Property v stocks - it's a matter of timeframe

The Straits Times
Jul 9, 2012
Property v stocks - it's a matter of timeframe
STI outperformed property over past decade but there are headwinds ahead

By MELISSA TAN

THE latest flash estimates of the residential property price index may give home owners and investors some room to cheer as prices edged up 0.4 per cent, after a 0.1 per cent decline the previous quarter.

But whether investing in property or the Straits Times Index (STI) delivers better returns depends on the timeframe in question.

For example, the benchmark STI over the past decade has put in a better showing than investing in property would have.

However, if you had bought property a year ago, you would be sitting pretty compared with putting your money in a stock portfolio.

Analysis by the Singapore Exchange shows that the STI generated an annualised price gain of 6.37 per cent over the past 10 years. Including dividends, the STI's annualised gain over that period is 9.23 per cent, according to Bloomberg calculations.

This outpaces the gains made by private property during the decade. The Urban Redevelopment Authority's (URA) residential property price index has returned an annualised 6.04 per cent.

In all, the private property index has appreciated 79.8 per cent since the end of June 2002. In comparison, the STI has appreciated 85.4 per cent from that point in time.

But those who bought private property a year ago are better off than those who put their money into equities at that point.

The Private Property Index outdid the STI over the past 12 months, posting returns of 1.87 per cent, which still comfortably beat the STI's returns which fell 4.08 per cent including dividends.

Excluding dividends, the STI fell 7.75 per cent from June 30 last year to June 29 this year.

But those who caught the stock market on the upswing six months ago have cause for cheer.

The STI returned 8.77 per cent in price, or 10.6 per cent including dividends, from Dec 30 last year to June 29 this year.

This dramatically outperformed the URA Private Property Index which inched up by a mere 0.29 per cent.

However, SGX noted in its report that the above-calculated returns exclude transaction costs for both private property and the stock market, such as stamp duty or brokerage commissions.

The STI's outperformance over the past decade does not necessarily mean investors should choose stocks over private property, analysts said.

'The return on property investments cannot be directly compared to the return on stocks,' noted Dr Chua Yang Liang, Jones Lang LaSalle's South-east Asia research head.

'Property investment is a long-term play, and should not be looked at as short-term speculation... While the return on the equity market looks positively stronger than property over the past few months, there are headwinds especially from the uncertain euro zone market.'

Dr Chua also pointed out the URA's Private Property Index does not factor in rental income which 'could sometimes be quite a handy steady income stream in the longer term'.

Mr Ku Swee Yong, chief executive of International Property Advisor, also cited 'multi-generation wealth transfer, especially for freehold properties' as an advantage of investing in property.

'There are still pockets of good value in the residential segment. The mass market prices have run up too fast and we believe the luxury segment is now undervalued,' he added.

Property investor Serene Leow said that despite the STI's outperformance she would 'still invest in property (rather) than stock', pointing to 'lower risk, capital appreciation in the long term, a good rental market, rental yield over 3 per cent per annum... (and) strong buying demand'.

Nonetheless, there is also something to be said for choosing stocks over property, noted Mr Kevin Scully, the executive chairman of equities research company NRA Capital.

'The property market is not only driven by fundamentals but also government policy, so with the Government trying to check the rise in property prices, the property market will likely underperform, whereas stocks are driven mainly by fundamentals.'

melissat@sph.com.sg

Quote:
{Nonetheless, there is also something to be said for choosing stocks over property, noted Mr Kevin Scully, the executive chairman of equities research company NRA Capital.
'The property market is not only driven by fundamentals but also government policy, so with the Government trying to check the rise in property prices, the property market will likely underperform, whereas stocks are driven mainly by fundamentals.}

Ha! Ha!
i beg to differ. i think the social-economical & political climate of a country has immense influence on the stock market. Especially the country's political climate.Look at Nikkei Index:
From almost 40000 on 1988/1989 it drop until today about 9000 and hardly ever reach 13000 again for the last 10 years
300px-Nikkei_225(1970-).svg.png (8.62 KB)
NB:
Those who are in favour of buying a country's Stock Exchange Index take note. i am in favour of Singapore, HK and maybe Australia. Finally maybe Singapore only. Not vested yet.

I read the article on the newspaper today, but they did not seem to mention whether they took into account rental income for the property index.

It would only be a fair comparison if both capital gains and cash flow were considered.

(09-07-2012, 11:22 AM)mysterion Wrote: I read the article on the newspaper today, but they did not seem to mention whether they took into account rental income for the property index.

It would only be a fair comparison if both capital gains and cash flow were considered.

I think rental was not included, it was mentioned. But that's because I personally feel rental income is not as reliable as dividends on blue-chip companies. Not just the quantum, but also the fact that rents may be zero during periods of vacancy, while dividends are (at most) cut by blue-chip companies during downturns.

It's not apple-to-apple, but it's the best they can do in this article.