Around 90% of residents in Singapore own property, a rate higher than many developed countries, including the US (approximately 65%), Hong Kong (around 51%), Taiwan (about 84%), Japan (around 61%), South Korea (about 57%), and Australia (around 66%). This high rate of homeownership is primarily due to the government's public housing policy through the Housing and Development Board (HDB). As most residents in Singapore benefit from property ownership, including capital appreciation, they are inclined to reinvest in property, continuing their success.
Is property investment in Singapore driven by cultural factors or solid financial gains?
In fact, property investment is one of the more demanding investment types compared to many others. Firstly, it requires substantial cash outlay and involves hidden costs. For instance, a deposit of at least $50,000 is needed for a million-dollar condo (5% cash), along with buyer stamp duty and conveyancing legal fees. Additionally, there are ongoing costs such as quarterly condo maintenance fees or monthly HDB conservancy charges, annual property taxes, mortgage interest if a loan is taken, property agency fees, and expenses for furniture, painting, and repairs if the property is rented out. Selling the property also incurs conveyancing legal fees and property agency fees. In contrast, you can start investing in stocks, government savings bonds, gold, or bitcoin with just a few hundred dollars and minimal transaction fees.
Secondly, property investment requires significant effort. You need to create a financial plan to determine what kind of property you can afford, considering cash needed, mortgage instalments, CPF, and potential earnings. You'll also need to understand all the rules and regulations and plan the timing for buying, selling, and moving. Viewing properties in person, applying for a bank loan, and dealing with tenants if renting are all necessary steps. In contrast, investing in stocks, bonds, or gold can be done with just a few clicks. Fortunately, property agents can assist with many of these tasks.
Lastly, property investment is illiquid. For private property, you can only sell after three years to avoid paying SSD, and for HDB, after five years. Finding the right buyer and completing the transaction can take around 3 to 6 months if you're lucky. This means you cannot withdraw your funds immediately like with stocks, bonds, or gold. Moreover, if you have taken out a loan, you must ensure you can continue to make monthly payments, even during an economic downturn or job loss.
Despite the points mentioned earlier, property remains the most favored investment option in Singapore, with only around 36% of residents investing in stocks. While property investment comes with high risks due to its complexity, significant funding requirements, and time and effort needed, especially when leveraging through loans, leveraging is also a key advantage of property investment. This is because the potential returns on investment (ROI) are amplified. For instance, if stocks, gold, or bitcoin increase by 10%, the ROI is 10%. However, if property prices rise by 10%, the ROI is 10% of the property's value, minus mortgage interest and CPF OA interest, resulting in a potentially higher return:
For example, 1 million increased to 1.1million, ROI is 10% if you use full cash.If you use 5% cash , 25% CPF(2.5% interest) and 75% loan(2.9)
ROI = ($100k - $6.25k - $21.75k) / 50k = 144%If you consider rental income which easily covers all the loan and CPF interest rate and get extra cash, your ROI will be 200% or higher.
But, what if the property price drops 10%?ROI = (-$100k - $6.25k - $21.75k) / 50k = -256%Leverage can amplify both gains and losses in investments. Nevertheless, in Singapore, leveraging to invest in property can be a remarkably low-risk strategy, thanks to the government's efforts in creating a favourable investment environment which including:
Supply & Demand Stable:
Singapore's population is around 6 million in 2024 and is projected to reach between 6.5 and 6.9 million by 2030. This implies an annual increase of approximately 100,000 people. HDB plans to launch 100,000 new flats from 2021 to 2025, averaging about 25,000 new units per year. In addition, private housing is expected to contribute around 5,000 to 10,000 new units annually, resulting in a total of 30,000 to 35,000 new housing units each year. Assume that two persons owning a house, at least 50,000 new homes would be needed annually to meet demand. Consequently, property prices are likely to see stable increases over the years.
2. Government Policies: The Singaporean government has implemented policies to ensure a stable property market, such as cooling measures to prevent bubbles and support for public housing.
3. High Rental Demand: Singapore attracts expatriates and foreign workers, creating a steady demand for rental properties. This demand provides property investors with consistent rental income.
4. Political Stability: Singapore's political stability and effective governance contribute to a predictable investment environment, boosting investor confidence.
Considering all these factors, the likelihood of property prices dropping significantly is quite slim, especially since around 90% of residents own at least one property in Singapore. Maintaining price stability is a top priority for the Singapore government. This creates an ideal environment for property investors to maximise leveraging while the government helps manage the associated risks.z
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