Investing in Singapore Property – Investment has always been a hot topic but in the recent few years, it is definitely the buzzword among Singaporeans. After all, many of us dream of the day we can retire and not have to worry about money ever again. Earning a passive income will definitely help with any plans you have for the future. Yet, there are some people who still hold back from investing or are waiting for that elusive “right time”. What drives people to start or delay their investment?
In this article, I will discuss some trends that I have noticed and my thoughts on traps to avoid.
Investors Starting Young
Investment is becoming commonplace among youth nowadays. Fresh graduates are often already reading up on the topic and dabbling in their first investment. Some even start while they’re still in the army or still schooling. After all, we are now living in a knowledge and technology age. There are even artificial intelligence bots programmed to dispense investment advice. Allow me to share with you, my dear readers, some observations and pointers about investing early.
# Be Logical Rather Than Emotional
Successful investors often have an end goal in mind such as a specific amount of passive income to sustain their lifestyle and what is the amount of assets they need to acquire in order to enjoy that kind of passive income. With these goals in mind, they work backwards to arrive at the savings they need to commit and the rate of return they need to achieve in order for them to reach their financial goals.
It is important to be logical and methodical when it comes to investing. Being blinded by promises of high returns or the allure of living off your passive income may cause one to make the wrong choice. Moreover, investing is usually a mid to long term endeavour. When markets are not doing well, rookies investors may panic and sell to cut losses. On the other hand, seasoned investors know that holding on and tiding through the low points will lead them to their goals.
It’s important to plan ahead and not blindly invest so that you will be focused on making your money work harder for you. By starting early, you have more time to achieve your financial goals.
# Delayed Gratification Versus Immediate Gratification
With their financial goals in mind, savvy investors know that it is wiser to put their money to work rather than indulging in momentary pleasures.
Dining at an expensive restaurant or taking that vacation to Europe feels good in the short term and certainly will give you lasting memories. However, it can set you back on your financial goals. People would often spend tens of thousands to go on that romantic trip to Europe. The flight there is not cheap nor short and people tend to want to maximise the trip. They do so by staying longer and spending more on luxury goods. If these funds had been invested instead, it is likely that the money will give much better monetary returns in the future. Perhaps this money invested can allow you to stay in Europe for a few months during your retirement instead.
In Chinese, there’s an idiom called “先苦后甜”. When literally translated it means first bitter, then followed by sweet but the meaning of it is that one suffers first before reaping the rewards later. This is exactly the idea of delayed gratification.
# Maximising On Your Youth
There are many benefits to being young in life. For one, you can stretch your mortgage loan to the maximum loan tenure of 30 years or up to the age of 65. If you are younger than 35, you can max out your loan to the full 30 years. This means you have to less to pay every month and it is not so taxing on you, plus you are maximizing your returns by levering on the bank’s money. In addition, you can enjoy taking a 30-year loan a few times before hitting 35!
Smart investors start early because there are many benefits that come with starting the journey early. Investing is like any other skill out there. People always use riding a bicycle as an example and it applies here as well. Some people may have the aptitude for it but no one was born with investing instincts and as you hone your skills and knowledge, the better you get at it.
# Time Will Be On Your Side
Assuming you have certain goals to achieve by a certain age or by a specific time period, it would be of benefit to you to start early. By doing so, you will have a longer runway that will work to your advantage.
Let’s say you want to grow your retirement nest egg to $1 million dollars.
If you were to start at 25 years old, you would need to invest $100 a month until 65 years old to achieve your goal (assuming you have an annualized 12% return rate). However, if you delay saving and investing until you are 35 years old, your returns will only result in $300,000 by age 65 with the same 12% return rate. *Achieving a 12% return in investment is hardly easy, so either the savings will have to go up or starting earlier is necessary.
10 years of delay can cost $700,000. To achieve the same goal at a much later age requires much more capital per month. This is also due to the effect of compounding in which being invested longer will allow your money to grow in an upward trend each year. Hence, the longer you’re invested, the more your money will compound, thus this is why an additional 10 years matters.
# Giving Yourself More Room For Manoeuvre
No investment is risk-free. Anyone who tells you their investment is totally safe is not telling you the truth and you should steer clear. While you can stick to safer investments, sometimes it is necessary to take some risk for a better return. You know what they say about risk: low risk, low reward. Starting early gives you more room to take risks.
As with any investments, there is always a chance of losing money. However, making a loss in your 30s versus doing so in your 50s; there’s a huge difference there. In your 50s, you will have less time to make up for the loss and that money could probably be part of your retirement fund. And let’s face it, the older one gets, the more risk-averse one becomes. Thus, investing later in life can influence and compromise the decisions you make.
