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Should You Invest In Property or Shares?

singapore property We Singaporeans love our properties. Many hold on to the believe that since land is extremely scarce in Singapore, the only way for property prices to go is – North. Recently, a mixed-use commercial and residential plot at Yishun Central 1 drew a top bid from units linked to Frasers Centrepoint Ltd, the sponsor of Frasers Centrepoint Trust (SGX: J69U) and Frasers Commercial Trust (SGX: ND8U). The top bid triumphed that of the second-highest bidder by 47%. Christopher Tang, chief executive of Frasers Centrepoint Commercial, said that the bid “demonstrates our confidence in the suburban mall sector, and is line with our strategy to strengthen our foothold in the Yishun area”.

On the other hand, just last month, Kwek Leng Beng, Chairman of City Developments Limited, a leading real estate developer in Singapore, said that buying land in Singapore at today’s prices is “suicidal”. He also forecasted up to 5% drop in property prices over the next year, due to the property curbs by our Government.

When we hear such mixed news, some investors might be undecided on what to do with the excess cash they have. Should they put them into property, shares, or just sit on the side-lines?

Looking at the Urban Redevelopment Authority’s Property Price Index from March 2003 to March 2013, the annualised return for the private residential property was 6.2% per year. During the same period, the Straits Times Index (SGX: ^STI) returned 10.1% per annum, without dividends. The 10-year time period is reflective as we saw an economy crisis and a recover after that. Taking that solely into account, then shares would have produced better bang for our buck than properties.

Stock investors benefit from the business growth as well as the overall economic growth. However, property investors’ wealth grows based mainly on the economic growth and investors are relying on leverage to magnify their returns. Leverage can be a double-edged sword. The property market is also subjected to intervention by the Government, unlike the equity market.

The dividends from shares are also “what-you-see-is-what-you-get” as it is not taxed on the shareholder’s side. For example, if a company declared a 2.0 Singapore cents per share tax-exempt, one-tier dividend. This means that the corporate tax is paid by the company only and the shareholders will receive the full 2.0 Singapore cents of dividends without having to pay any tax. For properties, the rental obtained will have to be deducted for items such as maintenance and income tax on top of the property tax that the property is liable for.

Shares are more also liquid than properties, which means that we can exit our positions more easily.  You can sell off your shares one lot at a time, but you can’t sell your property off brick by brick.

For those who really want to partake in the property market, but may not have a million dollars sitting around, you can also consider property shares.  These include property companies like City Developments Limited (SGX: C09), Capitaland Limited (SGX: C31), or the various real estate investment trusts listed in SGX.

Investors have to do their due diligence and invest their hard-earned cash prudently. The property prices might go up further or may drop like a brick. No one can predict it. However, we can protect ourselves by investing in knowledge and arming ourselves with information about how to make the right investing decisions. That is our goal here at The Motley Fool Singapore – to help you invest, better.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.