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Property Vs Stock Investments! Which is Better in Singapore?

Being fervent for properties and stocks, I invested in both for the last decade and more. In my opinion, both asset classes are necessary investments.

Which one is better investment?

WHY I THINK PUTTING MORE MONEY IN PROPERTY IS BETTER

Without a shadow of doubt, property lar….!

This is because of the power of leverage with a very safe and stable backed collateral like property in Singapore.

Let me also explain with an arbitrary logical example with a typical 50% capital appreciation of property prices.

  • Year 2010. BUY House = 1 million.
  • Down payment = 200K. Buyer stamp duty in 2010 = 30K.
  • Total initial Outlay S$230K
  • Interest 1.3% p.a. Total in 10 years ~80K
  • Year 2020. SELL House = 1.5 million.
  • Agent commission in 2020 = 30K.
  • Total expenses = Stamp duty + Comm + interest = 30+30+80 = 140K
  • Profit = 500K – 140K = S$360K
  • Percentage increase = 360/230 = 157%.
  • Annualised = 15.7% p.a.

There is very good. Not just that….

Consider the property is for your own stay, and you spent 60K in 2010 for renovation. In fact can be lesser depending on the condition of the house. Then Net Profit = 360-60 = 300K

BUT BUT BUT … you get free stay in the house for 10 years. Imagine market rental is 3K per month, in ten years, that is 360K.

This will mean that the actual profit is 300+360 = 660K at an annualised return of 29%.

So is the profit good? 29% p.a.! Yes certainly. It is absolutely fantastic!

Furthermore, you get to enjoy the stay in the house and the renovation. For stocks, you can only look at the stocks figures and the stock figures staring back at you. Occasionally you can be over-joyed and at sometimes you can get heart attack.

In the last 20 years, there is only 2 slumps in property prices. That is during the 2003 SARS and 2009 GFC. Still, very quickly the property prices rebounded. On the contrary, stock prices crashed at least 7 times, in 2000 dot.com crisis, 2001 9-11 attacks, 2003, 2009, 2011 European debt crisis, 2016 oil crisis and 2020 Covid crisis.

For me, rarely have I known peers becoming so wealthy from stocks. However, I have seen and heard “tonnes” becoming asset rich from properties and able to retire without financial stress after selling their bigger properties at old age and downgraded to a smaller one.

Those who earn from properties also require comparatively lesser knowledge and effort, and need not to undergo the emotions of seeing their stock portfolio enduring big swings from the cyclical changes of the markets.

THERE ARE ALWAYS FLIP-SIDES AND RISKS

Of course, properties have their flip sides such as non-liquid and needs high initial cash outlay and long-term commitment.

NOT everyone earns big bucks from properties investments. I definitely do not encourage that you go blindly into over-leverage yourself into something that you cannot afford. Everyone has to do your own due diligence.

I have known people who sold their properties at losses after many years. Some lost their jobs, or get into a divorce, and unable to finance their mortgages or get into a force-sale situation with losses. Those who buy Sentosa ten years ago also lost big time now if they still hold on to their properties.

I have also known many who purchase second or third properties for their so-called “investment purposes”, who still need to take loans and incurred the very hefty additional buyer stamp duties. Frankly, after delving into it my friends and do the calculations, their second “so-called investment property” is not generating profits after subtracting the interest, idling times and other expenses. They also have difficulties finding tenants with good rental while still having to pay the mortgage and interest for the house they stay as well as the property they rented out.

Some are also stuck from being able to upgrade the property they are residing because essentially, they need to sell two properties before they can upgrade to a bigger one, and this normally takes a while.

Of course, if you are super rich and no need to take loan for additional properties, then it is a different story. Then again, why put in all your cash without taking advantage of the low interest rate.

