep pace with inflation. Property prices have largely been stable as Singapore is land-scarce and demand for housing will always be resilient. Many of our parents and grandparents have benefited greatly from owning a property, and this will continue to be the case. For millennials who are still considering whether to rent long term or buy a property, I strongly recommend the latter.

Dileep Nair Independent Director Thakral Corporation

For long, whether ''to rent'' or ''to buy'' was not a dilemma for most Singaporeans. Home ownership policies that gave large subsidies, allowed the use CPF funds and provided well-designed flats, have made owning public housing invariably more attractive, especially for young couples. Mores, however, change with demographics. Millennials, and certainly Gen Z, are more financially savvy, seek independence and are more itinerant. They are comfortable handling their own investments, setting up their unique family home, and relocating with changing circumstances. This makes renting a home appear more attractive. Simulations, however, do not show a clear-cut financial advantage of renting over buying. With roughly balanced pros and cons, the decision ultimately rests on the individual's personal priorities and stomach for financial risk.

Moray Armstrong Managing Director CBRE Singapore

In the current low interest rate environment, buying a home may make more financial sense, as the interest cost is lower than the rental yield. However, buying a home involves a hefty upfront down payment and significant long-term mortgage commitment, which may not be affordable or appealing to some young professionals. As the gap between house prices and earnings growth of young professionals widens, this could potentially lead to a shift in mindsets from owning, to leasing properties. Renting of properties via co-living arrangements or through traditional leases, could then become a preferred option for those who seek affordability, variety and flexibility in their housing requirements. Co-living, in particular, provides young singles with the instant gratification of furnished spaces, the convenience of flexible lease terms, and variety of choice locations. Ultimately, which option is best for millennials and Gen Z is more than financial considerations, but also their vision for their life and cultural mindset, among others.

Kelvin Lim Executive Chairman, Executive Director and Group MD LHN Group

With property prices set to rise, it may make better financial sense for millennials and Gen Z to rent a home, particularly if they are in a transitional period of their life. In fact, co-living has emerged as an extremely popular alternative living arrangement among this group - our Coliwoo concept has seen a 10 per cent increase in demand from them since pre-Covid.

Renting a co-living space in key locations can be more cost-efficient, averaging some S$2,500. In comparison, renting an apartment of a similar size and location can come up to S$3,300. In addition, co-living membership fees are all-inclusive - taking into account aesthetically designed interiors, furniture, Internet connectivity, utilities, housekeeping, and shared facilities such as gyms and lounges. We do foresee the demand of co-living spaces to further rise among millennials and Gen Z, as they also turn to these flexible living arrangements for convenience, a sense of community, and more.

Peter Young Co-founder and CEO Q Investment Partners (QIP)

Although Singapore's housing policy continues to drive a culture of home ownership, we can expect this to change to a renter's model due to shifts in customer preferences, as well as the economic reality of housing affordability. Globally, as accommodation and ownership costs have risen in major cities, tying a large amount of capital into a single, illiquid asset has become a less attractive option.

In other developed markets, we have seen increasing demand for dynamic rental options, which can offer the best value and flexibility in line with the needs of individual demographics - that is, students, the elderly and families. Niche real estate investments in student housing, co-living and senior housing have therefore become an institutional real estate asset class.

As the culture of living changes, younger Singaporeans should seriously consider similar rental accommodation solutions best suited to their needs, while those looking to invest in the market, both overseas and at home, should also recognise this change.

Mario Singh Chief Executive Officer Fullerton Markets

I have had several conversations with millennials and Gen Z around this issue, and from what I gather, many end up renting because of a push/pull factor.

Cost is the push factor. Based on recent November prices on HDB's website, a 4-room Build-To-Order flat in Kallang/Whampoa area would set you back about S$466,000, including grants. If it were a resale unit, the price range would be S$630,000 to S$754,000. Those who are starting out in their careers would find these prices challenging and hence end up renting instead.

Next, the pull factor. There is a growing group of financially savvy millennials and Gen Z who might have the means to buy their own home, but choose to deploy their cash in other assets like stocks, currencies, crypto and non-fungible tokens, instead. They do so because they know that these assets would give them a better return for their money compared to tying it up in a home, and end up renting as well.

Henry Tan Group CEO Nexia TS Group

Buy or lease has been an ''Economics 101'' question for many assets including property. It is not a straightforward answer as it depends on one's preferences. If we are looking at principal protection, buying a property will achieve that. However, it may come at a sacrifice of location or size of the property due to affordability. If we rent, we may be able to get a property in a better location, or a larger apartment if we are not concerned with expensing the rental. Another point that may become a factor is culture. Traditional Asian culture may value home ownership highly. A mobile young person may value this less and prefer flexibility and mobility. So my conclusion - it is more a choice and preference than a case of what makes business sense.

