It seems to be a no-brainer to invest in properties in Singapore especially when there were always stories of how our forefathers have struck it rich due to the ballooning of property values over the past decades.
That said, we must acknowledge that the upsurge in the property prices was intertwined with Singapore’s phenomenal economic boom from a 3rd world country to a 1st world smart-nation over the decades.
Such a rate of growth is unlikely to be repeated ever again.
Take a look.
While Singapore’s real GDP growth has always fluctuated between 5 to 10% in the past, 1 to 5% seems to be the norm in the past few years.
Further, the Singapore government have implemented a series of property cooling measures in a bid to cool the property market and keep price increases in line with economic fundamentals.
Given the slowing rate of growth in property, I’d much rather be invested in the stock markets.
Here are 5 key reasons why stocks are a superior investment right now.
#1 – Stocks Have Higher Liquidity
Being able to sell something when you need money for an unexpected event is crucial.
And that’s the problem with property: selling it isn’t a matter of a click and a slight wait as with stocks.
Selling a property can take months!
As a matter of fact, during some of my friends’ conversations, I overheard that they have bought the condos at the wrong timings and are now losing money.
To make matters worse, there is a supply increase in recent years which soaked up any pent-up property demand.
With an increased supply and lower demand, any attempt to sell the properties will be done at fire-sale prices. Unwilling to ‘realize the insurmountable losses’ and unable to get a government-subsidized HDB flat, they went ahead to live in the 1 or 2 bedroom condos themselves instead.
On the other hand, while you can make losses trading in stocks, you can sell them off instantly without the need to ‘wait for a buyer’. And you can quickly turn things around for stocks investments as compared to purchasing a big ticket item like a million-dollar property.
#2 – Stocks are Much Less Time Consuming
Singaporeans usually purchase 1 or 2 private condos for investments due to the sky-high property prices. While there is money to be made, the property investor has to do everything himself like fixing the lightbulbs, finding a tenant, buying the furniture.
This is unless he can hire a property manager once he has a full portfolio of stocks – something few investors ever have.
In contrast, stock investors have it much easier and can be much less time consuming because one can do it from the comfort of home. You do not have to drive from property to property to do maintenance, check on the condition of the house, etc.
This is also a major reason why investors are flocking to REITs since you can earn relatively high reasons without all the hassle and requirements for deep knowledge in property management.
#3 – Easy Diversification
Any good investor knows that diversification is key to any kind of investing success. Going by this logic, we can instantly understand why investing in stocks is a better decision than investing in real estate.
The reason is simple: the minimum amount to invest in stocks is way lower compared to properties.
You can kick start stocks investing with as little as $100 per month via a regular savings plan or you can also whip up a decently diversified portfolio made up of stocks from different sectors with probably $100,000.
However, a 20% downpayment of a million dollar property will already set you back by $200,000. And you are only investing in a single property.
Things will go downhill really fast when you sink your entire retirement funds inside and realized you made the wrong move at the end of the day.
#4 – Stocks Perform Better than Properties Historically
According to Today Singapore, the article argued that Singapore is still viewed as a safe haven destination for property investment due to 2 key reasons:
- Singapore is politically stable and harmonious and any government seizures, or property damage from civil unrest, is highly improbable in Singapore.
- The strength of the Singapore dollar makes various investments – not just property – look like a rock-solid proposition.
Hence, there are still many well-heeled investors who believe in Singapore’s real estate market.
That said, this popular belief will be debunked when you looked at the historical performance of stocks versus properties.
Backed by data from the Department of Statistics stretching back to 1975, S$100,000 invested in residential property for nearly 42 years would have yielded a good return of $1,546,067 (1,546%) before inflation.
However, it pales in comparison when you compare it with investing in stocks. Through the same time period replication, S$100,000 invested in Singapore Stocks over the same period would have yielded an incredible return of $2,123,926 (2,123%) before inflation. The difference will become even bigger if you have invested in global stocks for the same duration.
#5 – No Taxes on Stocks
Last but not least, the biggest drawback is probably the amount of taxes one has to pay between stocks and property. In Singapore, there are no capital gains or dividends’ tax when we invest in stocks.
On the other hand, property investing is an entirely different story with two massive taxes involved.
First is the Additional Buyers Stamp Duty (ABSD) which states you must pay 7% of the property value if this is your second house and 15% for the third and subsequent purchases regardless of if you’re a Singapore citizen or not.
The second tax is the Sellers Stamp Duty (SSD) which requires you to pay 12% of the property value if you sell the property within the first three years.
Although we understand that property owners are usually investing for the long haul, these 2 taxes are an instant drag on any profits to be made.
When it comes to investing, it’s important to know where your goals are and to find the best method suitable for you.
Thus, while investment in Singapore real estate may look like a no-brainer and lucrative option, it can turn out to be a red herring for many average investors out there. Investing in REITs are probably a good alternative where you can participate in the rental yields while side-stepping all the drawbacks of property investing.