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Stocks Versus Properties – Part I

When I talk to my peers about investment, one of the most common themes I hear is that they do not want to invest in stocks because they are saving up to invest in a property.

Real estate has been the go-to investment for most Singaporeans. With land in Singapore so scarce and growing international investments in Singapore property, the property market has been kind to investors of the past. Add the fact that investors can leverage their capital further help to multiply their returns.

However, even with the property market offering great returns in the past, I feel that many Singaporean investors may have overlooked stocks as a good alternative or as a complement to property. Stocks have performed admirably in the past and offer advantages that property may not afford such as liquidity, diversification and lower investing costs.

With this in mind, I have decided to write a three-part article looking at the pros and cons of investing in each of these assets, and take a look at which asset has returned more to investors historically.

In this first article, I will look at the advantages of buying property. This will be followed by the pros of investing in stocks. Finally, I will take a deep dive into history to see which asset performed better in the past.

Property in Singapore

Singapore’s property market has been on a roll in the last two decades. According to data on the SRX website, prices have tripled since bottoming out in 1998. Even with the property cooling measures in place, people who had invested in property 20 years ago have made a substantial return on their investments.

Key advantages of investing in property

  • Leverage

Possibly the most important difference between stocks and property is the ability to borrow from the bank. Currently, in Singapore, the minimum down payment for a property is just 20%, which means for just $200,000, an investor can purchase a $1 million property. The low-interest rate environment in Singapore also makes leveraging more advantageous.

  • Rental income

An investment property can provide stable rental income to investors. At the current climate, rental income is usually sufficient to cover mortgage payments, meaning investors will not suffer from cash flow difficulties as long as they can rent out their property.

  • Capital appreciation

Property prices have historically appreciated in the past. Although there have been periods of down cycles, over the long-term, prices tend to increase.

  • Ownership control

Owning your property gives you the freedom to make use of the property and make adjustments to your investments.

  • Property will never depreciate to zero

Although most stocks appreciate in value, there are instances where stocks have taken on too many risks and lose their value consequently. This results in shareholders losing part or all of their investments. Investment property, on the other hand, keeps its value well. Even in the short-term, we hardly see properties depreciate more than 10%.

The Foolish bottom line

Property has been a good investment option in Singapore as prices tend to rise and the cost of borrowing remains relatively low. Property also provides investors with consistent cash flow through rental income, on top of capital appreciation over the long-term.

However, is real estate a better investment than stocks? In the next article, I will take a look at the advantages stocks have as an investment and finally, compare historical returns in the final article.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.