The Covid-19 pandemic that broke out in China in January 2020 changed the world drastically.
This generation has not witnessed any virus that affected the life style and the economies of countries to such a large extent.
To date, the death toll has reached $1.64m and counting as we see another wave of virus attacks in America, Europe and other parts of the world.
Trillions were poured into the economies by the various countries' governments to stimulate the economy. Singapore is no exception.
Thankfully, our government has been diligent to keep the virus under control in Singapore, with a death toll of 29people (lower than SARS in 2003).
Very soon, we will be entering into Phase 3 of the reopening of activities, and I am looking forward to it with anticipation.
However, another sad news came. This time, my favourite shopping store, Robinson felt victim to the Covid-19 pandemic.
Despite the 162 years of history, this retail giant succumbed to the virus and ended its operations. A sense of reluctance for it to cease operation still lingers within me.
Still, in the midst of the retail blues, we have also received the 3rd quarter property update from Orangetee and Tie research department recently. Private home Sales (excluding EC) have performed well.
In this chart, we see that the 3rd quarter of 2020, was the best quarter among the past 9 quarters.
Despite the bleak economy, why are people investing in real estate during Covid crisis?
In my opinion, there is an increasing awareness among people that real estate is a good investment in crisis.
Investment Choices over last 10 years
# The borrowing for landed, condo and executive condo is at 75% and HDB is at 90%.
There are also other assumptions in the analysis that can be given on request.
In the interests of discussion, we have taken the conventional investments and excluded other investments such as bitcoins, overseas investments etc.
We noticed that the Return on Equity of real estate ( EC, Condo and Landed Property) other than HDB outperformed other forms of investment.
The returns are attractive because of leverage which may not necessarily be available in other forms of investment.
Investment in Savings Account and Fixed Deposits
A dollar ten years ago is effectively $0.70 presently because of inflation. If the money is placed in fixed deposit account with a 2% interest rate it is merely keeping up with the average inflation rate of 2%.
With all the expansionary measures taken by so many countries to stimulate the economy as a result of the Covid , we may experience a much higher rate of inflation in the coming years.
The Singapore government has also announced that the increase in GST will be implemented in the coming years.
Again, this will erode the purchasing power of our dollars.
Investment in CPF Ordinary Account
CPF ordinary account earns 2.5% interest, which is the risk-free interest rate. Again, it may not cover the inflation rate that we face.
Investment in Gold
Due to the printing of money, gold is also favoured as another safe investment choice. However, it does not give rental or dividend and so may not be fully embraced by everyone.
Investment in Stocks
The digitalised world and Covid-19 conditions have also changed the landscape of businesses. On one hand, we see retail market, airline, entertainment , travel affected adversely by Covid-19.
On the other hand, healthcare, logistics, IT equipment and services are experiencing healthy growth.
Investment in business has become trickier than before. Even Warren Buffet, the stock market legend sold off his stakes in airlines business with losses.
Hyflux is a good example, which used to be a celebrated rag to riches story has fallen from grace to become a $0.01 cents share stock.
At the point of comparison for 11th Nov 2020 , stock market has deteriorated significantly because of Covid-19. Say you have taken $100,000 to buy a basket of stock based on STI index ten years ago, you will have made a loss of $18,500 instead of earning a profit.
Even Singapore Press Holding has recently been removed as a constituent of the STI Index.
Investment in Property
Let us look at the Singapore private property price index(PPI) from 1990.
Property prices began to recover from its doldrums in the early 1990s. The demand grew steadily due to an income and savings growth, coupled with policies that favoured home ownership.
The positive sentiment later turned speculative when money was made simply by flipping properties.
Anti-speculation measures were taken in 1996 to cool property speculation. One such measure was that profits made from property sold within three years of purchase, were subject to heavy taxes in order to curb speculations.
Subsequently, the Asian Financial Crisis hit the property market in mid 1997. Private property price index declined by 42% followed by an increase of 39%.
However, it did not sustain for long as the subsequent crises like dot com market bust, 9/11 attack and SARS outbreak bought down the property market yet again.
