What factors should you take into account when deciding whether to invest in properties or stocks in Singapore?
Published on 6th July, 2020 by Peter Ng
Many investors have turned to the stock market and placed their money in it to earn money. However, apart from stocks, investing in real estate is also another form of investment which not many look into. With the right factors in place, investing in real estate can actually pose lower risks and even offer better returns. There are many factors in which investing in stocks and real estate differ from each other, which will be what we will be discussing in this article.
Volatility of Investment
Generally, investing in properties is not as volatile as compared to investing in stocks. More often than not, property prices do not fluctuate as much as that of stocks. We have to realize that the stock market volatility is inevitable and unavoidable and that it is the general nature of stock prices to fluctuate up and down over the short term. Higher volatility often means higher risks involved and this in turn affects the returns which you will be able to generate in the future.
In the long run, you are unlikely to lose money in real estate if you have the ability to hold as property prices will generally keep up with the rate of inflation and rise as well. However, the same cannot be said for investing in stocks. Even if you have held the stocks for a few years, you may still end up making a huge loss even up to 80-90% in the future. One example that we can relate to is the Dotcom Bubble which is also known as the internet bubble. This was caused due to a rapid rise in the U.S technology stocks and many of these stocks were trading at high prices. 10 years after the bubble burst, the market value of some of these stocks were just about 10% as compared to when they were at its peak. However, for people with little or no knowledge in investments, it is still possible to profit from holding properties for a long term as it is impossible for the value of a property to fall to zero. Whereas, a stock price might have a chance of falling to zero if the company collapses.
Amount of capital required
The amount of capital which you have available is also a very important consideration to take into account. It is safe to say that many individuals invest in the stock market as it does not require as much capital as compared to real estate. If you want to invest in real estate, you need to have a substantial amount of capital in order to do so. Whereas for stocks, you can start investing with just a small amount of capital and you can often get started with as low as $100 monthly.
Leverage is an investment strategy that makes use of borrowed money. When leveraging a property, you borrow money to purchase a property instead of having to come up with the entire purchase price by yourself.
When purchasing real estate properties, you are able to borrow a large sum of money at very low interest rates. For example, you often cannot take a loan of $900,000 cash from a bank at a mere 1.8% interest rate to purchase stocks.
Liquidity of Investment
The main reason why many people invest in stocks is due to its liquidity. This means that you have the ability to buy and sell stocks easily, hence making it attractive to many as they can sell it as and when they require the money. This can be good for buyers who see themselves needing the money which they used to invest in the short term.
For real estate properties, you are also able to buy and sell them easily which would mean selling it at a steep discount, also known as a fire sale. For the regular selling process, there are often more steps to take into account; such as putting up the online listings, conducting views and negotiating with the buyers. If you have extra disposable income which you do not require in the short term, putting them in real estate is often a good investment.
Ease of Diversification
As stocks are generally not as costly, it is easier to diversify your portfolio when looking to invest in stocks. You can simply purchase stocks from one industry and some others from a different industry.
When looking to invest in real estate, location is important as the value of properties might fall in one area and rise rapidly in another simply due to the locations which they differ in. If you are looking to diversify your real estate properties by purchasing different types of houses and properties in different locations, you will require more capital than an average investor.
For properties, there are often maintenance costs in order to keep the property in a good condition. This can cost up to a few hundred dollars for most houses in Singapore.
Rental Income vs Stock Dividends
Another advantage of investing in real estate is that the rental income which it provides is more reliable as compared to stock dividends. Being a dividend shareholder, you have to wait for the companies to send you a regular dividend check. Whereas for real estate, rental property owners often collect a bigger check and they also get to manage every aspect of managing their rental properties.
This also means that you can do anything you wish to improve the value of your properties. This gives you more power as compared to stocks, whereby you often can do little or nothing at all to a company even though you are a shareholder and have shares with the company. Once you get a decent property in a good location, the rental income which you will receive can often help to make up for your mortgage repayments.
The views and opinions expressed in this blog are those of the author and do not necessarily reflect the official policy or position of any other agency, organization, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author – and, since we are critically-thinking human beings, these views are always subject to change, revision, and rethinking at any time. Please do not hold us to them in perpetuity. All information is provided on an as-is basis. It is the reader’s responsibility to verify their own facts.