Five Reasons Why You Should Invest in Singapore Property
Are properties profitable investments? I've got some experience investing in property (as well as writing a property blog), and in this post I am going to share my opinion with you. But please note that this isn't financial advice "each individual's situation is dissimilar so do your sums (or ask your adviser) prior to making any investments.
Here are my top reasons explaining why properties make good investments:
1) Cheap leverage available to help you boost your return.
One of the biggest blessings of investing in property over other assets is that you can borrow an enormous sum of cash at a low rate of interest to get a house. If the cost of your property goes up, your return on the cash you invested is multiplied.
Naturally if costs fall, your equity will decline even faster. But as long as you aren't too greedy and have holding power, over the long run you'll usually come out fine.
And when you buy the right property at the appropriate time, you can make lots of money. Imagine getting a bonus of a few YEARS pay when you sell your property for a nice profit.
2) Can generate passive rental income.
You can hire out your property (or a room in your property if you are living in it) to generate rental income. This rental income can help to offset your mortgage, part of which is going toward the principal repayment, so helping you to increase equity in your investment. If your yield is high enough, you can even get positive cash flow after clearing your mortgage and the maintenance costs.
3) Capability to make enhancements
If you are the kind of person who likes to mend things, you can add value to the property by doing a re-building, or sharpening up the inside design. Even simply a fresh coat of paint can do amazing things for the value of the property.
4) No capital gains tax
Like stocks, there is not any capital gains tax when your property appreciates in price and you sell it for a good profit (unless the IRAS comes after you as a property trader). Contrast this with your work revenue where up to 20% of it (dependent on your tax bracket) goes to the taxman.
5) Property is a well trodden path toward wealth creation.
If you look at the Forbes 40 richest folk in Singapore, you will see many folks who made their fortunes developing and making an investment in real estate on that list. Or simply look around you "the average Singaporean's wealth doubtless comes more from the appreciation of his HDB flat than from any other asset.
Disadvantages of making an investment in property
But properties do have some downsides vs other types of investments that you ought to be mindful of.
One downside is that properties are wearisome to buy and maintain. House hunting can take tons of time and effort, the talks to buy can be complicated, then there are the repairs, dealing with tenant beefs and such like.
Also properties are an illiquid asset "that suggests it's not as straightforward and as quick to convert to cash when you want it. Selling real estate may take months depending on the market.
And the largest hindrance for most folks when making an investment in properties is that it requires a massive quantity of capital to start. Saving enough money to buy one property could take a couple 3 to 5 years of scrimping.
Greed, Caution
Please note that I'm not endorsing that you go and invest in properties straight away. In fact , now that prices (based mostly on the URA Price Index) have transcended the peak in 1996, you should be particularly careful. Remember Warren Buffett's advice: "Be alarmed when others are greedy and greedy when others are fearful."
And property is not the only avenue thru which speculators can make cash. A smart financier can make money in any asset class IF he knows what he is doing. You want to work out where your interests, knowledge and abilities lie before investing. And I resolutely believe that you should only invest in something you know (i.e. Don't blindly follow the gang).
Hope you enjoyed reading this Singapore property market article!
Here are my top reasons explaining why properties make good investments:
1) Cheap leverage available to help you boost your return.
One of the biggest blessings of investing in property over other assets is that you can borrow an enormous sum of cash at a low rate of interest to get a house. If the cost of your property goes up, your return on the cash you invested is multiplied.
Naturally if costs fall, your equity will decline even faster. But as long as you aren't too greedy and have holding power, over the long run you'll usually come out fine.
And when you buy the right property at the appropriate time, you can make lots of money. Imagine getting a bonus of a few YEARS pay when you sell your property for a nice profit.
2) Can generate passive rental income.
You can hire out your property (or a room in your property if you are living in it) to generate rental income. This rental income can help to offset your mortgage, part of which is going toward the principal repayment, so helping you to increase equity in your investment. If your yield is high enough, you can even get positive cash flow after clearing your mortgage and the maintenance costs.
3) Capability to make enhancements
If you are the kind of person who likes to mend things, you can add value to the property by doing a re-building, or sharpening up the inside design. Even simply a fresh coat of paint can do amazing things for the value of the property.
4) No capital gains tax
Like stocks, there is not any capital gains tax when your property appreciates in price and you sell it for a good profit (unless the IRAS comes after you as a property trader). Contrast this with your work revenue where up to 20% of it (dependent on your tax bracket) goes to the taxman.
5) Property is a well trodden path toward wealth creation.
If you look at the Forbes 40 richest folk in Singapore, you will see many folks who made their fortunes developing and making an investment in real estate on that list. Or simply look around you "the average Singaporean's wealth doubtless comes more from the appreciation of his HDB flat than from any other asset.
Disadvantages of making an investment in property
But properties do have some downsides vs other types of investments that you ought to be mindful of.
One downside is that properties are wearisome to buy and maintain. House hunting can take tons of time and effort, the talks to buy can be complicated, then there are the repairs, dealing with tenant beefs and such like.
Also properties are an illiquid asset "that suggests it's not as straightforward and as quick to convert to cash when you want it. Selling real estate may take months depending on the market.
And the largest hindrance for most folks when making an investment in properties is that it requires a massive quantity of capital to start. Saving enough money to buy one property could take a couple 3 to 5 years of scrimping.
Greed, Caution
Please note that I'm not endorsing that you go and invest in properties straight away. In fact , now that prices (based mostly on the URA Price Index) have transcended the peak in 1996, you should be particularly careful. Remember Warren Buffett's advice: "Be alarmed when others are greedy and greedy when others are fearful."
And property is not the only avenue thru which speculators can make cash. A smart financier can make money in any asset class IF he knows what he is doing. You want to work out where your interests, knowledge and abilities lie before investing. And I resolutely believe that you should only invest in something you know (i.e. Don't blindly follow the gang).
Hope you enjoyed reading this Singapore property market article!
About the Author:
Propwise.sg, a top Singapore property blog, is dedicated to helping you understand the property market and make better calls. Visit us to read more Singapore property market articles.