The quiet property market persisted until 2005 where it began to recover.
This time, the Global Financial Crisis, which took place from 2008 to 2009, dragged down property prices by 24% from its peak.
The market hit its low in 2009 and later rebounded quickly because the economic recovery gained traction and interest rates were low.
Property prices continued to grow and the government began to introduce cooling measures in beginning of 2010 to dampen the bullish market.
Many rounds of cooling measure came until 2013 that finally brought price correction for the private property prices.
Interestingly, the PPI reveals that the current high is higher than previous high. The current low is higher than the previous low. The PPI is always trending upwards despite cyclical fluctuations.
Given the Covid-19 situation, the low interest rate attracts people to hold on to hard assets as a safe haven to preserve their wealth .
As long as the purchase is a prudent choice and made out of sound financial affordability, on a long term horizon, private property remains a safe investment.
It will enjoy its capital appreciation over time as history repeats itself.
HDB on the other hand, has only seen a 16% increase over the decade.
From the chart we see that the cooling measures in 2013 hit the overheated HDB market so badly that the HDB has registered a decrease of 9% from 2013 to 2020.
To understand why HDB is not performing compared to the private property(EC, condo and landed) you may like to read Why HDB is not an Asset.
Strong fundamentals of Singapore Real Estate
The foundation of the property market in Singapore lies on her political stability and a thriving economy.
Whenever speculative sentimental is brewing in the property market, the government will introduce cooling measures to prevent an overheated property market from crashing.
All these factors, coupled with a stable and strong Singapore dollar that appreciates against other currencies over time, have attracted overseas funds into the property market.
With the recent political instability in the region, and the commendable efforts of the Singapore government to keep Covid-19 under control, more overseas funds are expected to enter our land.
Does it mean that we should invest in any types of properties?
Private property index is like stock index, not all the stock will achieve profitable returns. It is important to know what property investment to invest in for own stay or rental purposes even if you have the financial capacity.
There are many factors to consider such as type of property, location, freehold or leasehold, resale or new launch etc.
I can walk through with you what project is suitable for you, in view of your financial resources, needs and preferences.
Optimism Returning?
Some feel that the hot air money pumped into the economy will find their place in property again, because property is a good hedge against inflation.
Recently, we saw that the Singapore stock market has recovered some ground as confidence is returning to the market.
On the launch of The Linq @ Beauty World in this month, 115 out of 120 residential units were sold in this integrated, mixed-use development. The selling price is $2,150 to $2,200 psf.
So, are we seeing sunshine as stock market and property market seem to be active again?
Conclusion
Personally, I do not think that people who have invested in property now have got their sums wrong. But it is important to know what you buy, because property will ride its tide.
History has shown time and again that private property market is resilient and yields better return than other investment choices over time.
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But not all property investment will make profits. There are important considerations involved.
Finally, even if you agree that property is the way forward, but this is not the time as storms are brewing, the question remain are you prepared to capitalise on the good opportunity if it comes?
Why not let us meet for a short 30mins session to walk through the property wealth planning programme. Let me be your friend to journey with you to see how you can truly benefit from this opportune time and not miss it.
Would you like to discuss with someone on your real estate matters?
They can be where to invest for your next home or property investment, or source out the best bargain, or market your property for sales or rental, or review your current property portfolio to grow your wealth ?
Let me be a friend to walk through these questions with you.
We can meet for a one time free 30 min Property Wealth Planning session. Schedule for meeting now.
A Property Wealth Planning session includes :
1. An in-depth financial affordability assessment
2. Highly relevant property insights
3. A clear and customized roadmap just for you on your property investment journey ahead.
I am Ruth Chia, a Senior Sales Director with Orangetee and Tie Pte Ltd.
Prior to joining the real estate industry, I was in the finance and accounting department of a corporation which engaged in the consultancy works for real estate owners.
I switched my career to assist others to achieve financial freedom through real estate.
Being financially trained has enabled me to value add to my clients to give them a balanced perspective in making their real estate decisions.
My greatest reward is to have meaning relationship established through servicing my clients.
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