For the majority of the Singaporeans, as long as you are not holding high paying jobs like investment bankers, surgeons, CEO or CFO, you can try to grow your wealth through lottery, property or stocks.
In Singapore, there is no tax at the moment for capital appreciation. Singapore also has great political stability and land is scarce. Therefore, property in Singapore will be sought after and makes a great investment for everyone out there.
How do you make money from property investment?
Property helps you to make money via 2 methods, capital appreciation and rental. For example, you purchase your home for $500,000 and after a certain number of years, you sold it for $800,000. The difference of $300,000 will be capital appreciation. You can utilize the $300,000 to down pay your new house so that your new housing loan will be smaller or you can purchase a second property with it.
Obviously, $300,000 in Singapore cannot purchase property fully. Hence, that amount will be sufficient for a down payment for your second property. Upon getting the keys, you can rent it out to tenants. The rental that you collected will help to pay down the bank loan interest and principal for your property. Whatever amount that the tenant pays for your principal will add to your future capital appreciation. As you can see, the rental yield will be very important. The higher the rental yield, you will be able to pay down more for your principal. In some cases, you might even have extra cash on top of the monthly installments to cover your other expenses.
what makes property investment so good?
The thing about property is that it is a physical asset that you can feel. Unlike stocks and other forms of investment vehicles, you cannot really feel, see or touch them. Secondly, during a crisis, if your unit is still tenant, you still receive the same amount of rental during this difficult time. For instance, for a $1,000,000 property, the downpayment will be $250,000. The rental will be approximately $2,700 (on the safe side). The monthly installment base on 2% will be approximate $2,772. In this case, you might top up $72 yourself per month as a form of additional savings. The monthly principal amount will be $1522.15. The ROI for this principal on your vested sum is $1522.15 X 12 / $250,000 = 7.3%.
Imagine you are still getting that rate of return during a crisis period. Even if the worst case scenario where you have to take a rental reduction, there is still buffer for your yield.
what affects Singapore property prices?
The end goal for us is always to accumulate wealth while you are young, 30-60 years and thereafter trying to generate some form of passive income during your retirement. Therefore, it is important to know what affects property prices to minimize our risks!
Location and infrastructure and building of interest
Located near to the train station and shopping malls will help to elevate the property prices. In Singapore, everyone loves the convenience and if your property is able to provide that, chances are prices will go up.
Tenure of property
There are a few types of leases, 99 years, 999 years, and Freehold. However, the Singapore property landscape has changed quite a bit. 99 Years leasehold properties nowadays tend to command better location, locating near MRT and shopping malls. In terms of statistics as well, 99 years now have a better capital appreciation as compared to freehold. Freehold will be to more expensive as well. Hence, depending on your objective, whether is it for investment or for your own stay, you might want to factor in the type of lease as well.
Buying a good condition property will save you in the long run. Maintaining the property well will warrant a good selling price. Therefore, you can see that if you purchase a poor condition house, likely that you will have to fork out a lump sum of cash to renovate the apartment. This will eat into your capital appreciation and affect your profits.
Policies, interest rates and additional fees
When purchasing a property, you will have stamp duties, conveyancing fees, and other fees that you need to pay. What is needed if the property cost $500K? The same goes for interest rates, low interest rates will help to pay more of your principal amount and changes in policies will affect the stamp duties that you need to pay. What would be the interest rates of a million dollar property?
macro factors – economy
During a recession, for example, COVID-19, everyone is tightening their wallets as the company is giving pay cuts and jobless rates are on the rise. However, it can be an opportunity as well as bank interest rates are at an all-time low. When the economy is doing well and jobless rates are low, demand and prices will increase but interest rates will increase as well.
conclusion – Is property a good investment?
In the end, there will always be risks in whatever choice that you make out there. However, as long as you can mitigate or lessen your downside risk, the property will still be a safe investment for you in the long run.