KEY TAKEAWAYS

  • Both asset classes, properties and stocks are needed in our portfolio
  • For own stay property, it is more ok to stretch when you are younger and enjoy your house stay. This is if you are confident that you will still be working, with a sum of emergency funds to pay down the monthly instalments even when you go out of job.
  • For second or more properties, be very careful and do the calculations properly. Don’t be enticed by the pride of just owning a second property for the sake of telling others, “oh I have another property”.
  • Spend more time reading before investing in stocks. Especially on the non-tangible part of managing your emotions rather than just focusing strictly on the analytics and think that you are “above the world and invincible”, you are not!

SUMMARY  

The best financial decision I have made this year, is to purchase our property.

Based on the latest property transacted pricing, our house price increase is at least 15% or more. I have also locked in a fixed interest for three years and secured a good rental for it in the interim.

There is absolutely NO WAY EVER within a short time, my stock investment portfolio can compare to the property appreciation, let alone the Chinese stocks’ bloodshed this year.

However, I am very lucky and blessed that I have humbly diversify my portfolio earlier. While my Chinese tech portfolio suffers, my US tech and Singapore’s stocks have buoyed the situation.

So overall, my investment portfolio including all asset classes are doing very well in 2021.

 

Disclaimer: I am not providing professional advice, but just stating facts based on my own personal experiences.

My Experiences: I have experiences of buying and renting out almost all types of residential housings such as HDB, Condo & Landed properties. I also have been investing for the last decades with experiences owning all sorts of stocks from SG, US, HK, AU and different types of asset classes such as stocks, etfs, bonds, gold, silver, cryptos etc.

 

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19 thoughts on “Property Vs Stock Investments! Which is Better in Singapore?

  1. Your percentage increase should be lower because the outlay over 10 years includes the principle portion of your mortgage over 10 years… ie denominator should be greater than 230K.. probably will need to use IRR to get a more accurate value.. but yes leverage is good and safe for a property… maybe best of both worlds would be to do equity loan out of a fully paid property and invest in shares!

    1. Hi H,
      Thanks for dropping by. I agree and disagree with you that monthly mortgage need to calculate into it, as I explained to Stanley below.

      Do you also consider “Free Stay” as really free ?

      1. Looks like stanley did the heavy lifting – modelling it all for us already. i did some quick IRR calculations and indeed the base case rolf presented (without accounting for own stay works out to be about 9-10%.
        how i account for own stay benefit would be to charge in a rental cost of a similar property. i think stanley modelled this also.
        the problem with mixing investing and home stay is when you maximise your loan to maximise your investment home, you also maximise your “rental expense” which is great if one was inclined to live lux but it’s an opportunity cost on funds
        but most importantly at the end of the day, the returns presented are similar to shares, ie 9-10% but i feel risk adjusted, shares win cos a) shares gets similar returns without leverage. b) there is significantly less concentration risk in a global basket of shares then a single property in a single property c) significantly less liquidity risk d) significantly less temporary risk

  2. hi Rolf, enjoyed your candid experiences in sharing your journey and have benefitted much from your blog but in this article, i don’t think the annualised return is as high as 15.7% or 29%.

    using some of your starter numbers (i.e. 200k downpayment, 30k buyer stamp, 1.3% loan interest, sell at 1.5million) and getting the annualised returns through modelling the cashflow for each year – the rate of return is closer to 7.08% annualised (assumption of 30 year loan tenure – the return gets lower with a shorter loan tenure)

    And if you add some of the miscellaneous fees associated with purchasing and selling properties such as legal, valuation, home insurance, property tax, early loan prepayment penalty, renovation/property upkeep, condo maintenance fees, etc. the yield can actually be significantly lower..like less than 4% annualised kind of low..

    Even if you add in the ‘assumption’/’premise’ that you are saving on rental over the 10 years, the calculations that i got places the rate of return at closer to ~9% annualised instead of 29%.

    happy to discuss further if you wish and go through some of the calculations in case i miss out on anything.

    anyway, cheers and thanks for sharing your journey! God bless!

    1. Hi Stanley,

      Thanks for dropping by and GBU too. You are probably calculating the returns based on 2nd property for rental purposes. That is not what I mean in this article. I am referring more to the property we purchase for own stay.

