Updated: Jan 4
Finally, today at 715pm, the announcement of Singapore entering Phase 2 of Circuit Breaker re-opening was made!
How wonderful that we finally will be getting back much of our freedom - the simple joys in life from eating our food at a coffee shop to bringing our kids to the playground.
While this news has brought about much needed cheer and optimism, many property investors waiting on the sidelines caution that this does not fundamentally change the fact that we are heading into uncharted waters in lowered GDP and unemployment figures.
By now, it is clear that the world is going through a crisis that's bigger than anything seen since the Great Depression.
This message has been echoed by many authorities from our Prime Minister and cabinet ministers, the World Bank and IMF and it doesn't take a genius to point out the obvious implications.
So begs the question:
Where in the world is it economically safe from COVID-19?
Does it automatically mean that any country becomes attractive as an investment destination just because it has COVID-19 under control?
I would like to preface my sentiments with a short macro market outlook that i shared with my team back in Dec 2019, when the first signs of the virus emerged.
A Constant State Of Disorder
It occurs to me that the world is in a constant state of conflict - At any point in time, somewhere in the world, a major conflict is bubbling and threatening global trade and oil prices.
By now, if you are in your 30s or older, you should have seen enough and gotten used to this fact of life.
In more recent times, apart from the COVID-19 situation, we are spectators to the US-China escalated tensions and blame games, the never-ending Taiwan drama-esque titled "BREXIT", the bitter rivalry and trade tensions between Japan and Korea, and the revolution in Hong Kong.
In the midst of these chaos in major economies around the world, massive money supply still exists and continue to be created as we speak, as a result of low interest rates and the stimulus that has hit the world since 2008.
Sadly, as history has shown, the wealth divide gets wider during such times and the rich will get richer, and the poor poorer as a result of asset bubbles where too much money chases after too little assets.
In stormy seas, capital seeks safe harbours - safe assets which help preserve capital and prevent erosion from volatile markets or inflation.
What then are classified as safe assets?
Safe assets are assets, which do not carry a high risk of loss, across all types of market cycles.
Common types of safe assets include government bonds, USD and Yen currencies, treasury bills, money market funds and you probably saw it coming, real estate.
For Singaporeans and PRs, i find that one of the best risk-free investments we have is our CPF Special Account that pays us at least 4% per annum in good times or bad.
I know some of you might debate this on the basis of opportunity costs as we cannot touch the funds till retirement.
But we shouldn't deny that for many people, preventing access to funds might actually be doing them good.
Plus, how many of us have a track record of making at least 4% returns per annum over a sustained period of time?
Now, back to the topic, if you have capital on the sidelines and are waiting to pull the trigger on property investments, the 3 questions you should ask yourself today is:
Will its value go to zero?
What other investments in the world can give you a similar risk-reward ratio?
Let me share my point of view briefly.
Is Singapore Real Estate A High Risk Investment?
You may have seen this chart in various iterations.
This chart shows us how historically Singapore private property prices touches new highs and corrects to higher lows in almost every cycle.
Behind the upwards trend in prices are fundamental reasons that i pointed out in my previous article - Key factors that have driven up property prices in Singapore over the past decade
More importantly since Feb 2020, we have seen how the Straits Times Index corrected 20% year to date and yet the HDB and private property market index held itself steady despite unprecedented market volatility.
Recent Private Non-Landed Resale Price Trends
Recent HDB Resale Price Trends
Is there any connection between the government's efforts to prop up the economy and the real estate market's resilience?
Will Real Estate As An Investment Go To Zero?
This is an easy answer. The answer is no. Real estate investments, at least in Singapore, typically do not go to zero.
I know that very rare cases do occur when developers go bust, like in the case of Sycamore and Laurel Tree by Astoria Development.
Or if you buy into a property with a short remaining tenure and hold it till its expiry;
but in which case, you should be rewarded with a relatively high rental yield and enjoy a fairly good return on investment.
