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The Straits Times
www.straitstimes.com
Published on Jul 15, 2012
small change
Property v stocks: No clear-cut winner
Many investors favour property but it's best to exercise caution as nothing is risk-free

By Lee Su Shyan

Earlier this month, the Singapore Exchange offered an analysis showing that investing in a basket of stocks - the Straits Times Index (STI) - was a clear winner over property, based on a 10-year period from 2002.

Property, based on the Urban Redevelopment Authority (URA) price index, would have given you an annualised return of 6.04 per cent, while investing in the STI would have trumped that at 6.37 per cent. If dividends were included, the STI return would have risen to 9.23 per cent.

However, stocks do not always come up tops. The results depend on the timeframe in question.

If you looked at a one-year timeframe, residential property would have outperformed the STI. But in the last six months, the order has reversed with the STI powering ahead of the URA index.

Still, this analysis is not deterring those making a beeline for property showrooms. That is because investors and home owners can identify more easily with property's returns.

For example, my private apartment near Moulmein has doubled in value in the past 10 years or so. Hypothetically, I could have bought a blue chip back then and achieved a larger percentage return.

OCBC Bank's share price has roughly more than tripled in the past 10 years. Keppel Corp's rise has been about five times.

But to achieve the same absolute sum gain in stocks as I have achieved in property, I would have had to cough up a few hundred thousand dollars in cash to buy those counters, which is hardly feasible.

The above analysis points to the power of leverage. As long as one is able to afford the down payment - with parents' help or from the sale proceeds of one's HDB flat - a private condominium is within the reach of people. Given the prevailing low interest rates, the monthly repayments are manageable.

While the dividends earned add to returns from share price appreciation, the URA property price index does not take into account rental returns.
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The playing field for property is a lot more in favour than businesses in the last 3 years: Low interest rates, Investors burned by private bankers, and company management not delivering as per promise, foreigners coming to Singapore work.

Whether this remains to be seen going forward, it is hard to say... Already economy is slowing down...

(15-07-2012, 11:26 AM)Contrarian Wrote: [ -> ]The playing field for property is a lot more in favour than businesses in the last 3 years: Low interest rates, Investors burned by private bankers, and company management not delivering as per promise, foreigners coming to Singapore work.

Whether this remains to be seen going forward, it is hard to say... Already economy is slowing down...

True, but a slowdown would hit equities (businesses) as much as property; though I would argue that low interest rates would buoy up property for quite some time, and you can literally see people swimming naked but since the tide is high, they're quite safe for now.

I should think that the conditions for a property correction would be unemployment, as more companies pulling their staff out means less people renting/buying, which in turn would affect demand. Less jobs and less pay also means less ability to service loans, and may see people downgrading and selling without a choice.

So as much as the property market continues to be propped up by low interest rates, I'm also watching unemployment as a possible leading indicator of what's to come.

"Given the prevailing low interest rates, the monthly repayments are manageable."

Note the very impt caveat of low interest rates. No one knows how long more the ultra low interest rate environment is going to last. For those whose ppty investments are partially influenced by (what i personally deem irresponsible) articles such as these, pls think of whether you are able to sustain payments in a rising interest rate environment.

I prefer equity (stock) over property investment, not because equity investment is less risky than property investment, but because equity investment suit me better.

Equity and property investment have their fair share of risks. We do see/hear speculators/traders burn in their equity investment with tons of broker's debt to clear. We also do see/hear bankrupted property owners with properties been auctioned cheaply.

Sound risk management is necessary skill for an astute investor. I like weijian's comment in his posting in another relevant thread.

"The property folks think equities are risky - but the more seasoned equity investors know it is not so much so, because of their experience and insight into the world of equity investing. So, maybe the same goes for equity investors like u and me looking at the moves made by those property insiders?"

Based on historical data since 1975, Private Residential Property indeed offered better risk-adjusted returns compared to equities. However, we need to be mindful that Singapore has developed from a third world country then to a global city now. So, where do we move from here…? Real estate is a leveraged investment, better to be prudent.

I was just looking at a fantastic Article about how Australian property prices were overcooked... interesting parallels were that property around the world is generally considered a "growth" asset, when in fact I think they settled in the article on claiming houses only appreciate at 1.4% per annum

http://www.moneymanagement.com.au/analys...-australia is the link for anyone interested.

Being around some of the most rampant speculative markets all of my life in sports and stocks - the current environment here has all of the hallmarks of a manic speculation.

Anyone here a large Singaporean landowner? what are your thoughts on the current and future market?

(15-07-2012, 07:51 PM)sportsinvestment Wrote: [ -> ]I was just looking at a fantastic Article about how Australian property prices were overcooked... interesting parallels were that property around the world is generally considered a "growth" asset, when in fact I think they settled in the article on claiming houses only appreciate at 1.4% per annum

http://www.moneymanagement.com.au/analys...-australia is the link for anyone interested.

Being around some of the most rampant speculative markets all of my life in sports and stocks - the current environment here has all of the hallmarks of a manic speculation.

Anyone here a large Singaporean landowner? what are your thoughts on the current and future market?

I am observing on the market, the observations are

- Developer seem are rushing to clear-up new launches with perks e.g. VIP discount, subsidies, bulk purchases discount (e.g. purchase with friends and/or family members). The discount as high as 20-30% of published $psf were observed in few occasions.

- Investors are moving to commercial properties (well-known trend?).

- The property agents i talked to seem bullish on sales (for obvious reason), but the experience agents will finally acknowledge "wait-and-see" till 2014/2015 may not be a bad idea. The supply is definitely at the peak then, but no one sure on the demand then.

(15-07-2012, 07:51 PM)sportsinvestment Wrote: [ -> ]I was just looking at a fantastic Article about how Australian property prices were overcooked... interesting parallels were that property around the world is generally considered a "growth" asset, when in fact I think they settled in the article on claiming houses only appreciate at 1.4% per annum

http://www.moneymanagement.com.au/analys...-australia is the link for anyone interested.

Being around some of the most rampant speculative markets all of my life in sports and stocks - the current environment here has all of the hallmarks of a manic speculation.

Anyone here a large Singaporean landowner? what are your thoughts on the current and future market?

wonderful article there, thanks for sharing