      Also I assume you are considering the monthly mortgage as outlay to arrive at the lower rate of return. However, I feel that it is not fair to consider that, because eventually the mortgage is to pay down your loan that will eventually be deducted off after interest, if you sell. All in all, I am calculating the overall return at the end of 10 years.

      And again for the legal fees, it is a mere 2-3K, and valuation fee is also few hundred dollars only. Home insurance and property tax and condo fees is considered under occupier’s fees. Again you are considering you get free stay, that is not very fair because end of the day, who will give you a house for free stay?

      I already included the 60K renovation in the calculation of return, that more than cover all the staying expenses. Essentially I feel we need to consider reno expenses as staying expenses because if you are staying there, you are enjoying the renovation as intangible pleasure.

      Frankly, I don’t really encourage a second private property for rental unless you ought to be sharp or if it is HDB then return is better.

      Personally I have my tables of all rental expenses including commission, town council fees, and commission and other expenses, HDB rental is high yield. But still you need to sell 2 flats, HDB and Private (if decoupled), to upgrade later, and that can be a hassle.

      So my suggestion is to get a house (with Lease >90 yrs) for own stay that you can leverage up comfortably when you are young to take advantage of the longer loan, and potential return later. That said, there are still skills and foresight involved.

      So my question is: Are you considering the rental that you ought to pay elsewhere, if you do not have an owner occupied house in your calculations to get the <10% return?

      1. Hi Rolf,

        Thanks for your reply. Ok, if you don’t consider all the misc. fees and my calculations and just use the numbers you provided and your calculation above: you get a profit of $360k at the end of 10 years with an initial outlay of $230k. the 157% you indicated above is actually 9.9% annualised instead of 15.7% (you cannot divide 157 by 10 because it is compounded returns)

        But like what H mentions above, IRR is needed to calculate a more accurate value especially in these kind of scenarios as it takes into account the time value of money and the cash flow at each of the 10 years and the difference is actually substantial. So if you assume a 800k loan at 1.3% for 30 years, you would actually have paid a total of $322k in mortgage payments over 10 years, of which, $89k went into paying interest and you still have an outstanding principal of $567k at end of 10 years. Your net cash flow for Year 10 will then be $1.5million – $567k (outstanding principal) – $30k (agent commission) – $32k (Year 10’s mortgage payments) = $871k. So your cashflow timeline will be like this: Year 0: -$230k, End of Year 1: -$32.2k, End of Year 2: -$32.2k . . . End of Year 9: -$32.2k, End of Year 10: +$870k. This gives a rate of return of 7.08% (annualised).

      2. and just to add more explanation as to why i would want to include all the fees like legal fees/valuation fees/mortgage document fees in a detailed calculation is because all these values do creep up especially if you were to make a case for property vs stocks.

        why i would also include home insurance and property tax and condo fees as well as renovation fees is because this article aims to compare the merits of property investment to stock investment. Hence, if i consider myself to be a new person looking to either 1) go all in and invest in the ‘biggest’ property i can afford to stay or 2) just buy a property to live but leave the rest to stocks or 3)rent an apartment and go into stock investments, then all the fees associated with property ownership will be important in determining an accurate annualised rate so that i can compare if I will be worst off in situation 1), 2) or 3) at the end of 10 years.

        sorry that i may seem a little picky with the calculations but i’m just afraid people might look at this article and use the 15.7% or 29% annualised return and compare it against say for example the S&P 500 10 year annualised return which is about ~13% and conclude that property investment is way better than stocks when it is actually not.

        in fact, in my calculations and factoring all the misc costs, choosing property investments using the starter numbers you provide will lead to an annualised return of ~4% and instead if you choose to rent at the rate of $3000 per month and invested what you could have if you have not bought the house, your annualised return at the end of 10 years will be >10% (and that is assuming a 10% annualised stock return which is lower than the 13% of the S&P 500)

        and just to add one small point – your calculations above assume a 50% capital appreciation in property price at the end of 10 years. that works out to be about 4.14% (annualised). based on singapore’s private property data published, the national annualised 10-year CAGR as of Q32020 is only at 1.3%. Of course there has been a recent increase in property prices due to the pandemic that has not been factored in the data, but even so, to get 4.14% CAGR over 10 years will not be easy if you are looking at an average investor.

