Stocks Versus Properties – Part III

Stocks and property are the two most common investment options that investors today use. However, as a new investor, it may be difficult to choose between the two.

As such, I have written a three-part article discussing the key advantages of each and which has performed better historically. The first article can be found here and the second one here. This is the third and final part of the series, which will focus on the historical returns of each asset.

Real estate returns in Singapore

Real estate in Singapore has been on a roll in the last few decades. This has been fueled by overseas investments and Singaporeans’ tendency to invest and own property rather than rent.

The low-interest rate environment in Singapore also makes taking loans more affordable, and investors can easily cover their monthly mortgage payment through rental income.

According to Trading Economics, Singapore’s residential property price index has risen from 25 in 1987 to 140 currently. That is a 460% gain over 30 years, which equates to a 5.9% annualised return. On top of that, the rental yield of around 2.5% a year will add on to the investment returns.

Real estate investors also borrow from the bank, allowing them to purchase a more valuable home with the equity they initially have, resulting in bigger investments and bigger returns.

Stock market returns in Singapore

The Singapore stock market consists of over 750 stocks. However, to make this exercise simpler, I will use the Straits Times Index (SGX: ^STI), a widely used barometer of Singapore’s overall stock market.

The STI has climbed from 823 in 1987 to around 3,415 today. On top of that, the STI has a dividend yield of close to 3%. Investors who have reinvested the dividends would have gained some 8.1% compounded over that time.

Comparing the two

As we can see, the overall returns of each asset class have been comparable in the past 30 years. However, one thing to note is that investors can prop up their returns in real estate by taking loans and increasing their investment portfolio.

On the other side of the coin, investing in real estate is more costly, and investors should take into account the additional fees (stamp duty and interest rate charges) and maintenance costs involved when they attempt to calculate investment returns.

The Foolish bottom line

As an investor, I believe the best strategy to employ is to have a combination of both asset classes in your portfolio. By doing so, not only can we diversify our risks, but also gain access to each class’ unique proposition and advantage. Hopefully, this series of articles has helped you understand the pros and cons of each investment class and has enabled you to make a more informed decision.

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.