Singaporeans love private properties. Probably due to real estate’s tangible nature, as well as its large potential for capital appreciation and ability to provide recurring rental income.
The government, of course, is fully aware of this. To prevent an overheated private residential property market in Singapore, cooling measures were recently announced to curb property prices and manage the high demand.
In summary, there is an increase of 5% for Additional Buyer Stamp Duty (ABSD) for property buyers (10% increase for entities) except for Singaporeans and Permanent Residents who are purchasing their first private residential property. Buyers also face restrictions when taking out a mortgage, with the Loan-To-Value (LTV) ratio tightened by 5%.
The market was predictably dismayed by these measures, since it is less attractive to purchase a property now, and some would-be investors are now unable to buy.
Here are some other alternatives that Singaporean investors can consider to continue to grow their money while they tide through the cold winter.
Read Also: 10 Overlooked Costs Of Property Investments
Real Estate Investment Trusts (REITs) pool money of all its investors to acquire properties. These properties are then rented out to collect rental income, which is paid out to investors as distributions. This is different from property investments, where you receive recurring income when you rent your property out or sell your property at a higher price when its valuation improves.
One of the biggest advantages of investing in REITs is liquidity, since REITs can be bought and sold at market rates in just a few days or even hours. This is unlike property investments because it may take months to ensure that your property is sold at a fair price, in addition to Seller’s Stamp Duty (SSD) that you would incur.
Furthermore, it allows for greater diversification since REITs can give you exposure to various kinds of properties, such as office space, warehouses, data centres, both locally and overseas, compared to buying one property (or a few at most).
When you invest in properties, you need to consider your repayments, market conditions, government policies, taxes, renting out and even maintaining your property. REITs are peofessionally managed, which frees you up from the time-consuming aspects of property ownership. Of course, this comes with the price of the annual REIT management fees.
A stock is a share in the ownership of a company. Investors can enjoy a share of any profits generated, either through dividend payouts or capital gains when the stock price rises. Stocks are traded on exchanges, such as SGX, New York Stock Exchange (NYSE) and NASDAQ.
One key difference is that investments in equities are of a greater risk as compared to REITs, bonds and properties since shareholders are never guaranteed of any returns. Returns generated when the companies announce dividend payouts, or if they perform well and are valued more highly by the market.
Stocks are a more volatile form of investment as compared to properties. Your property is probably not going to double its value within a few weeks or months, but certain stocks might be able to achieve just that.
When faced with a dichotomy on whether to invest in property or equities, you should consider your appetite for risk. Are you a conservative or aggressive investor?
For starters, it may be good to invest in stocks that you are familiar with, such as blue chip stocks on the Straits Times Index.
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A bond is fixed income investment in which an investor loans money to an entity, which borrows the funds for a defined period at a variable or fixed interest rate. Bonds tend to be labelled as the “boring” investment as their prices are generally more stable with lower returns.
Since you are promised a fixed coupon every year, you lose out when inflation increases. This is unlike property investments, where prices of properties generally increase along with inflation.
For most bonds, their reduced responsiveness to the market means that they would also not be affected if the market is bad. This makes bonds a more reliable source of income as compared to property investments.
In any case, bond investments have a finite lifespan, which ends at its maturity date. Returns are promised at the end of its lifespan and may be a good investment for those seeking to preserve their wealth rather than to accumulate.
- Pros And Cons Of Investing In Stocks Or Bonds
- 5 Terms You Need To Understand Before Investing In Bonds
Exchange Traded Funds (ETFs) seek to replicate the composition of an index. As such, investors are able to receive average returns of all the stocks on the particular index. For example, the SPDR STI ETF and Nikko AM Singapore STI ETF are two ETFs that seek to replicate the Straits Times Index (STI).
Investing in ETFs provide a built-in diversification. This is because ETFs automatically make diversified investments into numerous underlying assets on behalf of its investors. For example, the STI ETF consists of 30 of the largest and most liquid companies in Singapore that span across numerous industries.
Also, ETFs are a more passive form of investment as compared to investment properties which may require a closer monitoring. ETFs require way less active involvement. ETFs are also associated with lower management fee as compared to mutual funds or unit trusts. In addition, investors also are not required to have much knowledge before investing in ETFs, unlike property buyers who have to know how to get properties at a lower price.
You may want to consider investing in ETFs if you prefer not to actively manage your investments too closely.
- Step-By-Step Guide To ETF Investing In Singapore
- Complete Guide To Investing In STI ETF
- 5 Things You Need To Know Before Investing In REIT ETFs Listed In Singapore
When One Door Closes, Another Opens
To sum up, your investment choice is highly dependent on your investing needs and goals. Investors should also beware not to get trapped in the real estate black hole even though residential properties seem to be an attractive investment.
Perhaps the property cooling measures can provide Singapore investors with the opportunity to open themselves up to other types of investments and to build a more diversified portfolio.