  3. And i get what you are trying to say by including the ‘own stay’ element and the ‘not stay for free’ and ‘what you would have paid for rental’ into the returns calculation but i think that might confuse the annualised returns and lead to an inaccurate conclusion.

    it will be much cleaner and accurate to compare based on different scenarios and calculate what is the cash flow for each year of the investments and how the annualised rate of return will turn out.

    so if you were to look at scenario 1 where you purchase the property, it will be simpler to consider the actual cash flows instead of including the ‘would-be’ rental i would have paid assumption

    and then use the above scenario to compare the actual cashflows in – scenario 3 above: if i choose not to purchase the property like in scenario 1 but rent at $3000 per month. This would mean i will have additional >$200k to invest in stocks in year 1. The amount i would have saved from not paying monthly mortgage, condo maintenance fees, property tax, etc. and minus off what i pay for rent ($3000/month) will be my additional cashflow each year that i can add into my stock investment portfolio over the 10 years. Hence, the initial $200k plus yearly additional investments will be growing at my stock returns compounded annually which is actually very sizeable at the end of 10 years (i arrived at 11% IRR with a 10% stock CAGR assumption and an additional $2000 savings that can be re-invested each year – you can use different stock CAGR assumptions – STI has returned CAGR ~9% and S&P500 has returned CAGR ~13% over 10 years)

    in this way, the case for going into stocks investment is actually a lot stronger than property investment

    1. sorry i just wish to amend the case for scenario 3 above (rent and invest the difference). the IRR calculated is not so high at 11% as i missed out the rental outflow portion. factoring the actual cash flow, the returns is actually more like ~2-3%.

      with the amendments, renting and investing in stocks (scenario 3) is about IRR of 2-3% (assuming stock grows at 10%) while buying property (scenario 1) is about IRR of 3-4% (assuming property prices grow at 4.14% and factoring all the fees and renovation). hence, i would say there might really not be that much difference between the two scenarios, especially if the actual situation does not play out according to assumptions. maybe the market has figured out a way to even out these two scenarios already… 🙂

      1. in fact i might argue that given the current relatively low rent in our shores (average gross rental yield is about 2-3%) and the many fees involved and assumptions in property ownership and transactions, the equation might ever slightly tip into the camp of renting and investing in stocks instead of buying a property if comparing the expected returns

        1. As a case study for you, I rented a 2+1 bedder between 2015-2018. I paid 3000 a month. The location was perfect for my life situation at that time. If I had decided to buy the place it was going for about 1.3+M. Rental and Sale price was about the same for the 4 years I was there. Instead around that time i had bought another property overseas, which cost about 350K and its rental was about 2500 which was close to the 3000 I was paying….

          So in that way I was able to use 350K to pay for my own rental rather than 1.3+M… Good deal? Sure. Best deal? Maybe not given the covid price spike.. haha

          1. thanks for sharing! i haven’t done any calculations but just by the numbers you quoted, i’m pretty sure you got a really good deal – like really really good actually. hahaha

      2. Hi Stanley, I feel returns wise, properties with loan vs stocks without leverage gives a similar range of return (no significant difference).

        Depending on the year of purchase and sale and your luck with the property or with interest rates, enblocs etc, sometimes one is maybe better than the other by quite a bit but I don’t think it will be more than 5%.

        The question is about risk adjusted return… how does one define risk, what type of risk is a person comfortable with and how much risk is take to get that return. That is where the debate and subjectivness begins.

        Some feel property is very safe, others feels a company like AAPL is very safe, while others feel IWDA is very safe. But i think most ppl in SG will feel more comfortable putting 1M in a property rather than 1M in IWDA/shares assuming that 1M is close to their NAV. And the reason, i feel, is because normal ppl are not comfortable with their NAV dropping 20% a year which can happen with shares but less so with property.

