Which Performs Better, Real Estate Or Stocks? The Answer Might Surprise You

[BlueKelah]

Interesting article..
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Which Performs Better, Real Estate Or Stocks? The Answer Might Surprise You

In many parts of the world – depending on the period and place – buying a house or flat has the reputation of being a one-way ticket to wealth. Buy, hold, and be rich.
That’s worked for some generations, in some countries – including in much of Asia. But residential real estate’s reputation in many parts of the world as the ultimate wealth creator is often just wrong. In many markets, stocks do a lot better.
There are plenty of good reasons to own residential real estate. You need someplace to live, and you get tired of paying rent. You can borrow money for almost nothing. You can use your retirement money for a down payment. You saw your parents and grandparents grow rich by buying real estate when they were young. You like the tax advantages (in some countries) of owning real estate. You like cashing the checks that your tenants send you.
But owning a house or apartment, or several of them, often generates returns that are lower than those of the stock market. The chart below shows the long-term returns for the Singapore, Hong Kong and U.S. housing and stock markets. (Stock market results do not include dividends, and housing prices are nominal returns.)

The U.S. and Hong Kong stock markets win hands down when compared to house prices over time. It’s only in Singapore where owning a house instead of stocks has made more money..

[brattzz]

of cos, and real estates, u can leverage on loans!!

stocks, don't try margins.!

[jeremyow]

of cos, and real estates, u can leverage on loans!!

stocks, don't try margins.!

That is one of the differences which increases the returns for investing in real estate in Singapore. However, I believe one can also do it for stocks and shares albeit the margin loan interest rates are still slightly higher than property loan interest rates. This shows that a physical asset is still viewed as a safer collateral for banks than paper assets such as stocks and shares.

Another difference why investing in stocks and shares in Singapore market loses out to investing in real estate in Singapore is that stocks and shares of companies listed in Singapore market generally as an aggregate whole command lower valuations than stocks and shares listed in other stock exchanges such as China, HK and US markets. That is why our Singapore stock exchange hardly attract large well known overseas company names to list here. Many large well known China company names prefer to list in China and HK markets which generally command better valuations than Singapore market. The China companies (aka S-chips) we have here are the lower tiers which may not be able to be listed in China or HK markets, so they chose to list in Singapore market. 

Thus, not surprising that investors in US, China and HK stock markets can generally make higher annual returns than Singapore investors in Singapore stock market over a long period of time.

[Life is a game]

well I'm not sure what data the chart is based on but my average annual return for SG stocks over the past 10 years have been higher than 5.2%. how about u guys?

Sent from my SM-N9005 using Tapatalk

[corydorus]

The Tax structure is different. In Western countries like US, property tax can "kill" you.

[ValueMushroom]

1) The leverage power of financing properties should not be ignored.
2) Tapping on CPF to finance your properties should not be ignored too.

[specuvestor]

The psychological impact of a long term holder (ie occupier) of an inflation correlated 4X leveraged assets should not be ignored as well, vs stock investments which are usually fickle.

[Dosser]

Leverage can also kill you in real estate if it is purely for investment, rather than as a home. Met a few people who loaded up on property before the Asian Financial Crisis, and lost it all between AFC and end of SARS.

The tabulated returns for stocks exclude dividends, which are an important component of total returns, typically about half. Not difficult to build a portfolio in Singapore with 5% to 6% dividend yield.

Not sure what is meant by 'nominal' returns for property, but assume it is based on an index, and excludes rental return and also costs. Net rental returns, after allowing for costs (taxes, management fees, renovation, maintenance, blank periods etc.) are tiny in Singapore, and most other places now, if the return is based on current value rather than historic value. The 'dealing' cost of property (agent fees, stamp duty, lawyer etc) are also much higher than for stocks. With a property, it is not possible to sell in a few seconds when you feel the price is right, unlike stocks.

A feature of Singapore is the way that new property depreciates as it loses the premium for being new. There was recently a report of some loss making transactions on properties originally bought in (if memory serves) 2009, which compared badly with the general market.

[ValueMushroom]

Similarly if you load up on stocks before the Asian Financial Crisis, you also lose it all between AFC and SARS. But if you are well capitalised and can hold the properties, you will be doing good.

The returns from property is much higher if you compute ROE instead of ROI and if you include rental income too : )

I'm vested in both property and stocks.

I like the stability and the use of leverage of holding investment property in Singapore. For me, I look at rental income cash flow from property, capital appreciation is just an added bonus.

For stocks, I like the liquidity of this invesment tool and relatively lesser government regulation and intervention.

[soros]

1. The land available for building in Hong Kong and Singapore is very limited whereas in USA, there is much more land for building and the cost of land is much lower.

So its not surprising the US figure for appreciation in residential property price is less compared to Hong Kong and Singapore.

2. I think many years ago the S$ exchange rate was lower compared to current rate at 5.4 HK$ so the real appreciation in Singapore property may be higher than 837% x 3?