More and more people are rejecting home ownership in favour of renting. Renting makes sense if you value independence and want your own space, and don’t want to commit to a long-term mortgage.
So, if you’re thinking of leaving your parents’ nest and renting your own home, where do you begin?
How much should you set aside for rent?
Your budget will determine everything about your future home, so it’s crucial to nail this down first: how much of your pay check should you spend on rent?
First, make sure that you’re calculating from your net salary – the amount you take home after tax. Then, you will want to deduct your fixed monthly costs, including the minimum amount you want to save per month, and further deduct it from here. The amount you have left is your discretionary income or the amount that is yours to spend without relying on borrowed credit. A good rule of thumb is to spend no more than 30 per cent of your net salary on rent. Having already deducted your fixed monthly costs from your net income, this should give you plenty of wiggle room and financial security.
What’s the best location for you?
The next thing to do is to pick a neighbourhood. You can download the DBS HomeConnect app, which allows you to compare different neighbourhoods in terms of nearby facilities and amenities, distance from the MRT, among other things.
You can also browse property listings on websites such as 99.co or Nestia to get an idea of what you’ll get for your money in different neighbourhoods. Generally speaking, it’s also a good idea to visit the area to get a feel of its vibe and culture.
What kind of property do you want to stay in – and with whom?
There are essentially three types of properties to choose from: a HDB flat, condominium or landed property. Depending on your budget and lifestyle considerations, the type of property could make a critical difference.
Housemates are another factor. Would you prefer to live alone or with friends? Would you mind living with a stranger? For instance, if you could share a landed property with three friends at the cost of living alone in a HDB flat, which would you choose?
Do you need a real estate agent?
At this stage, you should already have an idea of where you’d like to live and how much you’re prepared to pay. The next step is to start viewing different properties and eventually apply for tenancy. You may wish to engage a real estate agent to help you shortlist properties based on your requirements, contact landlords or their agents, arrange viewing appointments, advise you on market rates, negotiate with the landlord and arrange the necessary paperwork.
An experienced agent can save you substantial time and money by filtering out properties that don’t meet your needs, or prevent you from getting cheated by unscrupulous landlords. There’s typically a fee involved in engaging an agent so if you feel confident about doing the legwork yourself, that’s an option too.
What are the costs involved?
Before you set your heart on a property, make sure to anticipate the extra costs involved, most of which will be one-time payments. They include:
1. Security deposit and good faith deposit
As an assurance of your intention to rent a property, you will be required to pay a good faith deposit (equivalent to a month’s rent) when you sign the Letter of Intent. This is converted into a security deposit or rental advance when you sign the Tenancy Agreement to rent a property.
The security deposit serves as compensation for the landlord in the event there is damage to the property, or to cover early termination.
You’ll get your deposit back at the end of the tenancy if the property is returned in the same condition it was rented to you (allowing for some minor wear and tear). While there isn’t a hard and fast rule as to the amount of the security deposit, it’s typically equivalent to one month’s rent for a year’s lease and double that for a two-year lease.
Also, if the lease term is terminated early, the deposit can be withheld to cover the inconvenience to the landlord.
If you decide to engage the services of a real estate agent, you may be expected to pay a fee. Once again, there’s no strict rule, but it’s common practice for your landlord to pay the agent a commission of one month’s rent per two-year lease period. For a one-year lease, the commission may be split equally between you and the landlord. However, you may well come to a completely different arrangement with your agent and landlord.
One important thing to keep in mind is to always pay the estate agency the agent belongs to instead of handing the cash to your agent directly. This ensures accountability as your agent may not be working with the same agency by the time your lease expires.
Even if the property is fully furnished during your viewing, make sure you understand exactly what furniture will be provided during your tenancy. This is something you have to work out with your landlord. Furniture costs can add up, so be sure to factor this into your decision and budget.
4. Stamp duty
As the tenant, you are responsible for paying the stamp duty and remitting them to the Inland Revenue Authority of Singapore (IRAS). The amount you have to pay depends on the monthly rent and lease period. The higher your rent and the longer your tenancy, the higher the amount of stamp fees payable. For more information on stamp duty or to calculate how much you’re required to pay, use IRAS’ stamp duty calculator.
5. Utility bills
You can come to an agreement with your landlord to pay a fixed amount for utility charges every month or register for a utilities account under your own name. Either way, it’s best to do your due diligence on the rates for water, electricity, piped gas, internet access and cable television. For reference, the average monthly power bill comes up to about SGD 71 for a 2-room HDB flat and about SGD 444 for a landed property.
What kind of paperwork is involved?
It’s time to get down to business and sign on the dotted lines. Here are the documents you can expect to encounter or will need to prepare:
1. Letter of intent (LOI)
Once you’ve found a property you like, the common step to take next is to prepare a LOI, along with the good faith deposit mentioned above.
Simply put, the LOI expresses your intention to rent the property and shows that you’re serious about it. It’s an obligatory rather than mandatory step, but many landlords still insist on it, especially if you intend to rent the entire property or take a lease longer than a year. The LOI benefits you too: once the landlord has signed it, the unit is secured exclusively for you and the landlord will cease to consider other prospective tenants.
2. Tenancy agreement
The Tenancy Agreement is the official binding contract between you and the landlord, stipulating your rights and responsibilities as a tenant. It covers the lease period and monthly rent, maintenance and repairs you’re entitled to, conditions of the security deposit, an early termination clause, among other important details. Pay close attention to this document because if any dispute arises, the clauses and caveats outlined in the Agreement will determine the outcome.
3. Personal documents
You need to prepare photocopies of your personal identification. If you are not a Singapore citizen or permanent resident, you will also have to present a copy of your employment pass.
4. Dot your i’s and cross your t’s
You’re almost there! The final step is to get your documents stamped, which can be done from the comforts of home or at SingPost’s four service bureaus.
Good luck and happy house hunting!