        1. yeah there are a lot of assumptions here to determine which makes more returns – and it is really hard to determine going forward as there are just so many factors that affect returns…

          but…….i would actually go out on a limb to say that ‘by right’ and generally speaking, properties even with leverage should not give you the same returns as stocks because properties and even with leverage i feel..is commonly accepted as less risky than stocks (i may be wrong) – and i think that is why banks are also willing to offer a low home loan interest and even fix the rates for you for a certain number of years. So given a typical risk-reward situation, if they have the same ‘reward’ (i.e same returns) – investors should always choose the less risky option and the market should then equilibrate to arrive at a new price for the risk. (for example: if property prices are assumed to be stable then a bank will be willing to offer low interest loan for it as they have the property as collateral. and in Singapore’s situation, because of all the MSR and TDSR regulations, the chances of default is even lower. and then so as an investor, if my property appreciation rate is kinda stable or good and i can enjoy low rates of borrowing, then i would want to borrow as much as I can as it is almost a ‘guaranteed return’ i.e. as long as my cost of borrowing is lower than my property appreciation, i should be making money. so in that case, there will be less risk for it and so then the market prices of property should then adjust to reflect this lower risk) — but again this is just my line of thinking now..i might be wrong..

          and technically in the market, investors want to be rewarded for the risk that they take and of course we can debate about what risk actually is and risk is different for everybody – and we also might not agree with the academic definition of risk – which is volatility or value at risk. But usually, i feel the ‘market rates offered’ should be a good proxy of how risky an asset is as that is the collective wisdom at any point in time that decides a particular asset should be worth a certain rate of return. (i.e. different rates for government bonds rates vs. corporate bonds rates vs. equities vs. home loans, etc..)

          But of course as investors, you might feel that the market might not price something correctly or even have some sort of ‘prediction’ that certain assets will go in a certain direction and you want to capitalise on it and so then you kinda make a ‘bet’ based on your conviction and hopefully the market is wrong and you are right and then you can make your returns 🙂

        2. the other thing i wanted to clarify is the topic on the 2nd property which maybe i did not understand properly. i get the cons of over-leveraging and not being able to service the loan but..

          if i am confident and i have no problems servicing the loan of the 2nd property and if the conclusion from the first part of the article is that i can find a property that make 50% gains over 10 years just purely from owning the property and therefore i should go into property, by right, i should be better off buying a second property and renting it out as well and getting some income stream (even if some months i don’t have tenants) so that i not only get the 50% gain but i also get some income stream over 10 years? (this assumes the same set-up as the first property – that i have no problem with servicing the loan and i also don’t incur ABSD-i.e. maybe using spouse to buy the 2nd property – because from what i read, it seems like the downsides listed to owning a 2nd property is not being able to service the loan and the incurring of ABSD)

          but i’m ok if we leave this clarification to the meet-up (if it’s going to happen) because i think right now, there might be too many sub-topics being discussed already..

  4. Hi Both,

    Wow… thanks for the effort. 🙂

    Frankly, I didn’t expect such a long response and I can sense the fire to justify and stirred emotions. Love the energy and can sense the passion. Respect.

    Lots of food for thoughts. Bring me back to my 2014,2015 time when I started blogging and I always replied and justify every comments. However it never really ended in a very mutually encouraging situation, but only oneself justify oneself in a 50-50 debated post. So what’s the prize of getting right in theory with all so many assumptions?

    I did write a very very long reply to answer to the comments and every single point brought up. But reckon what’s the point. Maybe age is catching.. that one is more careless or less analytical anymore.

    Welcome that we meet up and talk about this in constructive way, since I also met up with many blogger friends here and debating face to face is often more constructive than keyboarding warriors.

    Eg this is not even talking about Investment rate of return, as we are talking a property for own stay and I just want to put across capital gain divided by 10 yrs and the intangible benefits of own stay house. Frankly, diff people have diff personal circumstances, single, married, family are all diff. It’s very difficult to compare. There are many intangibles and of course opportunity costs too.

    But this article is based on my personal experiences of real happenings in the last decade of my own investing. And real money in/out of the pocket.

