Properties return lower than stocks over the last 20 years. But I still bought my property a few years ago.
Oct. 01, 2020

Properties return lower than stocks over the last 20 years. But I still bought my property a few years ago.

Property is a highly popular asset class due to its good store in value. We have also heard the stories of many who got rich through properties, with claims that their property value has doubled over the last 10 to 20 years. However, is property really such a good investment, and is it still in recent years?

Based on the private residential property price index, if we purchase a property 20 years ago, the property will have appreciated 54% (sounds good, although it feels more than the 54% rise); this drops to 22% over a 10 year period (still not too bad). However, if we purchase a property 5 years ago, the property will have just appreciated 5% (which doesn’t seem a lot considering inflation etc). However, if we look at the return on an annualized basis, properties generated just an annualised return of 2% over a 10 to 20 years period (and it dropped to just 0.9% over the last 5 years). This pales in comparison to our local stock market which generated an annualised total returns of 9.2% over a 10 year period. (You will have more than doubled your money if you put your money in STI vs a 20% return in property over 10 years)

If we purchased a private property 20 years ago, the property will have appreciated 54% (CAGR: 2.2%)
If we purchased a private property 10 years ago, the property will have appreciated 22% (CAGR: 2.0%)
If we purchased a private property 5 years ago, the property will have appreciated 5% (CAGR: 0.9%)

Then why did I still buy a property?

Despite knowing very clearly that the returns of properties are far inferior to the stock market, and as a young investor with a long investment horizon, I still decided to buy my first property a few years ago. There are a few reasons driving my purchase.

  • I bought the property mainly for investment purposes. Although I am staying with my parents, I wanted to “lock in” the price of properties. This is the fear, me and many of my peers have- that we may not be able to afford a property in the future.

  • The low interest rate environment. We have been living in a low interest rate environment for a few years now (and potentially so for the next few years to come), as central governments around the world cut interest rates to try stimulating the economies. In a low interest rate environment, money is no good sitting in the bank, as it is generating very little interest income. Hence, I can either put it in stocks (which I already have) or diversify and put it in bonds or a house for rental income.

  • Generate an additional income source. Following up on the point above, I can generate an additional income source by buying a house assuming (i) I can rent it out, and (ii) my rental yield is higher than my interest rate (from banks and CPF- since I have to pay back my CPF savings too eventually.) By buying a house, I estimate I can generate an additional source of income for myself. Alternatively another way to look, will be able to increase my return on my cash capital (that I put in the house) to 5% instead of the typical 1-2% interest rate which I get from fixed deposits. (More on it in the section below).

My decision process in buying the property

I decided on a resale instead of a new launch, although I was told new build are the ones that “can make money”. According to the property agents I have met so far, they told me that there will be a jump in prices typically after TOP. However, since it was for investment, I felt that the amount of money I can make from rental during the years when a new build is constructing, could be the same or even more than the increase in prices for new build after TOP (since that also depends on the property prices then, and I also have to pay for interest on my borrowing during this period; money in the pocket is better than potential money few years down the road). In addition, I prefer a much larger space compared to the size that I can get today from a new build based on my budget.

Convenience is key. Having stayed at the doorstep of an MRT for most of my life (as I am too lazy to walk anything that is more than 3 minutes), convenience is of utmost importance to me and I believe it will also help the property offer the highest rental yield. It will also hold the best chance of being rented out.

The property I found was a 7-year-old, dual key, 99-year condo which was right next to the MRT (via a sheltered walkway). It offers a net rental yield of 2.9% (which is derived after deducting property tax, condo maintenance, insurance and other misc expenses).

By buying my property, I have increased my return on my cash & CPF from 2.5% to 5% per annum.

The amount of cash + CPF that I put into the house is S$367k. Every month, I get an income of $1,532. This means I am generating a return of 5% p.a. on my S$367k (much higher than if I were to just put it in a fixed deposit or CPF with interest rate of 2.5%). Hopefully, I will also be able to get the 2% property capital appreciation each year over the next 10-20 years.

Another way of looking at it- I created an additional income of S$767/month for myself just by buying a property (entirely on “debt”) and renting it out.

Assuming I pay 2.5% interest to myself for “lending” myself money to buy the property instead of putting it in a fixed deposit or CPF, I still get a net increase in income of S$767/month by purchasing the house and renting it out.


Granted the return on a property may not be as high as in stocks based on statistics, it still makes sense to buy one as a form of social security (roof over your head) and asset diversification. If you are buying it for investment purposes, the property at the right price and rental yield, can also still provide you with an “additional” income each month. So, if you can afford it, but is still worried about pulling the trigger, hopefully our above thought process has helped you. As a summary, we have also put forth the key pros and cons of investing in properties and stocks.

Buying properties

Buying Stocks