I noticed that Business Times have a good article this morning titled The road to riches isn’t just paved with keys of condos written by Cai Haoxiang. I find Haoxiang to be one of the good writers on these topics in educating investors and someone that we should pay attention more to when reading the Business Times.
In this article, he opens up with a debate with a colleague on the virtues of not denying the people the pursuit for private property for wealth building. It’s a spirited argument, and one that I am sure many of you have at lunch time with your more well read colleagues and friends.
Haoxiang listed out various past statistics, pointing out that while the general mindshare is that property prices always goes up, there are instances where you might not be able to comfortably enjoy the fruits. Specifically both stocks and property have long duration where prices underperform.
- 10 year 2005 to 2014 URA property price index returned an average 6.1% per year versus 5.3% per year for STI index. This excludes rent and dividends
- property price from end 1996 to end 2014 return less than 1% per year
- after the financial crisis, that is end 1998 to end 2014 return is 4.6% per year
- in 2013 and 2014, property lost 1.5% while STI returned 3.1% per year
- it took 14 years since the last market top in mid 1996 for prices to climb above the top in mid 2010
- in the past 40 years property prices increased more than 16 times at an annual rate of 7.3% per year
- Singapore property prices tripled between 1989 to 1996
- Singapore property prices doubled between 2009 and the top in 2013
- STI index took 7 years to get past the 1996 top in 2006
- its been 7 years and STI index is still below the 2007 top
- Investment price drivers between stocks and property differs
- The investment outlay for property is bigger and less liquid unlike stocks
- Investor competency differs for stocks and property
- Property investment requires more hands on work to rent out and maintain versus a listed business
- It is true that stocks can go to zero while property will not
- It is also true that your property is most likely purchase with a mortgage, and in dire times, when you cannot pay for the mortgage, it gets repossessed
- Property is tangible that you can touch
- stocks you can dollar cost average into but you will find it challenging to dollar cost average properties
I came away from his article that, perhaps we do not have statistic long enough for local equity scene to determine if stocks also did as well. The argument that past 40 years property returned 7.3% but stocks did as well, seems at this point in-conclusive. I believe rents versus prevailing dividends are higher and thus total return wise property is more lucrative.
I felt leverage is not part of the equation here since its a comparison of holding 30 years. If we are speculating properties, we can also talk about expert speculation where you make 400% on your stocks.
End of the day, we are living in a period of 7 years where STI index have not go back to the highs of 2007 and i wonder how folks will feel if they are like my uncle bought a condo near 1997 and couldn’t rent out to anyone and have to continue paying it. Perhaps we have reach the stage where property will go on their 10 year sleep.
Equities may look like the inferior asset class here but by no means we should cry over the inability to not able to gather $300,000 for the downpayment for a private condo. The ease to collect equities with a smaller outlay, but decent returns as well means it can be just as useful in the hands of a wise wealth builder.
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