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Property Investing Vs Stock Investing - Which Asset Has a Higher ROI in Singapore?

With the current low-interest rates paid out by the banks for deposits, it is little wonder that many people are investing their hard-earned money.

Many people put their money into the stock market whereas others invest in properties.

Both come with the potential for huge gains as well as risks.

In today’s article, we will look at both types of investments and their pros and cons.

Investing in stocks

The stock market can potentially provide lucrative returns for not doing very much. You just need to buy low and sell high, but it is easier said than done!

As in all investments, you have to do your research and due diligence before deciding if it is viable. There are plenty of stockbroking firms and analysts that provide research reports and insights into companies.

So read through them to see if you are comfortable with the companies and their growth strategies before investing.

Almost all blue-chip stocks pay out dividends, either half-yearly or annually.

This becomes a source of regular income, in addition to capital gains if and when the price of the stock goes up.

Blue-chip stocks are large, reputable and financially sound companies that have been around for many years. They are also known to pay out attractive dividends and capital gains, when the company grow and profits increase.

So, as blue-chip companies expand and grow, the same goes for your investment value.

Investing in the stock market requires a smaller amount of money, depending on the price of the stock and how much you are willing to invest in.

To invest in a blue-chip stock like CapitaLand requires only about four thousand dollars for 1,000 shares, and OCBC would cost you approximately eleven thousand dollars, based on the price at the time of writing.

The main advantage of stocks is liquidity.

They can be sold quickly, as and when you need the money or when you want to switch to another counter. Once sold, you will receive the money within 3 to 4 working days, which is great if you need money urgently.

The downside to investing in stocks is that they can be affected by unforeseen circumstances.

Take the example of SIA, Singapore’s national airline, the share price was trading at above $12 in January 2015. Due to the COVID-19 pandemic that halted worldwide travel, the share price plummeted to below $3.70 in July 2020. The price has since recovered to above $5.

Investing in stocks can be like a rollercoaster ride. Be prepared for the volatility of investment as sometimes the stock can go up very quickly in a couple of days, but the reverse is also true. Rumours or speculation can cause the stock price to drop drastically.

According to the IRAS, income derived from investments in property, shares, unit trusts, fixed deposits are subject to income tax, unless the investment is specifically exempted under the Income Tax Act.

The dividends you get from stocks are profits you receive from your share of ownership in a company.

From 1st Jan 2008, Singapore resident companies can issue one-tier tax-exempt dividends. This means shareholders will not be taxed on this dividend income.

Income distribution from Real Estate Investment Trusts (REITs) and unit trusts are exempt from income tax.

Investing in property

Investing in property requires a large outlay of cash. There is the downpayment which is usually in the hundred thousand dollar range. There are also the monthly mortgage instalments, maintenance costs, insurance etc.

However, real estate is a safe investment, particularly in land-scarce Singapore. With the population expected to hit 6.9 million, there will always be demand for housing and rental potential.

Rental is also a good way to earn passive income. This can be used to pay off the monthly mortgage instalments. In the long run, if and when the property price goes up, there are also capital gains.

When you want to sell off your property, it usually takes a much longer time as compared to selling stocks.

In Singapore, on average, it takes about 3 months to sell an HDB flat, 6 months to sell a condominium and about one year to sell a landed property.

If you urgently need money and a quick transaction, it usually is a fire sale, meaning you sell way below the actual value. That may mean you will not make a profit on the investment.

Investing in property is a long time investment. Property prices very rarely double or triple their value in a couple of years.

On the flip side, the value of the property is not very likely to decrease two-fold or three-fold. Therefore, you must have the holding power for the long run.

The biggest setback for investing in property is taxes. Unlike dividends from stocks, some of which are tax-exempt, there are several taxes you need to pay when investing in property.

When you purchase your first property, there is the Buyer’s Stamp Duty (BSD) of up to 4%. If you buy additional properties for investment, there is the Additional Buyer’s Stamp Duty (ABSD) of 12% for the second property and 15% for the third and subsequent properties. Then there is also the Seller’s Stamp Duty (SSD) of up to 12 per cent of the property value if you sell within the first three years.

All these add up to a huge chunk of money that will eat into your profits.

However, the gains derived from the sale of a property in Singapore are not taxable as it is a capital gain. It may be taxable if you buy and sell property with a profit-seeking motive. For more information, please look up the IRAS website.

In summary, investing in the stock market has several advantages over investing in property due to its low barrier of entry, ease of liquidating and relatively low tax levels. However, owning a property is a long-term investment that can offer a huge return on investment (ROI), if you had acquired it during a down market.

Ultimately, which investment gives the better ROI, is the one that you’re most comfortable with and one that suits your circumstances.

Both stocks and property investments have their own merits and setbacks and both have the potential for long-term growth as well as downside risks. It is best to do your due diligence before committing to any investments.

For more property news, resources and useful content like this article, check out blog here.

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