    Definitely love to hear from your own experiences too one day.

    I did not even mention compound return or IRR. The word was annualized. And it did stir some emotions 🙂 . So we truly see why stock is a more emotional thing.

    Also, this is Property Vs Stock Investment topic where is always controversial. And I mentioned property and not “property investment”

    End of the day, I am sharing my experiences, and I apologized it is not correct in your sight.

    Still, I have friends who 100% agree with me, meaning it’s a debatable topic. Maybe you can also think of why so many rich CEOs are splashing their liquid asset out to buy properties in Sg lately.

    Ultimately, this is an opinionated post, and we should respect one’s right to disagree. Perhaps I am ranting rubbish in my blog that I am not even pay by anyone to write, unlike news reporter.

    Finally I hope that this is just a single topic and hope that you can still drop by and read and keep the fire there.

    Lastly, hope that “I am likely wrong” perhaps will be a better closing remarks.

    1. Hi Rolf,

      Thanks for your reply and also extending the invitation out for a meet-up. I will really welcome it and will be very honoured to not only discuss with you on this issue but i’m also very sure that I will have much to gain from your sharing of life experiences as well. You have my e-mail so I’ll be happy if we can take it from there 🙂

    2. Hey Rolf, don’t take it wrongly. Not saying you right or wrong but just expressing my own thoughts (which I know can be unconventional).

      At the end of the day, a lot of this is dependent on perspective and background especially when we mix a home into an investment.. too many intangibles that are hard to account for.

      Personally, I rented for 4 years, 3 years ago, even though I could comfortably afford a place back then. I’m no blogger but I am happy to chat to discuss more. Can even do a three way Stanely 🙂

      1. sure thing! we have to wait for Rolf to organise though cos only he has our contact details. 🙂

        and maybe just to clarify before we meet (hopefully), i’m not really disagreeing with the conclusions/many of the points raised – in fact, i am for the idea of buying property and stocks like the diversification Rolf was talking about in his takeaways and summary and i agree with many of the benefits of buying a property.

        the only point i wanted to highlight was the calculation portion that gave to the number 15.7% and 29% in the article. Because it was written as an annualised rate and it was used as a comparison to the returns you get from property vs stock. (i.e. from the article, you might conclude that property gives me 15.7% annually or even 29% annually compared to maybe stocks that gives me 8-10% annually) but this will give confusion to readers as the 15.7% actually simplifies so many calculations that it is actually 7% (annualised) if you were to calculate it properly (this is using all the same assumptions and starter numbers – only difference is that you consider when money actually goes in and when money actually comes out at different years and arriving at an annualised rate that you can then compare to other returns)

        and perhaps just to clarify on annualised rate – the commonly and industry accepted term when using an annualised rate is the equivalent annual return an investor receives over a given period. this scaling process allows investors to then objectively compare the returns of any assets over any period – which in this article, it was trying to imply that 15.7% or even 29% is very good and it will be hard for you to achieve the same feat with stocks.

        so in this case, in the example in the article, if you start off with 230k in year 0 and end up with 590k in year 10 (230k plus 360k in profit), then the actual annualised rate will be (590/230)^(1/10) – 1 = 9.9%

        but again, this is also an over-simplification as it does not take into account when you have to put money in throughout the 10 years. (i.e. 3k of monthly mortgage payments in year 1 is not worth the same as 3k monthly mortgage payments in year 9 and this is not taken care of even if you were to simplify and subtract the interest costs in year 10). another way to look at it is – why did we consider the downpayment in year 0 but not the mortgage payment in year 1 in our calculation when both requires you to take money out to pay for the principal of the house? (thus subtracting interest at year 10 doesn’t solve this problem but rather, it requires an IRR calculation that factors in the cashflow at each year)

        BBBBUUUUTTTT in any case, i would love to meet-up and i believe it will be alot easier in person to work through these things but more importantly and beyond this, i look forward to real friendships being formed and experiences shared as i believe it is always better to journey together 🙂

        Cheers!

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