Investing in Singapore Property : What Holds People Back?
One problem that most people have with investing is the inertia to start. There could be a multitude of reasons. Some are afraid to lose their money, others don’t know where to begin. There are people who “don’t believe” in investment and there are those who have been cheated or scammed before. Among many reasons, there are two main ones why people hesitate to take the first step into the world of investment.
# Paralysis By Analysis
The term “paralysis by analysis” essentially highlights the idea you are unable to make a decision because you’re overthinking things. People usually have too much information or too little information that they are crippled by their fear of making the wrong move. This is especially true when it comes to investment.
As mentioned above, time is important for investments. By delaying the start of your investing in Singapore property journey, you are also compromising on your eventual returns.
Take the case of Tom and Jim who are looking to invest in properties. This was the scenario: it was 2013, it was the peak of the property market. Rumblings in the market are indicating that the economy is softening, and TDSR was introduced as part of a wider cooling measure, interest rates are heading up and the property market is poised to correct.
The market eventually fell by about 9.1% from peak to trough, let’s call it a 10% drop.
Tom decides to wait, feeling sure that prices will come down and he will be able to snag a bargain later. Tom was able to snag his property at $900k versus the peak price of $1mil after waiting for 3 years. Jim, on the other hand, brought at a high of $1mil, was collecting rental and seeing the price of his property fall.
The total rental Jim collected over the 3 years was $126k. Less off the interest of $28k. He added to his equity by $98k. Which means, even if his property is now worth $900k, his nett equity is $998k, which is not much different from Tom’s.
Many people, unlike Tom, while waiting for the price to fall, may or may not have entered the market at the trough. Nor could they have anticipated that the market could rebound during the interim and they could have missed out on the opportunity and may need to wait for the next cycle. And in waiting, he shortens his loan tenure by 3 years and increases his monthly mortgage instalment, leaving him with less funds every month.
Lesson? Be like Jim.
Tom is someone who overthought things and believed that he should wait until the market is better before committing. On the other hand, Jim decided to just go ahead and invest before seeing how it goes from there.
In the end, by buying earlier at a higher price, Jim is not at a disadvantage compared to Tom. This then brings us to the next point about timing the market.
# Timing The Market
Is there a “right time”? Some people swear by timing the market and making gains that way. After all, the strategy of buying low and selling high is the norm in the investment market. However, the downside is waiting for that elusive “right time” that never comes. There are some tips and tricks you can use but essentially, it is good to get started in some way now rather than to keep waiting for the perfect time.
Peter Lynch has this to say:
Holding investments for the long-term was the most effective strategy.
The price at which you bought a share is not important. How long you held it for is what matters. (Source)
Peter Lynch, a renowned investor and mutual fund manager, conducted a study to show the annual compounded return of someone who invested at the highest and lowest point of the markets for a 30 year period was 10.6% and 11.7% respectively. Essentially, as long as you’re invested for the long run, the timing of the market does not matter as much as the time you spent staying invested IN the market.
This is especially true for the property market in Singapore.
“In 2018, prices of a two-bedroom condo transacted at an average of $1.26 million, compared to an average of $677,768 a decade ago.” (Source)
In conclusion, it makes more sense to be invested in the market, whatever time it may be. As time is a factory that grows wealth, it is better to buy and wait rather than to wait and buy.
Why Invest in Singapore Property:
Investing in Singapore property has become much easier these days with banks offering the option to invest in unit trusts to robo advisors that boast artificial intelligence management. Amongst the many ways of investing, property investing is something that Singaporeans still actively engage in. It is seen as a safer form of investment that can provide passive income for the investor.
After all, Singapore is ranked top for real estate investment prospects in terms of price increases in 2020 and was one of the few markets regionally to see an increase in property transactions in the first half of the year, of which most are led by cross-border capital. I have another article going into detail why investors like Dyson choose Singapore.
In Singapore, HDB resale prices have been dropping since 2012 and the value of older HDBs are starting to depreciate rather than appreciate. Comparatively, private housing prices continue to rise in the same period, and in this quarter after reaching their highest in the last 5 years. The price of private property in Singapore has appreciated from 42% to 85% in the past 10 years.
It is true that some Singaporeans complain about the new condos being too small. Others prefer the spaciousness of flats of yesteryear with a wonderful plethora of amazing hawker food and the convenience of stores nearby to purchase daily necessities. However, HDB is meant to remain affordable and will not help you if you are looking to grow your wealth from your house eventually.
Moreover, HDB has a minimum occupancy of 5 years. Time is precious, especially when it comes to investing and this 5 years can cost you thousands or even hundreds of thousands of dollars. Private property is the way to go if you’re a serious investor.
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