What Other Investment Options Can Provide You A Similar Risk-Reward Ratio?
Let's take a look at the top 10 blue chip stocks (By market cap) in Singapore obtained from TheFifthPerson.com.
According to the source, if we had invested in each of them equally, our CAGR would have been 6.9% per annum, including dividends.
Given the same time period, let's take a look at how the Singapore private non-landed market performed.
In the same period, the private non-landed market (Excluding ECs) grew by 50.48% or 4.21% per annum.
Bear in mind that this assumes zero leverage which is unusual for property investments.
Assuming a conservative 50% loan, and 20% for tax, expenses and interest repayments, the capital growth rate would have been an estimated 80.8% or 6.1% per annum without accounting for rent received. Adding in a market average rental yield of 3% would bring an investor an almost 10% return per annum.
The cynical ones might now be thinking, can real estate perform the same way as it did over the past 10 years?
Well, no one can guarantee that. But neither can one guarantee the same performance for any stocks they buy.
Now, the question is, which investment is more volatile?
Volatility is a risk and if I’m taking on more risks, I‘d definitely expect a higher return.
Remember the once invincible giants - Kodak, Nokia, Dell, Toys R Us, Hyflux and Yahoo among others.
In their hey days, many believed that they were robust companies with a great future just like what the market believes about FAANG stocks today.
But can we honestly predict how these shares will turn out a decade or more from now?
Will they retain their competitive edge or will they cease to exist like some of these once-greats?
With that in mind, how does the risk-reward ratio now look when comparing STI blue chips and property investments?
Remember, with properties, there's hardly a chance of disruption or human mismanagement that would cost it to go to zero as long as we make simple prudent decisions well.
The Singapore Dollar - A Safe Haven Currency?
Over the past decade, the SGD is one of the only 4 currencies globally to have appreciated against the USD, till date still the reserve currency of the world. (Source: XE.com)
The other 3 currencies being the Swiss Franc, Thai Baht and Israeli Shekel.
As a prudently managed country, Singapore does not rely on continuous money printing (which devalues our currency) to pay our debts, unlike many others.
This wealth preservation aspect of our Singapore currency is one of the major factors why notable high networth individuals continue to migrate here and make us their base of operations and home, on top of other fundamental attractiveness of our nation.
Despite our government's diplomatic and gentlemanly claims that there isn't a rising influx of funds, it appears that market stakeholders are reporting different experiences as evident below.
So If Real Estate Is A Choice Investment Vehicle, Why Not Look Around?
Fair enough and let's take a look at the most popular real estate markets for Asian investors.
Although we are not the cheapest or offer the highest rental yields, Singapore is in a sweet spot that anyone with sufficient research would have to agree, puts our country's real estate market in a very enviable position today.
Furthermore, when investing in overseas, one of the often overlooked factors is the foreign exchange risk, which I unfortunately have experienced personally with Malaysia properties, as the Sing Dollar tends to appreciate against most of the above countries' currencies.
I know there are those who continue to disagree that Singapore real estate is a safe haven, because perhaps in their definition, a safe haven is a mythical place where investors are completely sheltered from market forces.
That is a logical fallacy as all investments carry risks. In fact, uninvested funds carry its own risks as well.
A safe haven, is what it should be. A place where wealth is preserved amidst stormy seas, in preparation for exciting times when clear skies return.
Hence, I believe that the more chaotic the world is, the more attractive Singapore becomes.
And it is not just because i am a Singaporean or a property agent blinded by my own biases that i say this, but because, Singapore's destiny as a safe haven asset class on a global stage has already been cemented in the minds of many top money managers around the world many moons ago.
Perhaps on hindsight, the majority will see more clearly. And hopefully by then, they would still enjoy ample runway to benefit from the growth that's yet to come.
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Stuart Chng, Senior Associate Executive Director of OrangeTee & Tie, 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, investor, 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.