ROE vs ROI: A Critical Concept Many Property Investors Miss
- Stuart Chng
- Dec 26, 2025
- 5 min read
When evaluating property investments, one concept that investors often misunderstand — or overlook entirely — is the difference between ROI (Return on Investment) and ROE (Return on Equity).
Understanding this distinction is crucial because property is one of the few asset classes that allows you to leverage bank financing, which can significantly amplify your actual returns.
ROI vs ROE: What’s the Difference?
When people discuss rental yields of 3% to 4% for Singapore properties, they are usually referring to ROI.
Return on Investment (ROI) measures returns based on the total property value, not the amount of cash you personally invested.
This metric is useful, but it doesn’t tell the full story — especially in a leveraged investment like real estate.
A Simple ROI Example
Sam purchases a condominium priced at $2 million and rents it out for $6,000 per month.
Using the standard ROI formula:
($6,000 × 12) ÷ $2,000,000 = 3.6% annual rental yield
At first glance, this may not seem impressive when:
Bank savings accounts pay close to 1%
Fixed deposits offer around 1.5%
Overseas markets like Malaysia or the Philippines advertise 5–8% yields
As a result, many investors conclude that Singapore property is no longer attractive.
But that conclusion is incomplete.
Why ROI Alone Can Be Misleading
Property prices have risen steadily over the past decade, which naturally compresses yields. This is not unique to Singapore — it happens in every mature market worldwide.
As prices rise, yields fall. That’s basic economics.
However, focusing only on ROI ignores the actual return on your cash, which is where ROE becomes far more relevant.
Understanding Return on Equity (ROE)
Return on Equity (ROE) measures returns based on your actual cash outlay, not the full property value.
ROE Breakdown: A Realistic Scenario
Sam buys the same $2 million condominium but finances it with:
20% down payment ($400,000)
80% bank loan ($1.6 million)
His total cash invested is $400,000, while the bank funds the rest — often referred to as OPM (Other People’s Money).
With rental income of $6,000 per month, his gross ROE is:
($6,000 × 12) ÷ $400,000 = 18% per year
Few investment vehicles offer this level of leverage, long loan tenure, and asset control — while still allowing the owner to enjoy the property’s facilities.
This is a unique advantage of physical real estate.
Accounting for Property Expenses
Let’s factor in realistic monthly expenses:
Maintenance fees: $400
Property tax: $600
Agent commission: $250
Repairs and miscellaneous costs: $100
Even after these deductions, the net ROE remains approximately 13.95%.
What About Mortgage Interest?
Loan interest costs should also be considered:
1% interest ≈ $1,300/month
2% interest ≈ $2,600/month
Because housing loans are amortising, interest expenses reduce over time.
After accounting for interest costs, Sam’s estimated net ROE is still:
~10% at 1% interest
~8% at 1.5% interest
~6% at 2% interest
These figures remain highly competitive compared to most alternative investments.
Why Property Remains a Powerful Wealth Tool
While it’s true that Singapore property prices are higher than they were pre 2010, opportunities still exist — particularly in projects that have underperformed the broader market.
Keeping cash in the bank exposes savings to inflation erosion of 2–3% annually.
Other asset classes such as equities, gold, or derivatives:
Rarely allow 80% financing
Do not offer 30-year loan tenures
Carry higher volatility or borrowing costs
Even overseas property investments typically lack the favourable loan terms, low interest rates, and financing flexibility available in Singapore.
The Role of Property Wealth Planning
Successful investors don’t rely on assumptions about market cycles. They focus on:
Identifying undervalued opportunities
Using leverage prudently
Structuring purchases strategically
Managing risk with proper cash buffers
Contrary to popular belief, undervalued deals exist in every market cycle — but only for those who actively look for them or work with experienced professionals.
Final Thoughts
Property investing is not just about headline rental yields.It’s about understanding how leverage affects your real returns.
When applied correctly, ROE provides a far more accurate picture of performance than ROI alone.
For disciplined investors who understand Property Wealth Planning, real estate remains one of the safest and most effective long-term wealth-building tools available.
Over the years, i have personally trained thousands of Property Wealth Planners and helped many families with income of $10K and above start owning PASSIVE INCOME generating investment properties on top of upgrading to a private property.
For some of them, we even managed to set aside rainy day reserve funds that can last them 6-8 months to further manage risks.
With my clear and fact-based insights and step-by-step Property Wealth Planning™ strategies, my clients have upgraded comfortably to private properties, created passive income streams and have a clear investment roadmap for the next 5 to 10 years.
Watch this short video to find out how exactly i can help you achieve your retirement goals sooner and in a step by step manner. Drop me a note for a discussion!
Need an opinion on your property investment plans, the best buys available or help marketing your properties?
Get a 1-time free 30 min Property Wealth Planning consultation with Stuart and his team of Property Wealth Planners.
Schedule one right now.
A PWP consultation includes:
- An in-depth financial affordability assessment and timeline planning
- Highly relevant investment insights
- A clear and customised investment road map
- A curated list of best buys in today's market with good growth potential & minimal risks
- Selecting units with the highest potential in a new launch project
- Advice on marketing and getting a buyer for your property fast
Stuart Chng, Executive Group District Director at Huttons, is a renowned leader and personality in the real estate industry
He adores music and can play a few instruments decently without upsetting his neighbours. When not doing so, he enjoys pillow fighting with his son and coming up with silly puns which barely amuses his wife.
Professionally, he is a licensed real estate agent, an avid stocks, options and real estate investor, business owner, team leader, speaker and columnist for several property newsletters and blogs and is often quoted in media interviews on 938FM, Channel 8, PropertyReport, PropertyGuru and other publications.
Throughout his career, he has helped many clients grow their wealth through selecting great property investments and managing their portfolios actively. Read his clients' reviews here.
Stuart has also coached many top million dollar producing agents from different real estate agencies in Singapore. Read his agents' reviews here.
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