Maren Schweizer Chief Executive Officer Schweizer World Group

Future inflation rates are significant decision-making criteria, and owner-occupied real estate held long term are a remarkably effective tool to hedge against inflation. Furthermore, the window to secure low fixed-rate mortgages remains open for the time being.

The demand side is expected to stay strong for residential well-located, good-quality properties due to decentralisation driven by work-from-anywhere and digitisation, among other factors.

Nevertheless, it remains essential to keep one's expense ratio (all cost of ownership versus income) below 40 per cent, as well as a financial buffer of around 6 months of income.

Toby Koh Group MD Ademco Security Group

Property is still etched into Asian mindsets as the safest long-term investment. However, smart investment in a diversified portfolio of stocks, bonds and alternative instruments has also proven to outpace the capital gains of property. Younger investors are increasingly turning to non-property assets as a means to increase wealth at a faster rate. There is no right or wrong. We own our investment decisions and strategy.

Lim Soon Hock Managing Director PLAN-B ICAG

Whether to buy or rent is a question of affordability. If a Gen Z can afford it, buying would be preferred, as the rentals can go towards paying for loans. From the financial standpoint, in land-scarce Singapore, property can only appreciate in value over the long term, so it makes sense to own at least 1 property. The government should continue with the key housing strategy to promote home ownership. That said, given the escalating cost of property, the government should build more rental flats to allow those who cannot afford to buy, to rent for now, as a stopgap measure.

It may be less expensive to own property now than in the future. Perhaps the government can consider allowing part or all of rental payments to be used towards the cost of buying a flat later on. This would be an irresistible incentive for Singaporeans to own a home. It is a fact that many millennials aspire to own their dream homes, yesterday, today, and tomorrow.

David Leong Managing Director PeopleWorldwide Consulting

The Pew Research Center's finding that millennials in America prefer renting to owning is due to a simple reason - affordability. America's public housing policy is vastly different from Singapore. Home ownership is a crucial tenet of Singapore's social compact. This strategy builds on our social cohesiveness and integration.

Singapore's housing strategy is fundamentally distinctive and has political and social implications. The government will continue to make HDBs accessible and will moderate the pricing to ensure that public housing remains affordable to the larger population. Increasing the stock of private rental units typically serves the needs of expatriates.

The perspective that the millennials and Gen Z in Singapore tend towards renting like their US's counterparts is unlikely to have traction because of the difference in contexts and circumstances. Financially, owning a HDB in Singapore will be accessible and affordable with grants and financial assistance by the government.

Zaheer K Merchant Director, Corporate Affairs QI Group of Companies

A millennial's perspective on property is, generally, to have flexibility, communal/co-space living, coupled with differing goals and needs. So affordability aside, if these aspects are ''satisfied'', they would have no issue renting a home. It frees them of maintenance, upkeep, oversight, taxes and other risks (financial or otherwise) associated with ownership. Some 26 per cent of millennial homeowners aged between 25 to 31 regretted their purchase of a property. To me, however, there is no right, wrong or absolute answer. It comes down to the availability of property for rental or purchase, and cost, as this ultimately will make the decision for millennials especially in property-expensive Singapore. Each individual will gauge this based on his/her upbringing, financial understanding and position, empirical considerations in observing their relatives/peers, and then shape their own aspirations.

Jolin Nguyen Managing Director AYP Group

Investment gurus and property experts will have us believe that investing in property is the be-all and end-all path to riches and solid retirement. As new evidence emerges to challenge this assumption, much of the wisdom of older generations is due for testing. As the adage goes, the proof is truly in the pudding. The challenge for Gen Z is to decide for themselves, whether the wisdom of the past (that is, home ownership) is an idea that will stand the test of time, or if there are better alternatives in this age of rapid change.

Dora Hoan Group CEO Best World International

Most Singaporeans aspire to own a home. But this asset-building approach is now being challenged with rising prices outpacing one's salary growth. However, compared to, say Hong Kong, Singapore's public housing is still affordable, thanks to government interventions and the various cooling measures.

I feel that millennials (and Gen Z) in Singapore should still aspire to own a home, and the government should continue to make public housing affordable with the various policies, schemes and cooling measures to contain prices, especially for Singaporeans. This way, at least they still have a home. Home ownership gives one a sense of belonging and identity in one's own country. It will also help the country avoid the extremes of poverty often seen, even in affluent societies. With a secure roof over their heads and a tangible asset they can rely on for retirement, millennials will be able to fully focus on family building without worries.