Property has always been considered a good investment, especially in developed countries as real estate works as a good hedge against inflation. In planning our finances, most Asians often invest and purchase a property in their youth and work towards the purchase of a second property to generate passive income for retirement. But with skyrocketing property prices many struggled with the purchase of just one property. With additional stamp duty fees added to the picture in addition to interest costs of a mortgage, owning a second property may not make much sense for investors especially if they bear significant risks yet the costs of the investment outweigh its returns.
Property price trends in Singapore
In the last two decades, property prices have doubled according to the Singapore Residential Property Price Index. Older generations who bought their properties in the early 2000s or before have benefitted from this increase. Today, the Singapore Residential Property Price Index is at an all-time high. However, Singapore’s population growth is slowing and has decreased further in the last year as the population shrank 4.1% (June 2020 and June 2021). It may suggest that if you purchase a property now or in the near future, your entry price might just be too high.
Singapore Residential Property Price Index (X-axis: Year and Y-axis: Housing Index points
If you are looking to own your first home. You may find yourself faced with limited options. For those who can wait for built-to-order (BTO) government-subsidized housing (HDB) apartments, you may find yourself looking at a 1-year wait from application to selection and a 3.5 – 5 year construction completion for newer BTOs. For those who can afford the high property prices, you may be looking at purchasing a resale property or a private residential home. Given that homes have evolved beyond being simply a roof to live under and expanded to become a space for us to work, many are looking at bigger homes at a premium price tag.
So, what strategy can you take?
Right size your home according to your needs
There’s no joy in paying interest costs tagged to your home mortgage for a space you don’t use. If you foresee needing a bigger space in a few years, consider right-sizing your home purchase and saving on mortgage interest costs. Plan and start investing your savings to bring you closer to that home upgrade a few years later.
If you are an investor and can afford to wait out the high property price tags, you may want to think of other asset classes to park your investments. The latest studies show that private property owners aged 30 – 49 years old now have the highest mortgage-to-income ratios, averaging between 27% and 29%, though actual numbers range between 19% – 46%. This means that these Gen X and millennials could wind up spending almost half their salaries servicing their mortgages. The percentage of property prices increase has also overtaken salary growth. It is no wonder that younger generations are now caught in a dilemma between choosing the traditional property investment or other investments as their main nest egg for retirement.
Alternative property investment
Low barriers of entry
Investors can invest in property without having to own a physical property through alternative property investments. Investors can invest in Premium Property Investments from as low as SGD$1,000 with Minterest Digital Investment platform. This bite-sized capital is a fraction of the down payment of property and much lower than the typical entry price for other forms of real estate investments. It also enables investors to diversify their investment portfolio in other assets or financial products.
Another benefit investors can gain is that it offers higher liquidity than traditional property investments. Deal tenors for property investments on Minterest are relatively shorter than committing to a mortgage with tenors starting from 3 to 6 months.
Let experts manage the property
Investors on the platform gain access to exclusive opportunities to co-invest with renowned investment managers. Minterest has opened the doors to allow for retail investors to take a slice of the pie, which was traditionally only available to institutional investors. With experts in property and investments on board, they can help investors mitigate the risk of property investments.
With that being said, property investments will continue to play a big part in the future market. After all, property accounts for almost 42% of a typical Singaporean household’s assets, making it the major contributor to individual wealth. By tapping into the opportunities offered by alternative property investments, it is a way for investors to access further potential investment growth without having to lock in a sizable portion of their wealth.
Start investing in premium properties around the world today with Minterest Premium Property Investment. Get stable returns ranging from 3.5% to 10% p.a. from properties in Australia and South Korea without the hassle of buying and managing an actual building.
Diversification as a mitigation strategy
No, we are not saying that property investments are bad. On the contrary, we believe properties still have a lot of potentials. However, it would be wise not to depend solely on properties when planning for your future and retirement. Diversification is still considered a great strategy in mitigating the risks of investing; which is why it is important to also invest in other products.
Stocks have proven to generate one of the highest growths in the financial market. Passive and diversified investing can be done with ETFs pegged to indices, like S&P 500 or Dow Jones, which have historically recorded stable returns. Going local, you can invest in Singaporean stocks or in unit trusts. Another option is to consider alternative investments like invoice financing and working capital loans, which are largely uncorrelated with equities.