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dloreangel

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Property or REITS? or Stocks Index ETF?
« on: January 09, 2019, 01:06:48 pm »
What would most savvy investors do? I am trying to decide before plonking for a 2nd property. Like most Singaporeans, I like the idea of having multiple properties. But it seems like the days when you can make a killing with properties are gone. No more flipping or big rise in property prices, especially when REITS and stocks have a higher return.

Writing out my thoughts here, please correct me if wrong

1) Property in Singapore
The best thing about property is leverage. So for a first property where you only need to pay a deposit of 20%, you are effectively leveraging 5 times.

so a $100,000 SGD in stocks earning 10% a year will net you $10,000.
a $100,000 will net you a $500,000 property with bank loans,  5 times leverage, so a 10% rise will net you $50,000.
That's a 50% ROI.
(Obviously I am simplifying a lot, not factoring in agent, lawyer, maintenance fees etc)
so I can see the attractiveness of property

What about 2nd property bank loan?
I have to fork out 55% downpayment so the maximum i can see is a leverage of less than 2x.
Suddenly property does not look so attractive anymore.



And there is an additional ABSD of 18%
that means you suffered a loss of 18% immediately to your investment portfolio, that is paid to the government and you are never getting anything back....

2) REITS

With brokerage, you can leverage 2x. I am not sure about Singapore brokerage, I use Interactive Broker, an USA broker that gives 2x leverage. Means if I deposit $100,000 in my interactive broker account, I can buy up to $200,000

Not only 2x leverage for buying, it allows 4x leverage maintenance margin as well, so there is less change of margin calls if the price drop below the original 2x leverage.

With 2x leverage, doesn't the buying of REITS with a fixed sum of money equals to buying of a 2nd property in Singapore.

Pros of REITS
-No ABSD
-Diversified properties holdings

Soooo is REITS better then?

3) Stock Index ETF

For sake of comparison, I will say low cost index funds, index ETF as a good benchmark to compete against REITS or property
Stock index is super low cost way of investing for the long run.
I am guessing the returns shld one of the most optimal in the long run.


Soooo... am I right to say property investment is not as good as older days anymore?
I should just allocate money to REITS right?
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beaverjuice

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Re: Property or REITS? or Stocks Index ETF?
« Reply #1 on: January 09, 2019, 03:11:04 pm »
What would most savvy investors do? I am trying to decide before plonking for a 2nd property. Like most Singaporeans, I like the idea of having multiple properties. But it seems like the days when you can make a killing with properties are gone. No more flipping or big rise in property prices, especially when REITS and stocks have a higher return.

go google "population dividend"/"demographic dividend" - Singapore is way past that compared with a "young working population" like Vietnam, Philippines or even Myanmar ...
https://www.todayonline.com/singapore/spores-gdp-capita-growth-faces-15-drag-every-year-until-2060-because-ageing-population

Quote
Writing out my thoughts here, please correct me if wrong

1) Property in Singapore
The best thing about property is leverage. So for a first property where you only need to pay a deposit of 20%, you are effectively leveraging 5 times.

so a $100,000 SGD in stocks earning 10% a year will net you $10,000.
a $100,000 will net you a $500,000 property with bank loans,  5 times leverage, so a 10% rise will net you $50,000.
That's a 50% ROI.
(Obviously I am simplifying a lot, not factoring in agent, lawyer, maintenance fees etc)
so I can see the attractiveness of property
property is a leverage game. also depend on the cycle but do read and research more on population dividend as I mentioned above.

additional considerations:
capital appreciation - how long is your holding period, can you ride the cycle/which part of the cycle are you at when you buy into the investment property
rental yield - sometimes you may not get tenants for months so real yields are less (in addition to maintenance fees, agent's commission, wear-and-tear/replacement that you mentioned)
liquidity risk - unlike a REIT, you cannot sell a room of your property if you need cash suddenly or find a ready buyer immediately.  you can sell a small part of your REIT holdings and raise funds pretty quickly.

Quote
What about 2nd property bank loan?
I have to fork out 55% downpayment so the maximum i can see is a leverage of less than 2x.
Suddenly property does not look so attractive anymore.



And there is an additional ABSD of 18%
that means you suffered a loss of 18% immediately to your investment portfolio, that is paid to the government and you are never getting anything back....
you can decouple your 1st property to avoid ABSD. 
this will cost you lawyer's conveyancing fees ($ 2k - 3k)  and 50% of stamp duty for transferring the remaining share to your spouse - ie. 50% of the 3% stamp duty. 
your spouse cannot sell the 1st property within 3 years.
this also severely limits your loan quantum since you cannot depend on the income from your spouse for the 2nd property loan.
but you would be considered a 1st time buyer with higher LTV

Quote
2) REITS

With brokerage, you can leverage 2x. I am not sure about Singapore brokerage, I use Interactive Broker, an USA broker that gives 2x leverage. Means if I deposit $100,000 in my interactive broker account, I can buy up to $200,000

Not only 2x leverage for buying, it allows 4x leverage maintenance margin as well, so there is less change of margin calls if the price drop below the original 2x leverage.

With 2x leverage, doesn't the buying of REITS with a fixed sum of money equals to buying of a 2nd property in Singapore.
you cannot use IB to buy Singapore REITs or stocks. (there is a workaround of course)

Quote

Pros of REITS
-No ABSD
-Diversified properties holdings

Soooo is REITS better then?
REITs are already leveraged instruments so you are leveraging on leverage if you are using the former method of financing and buying on margin.  unless you know what you are doing of course.
margin calls can cause you sleepless nights and make you look like panda bear.

Quote
3) Stock Index ETF

For sake of comparison, I will say low cost index funds, index ETF as a good benchmark to compete against REITS or property
Stock index is super low cost way of investing for the long run.
I am guessing the returns shld one of the most optimal in the long run.
ETFs that are liquid, low TER and total asset > US$ 500 million if possible.

Quote
Soooo... am I right to say property investment is not as good as older days anymore?
I should just allocate money to REITS right?

it depends

also you have a distinct and concentrated tilt towards Singapore if you are talking about Singapore and Singapore REITs.  that is a very concentrated risk and bet.
« Last Edit: January 09, 2019, 03:59:52 pm by beaverjuice »
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dloreangel

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Re: Property or REITS? or Stocks Index ETF?
« Reply #2 on: January 09, 2019, 08:11:32 pm »
additional considerations:
capital appreciation - how long is your holding period, can you ride the cycle/which part of the cycle are you at when you buy into the investment property
rental yield - sometimes you may not get tenants for months so real yields are less (in addition to maintenance fees, agent's commission, wear-and-tear/replacement that you mentioned)
liquidity risk - unlike a REIT, you cannot sell a room of your property if you need cash suddenly or find a ready buyer immediately.  you can sell a small part of your REIT holdings and raise funds pretty quickly.
you can decouple your 1st property to avoid ABSD. 
this will cost you lawyer's conveyancing fees ($ 2k - 3k)  and 50% of stamp duty for transferring the remaining share to your spouse - ie. 50% of the 3% stamp duty. 
your spouse cannot sell the 1st property within 3 years.
this also severely limits your loan quantum since you cannot depend on the income from your spouse for the 2nd property loan.
but you would be considered a 1st time buyer with higher LTV

thats the thing, u can get exposure to property capital appreciation with REITS rather than outright buying the property on your own. You don't have to decouple, don't have to worry about LTV, don't have to worry about lawyer fees.

REITS can do all these advantages of properties without the taxes, fees, disadvantages.

BTW, short of having another secondary residential address outside Singapore, how to go around the way of buying SGX stocks on IB?
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Re: Property or REITS? or Stocks Index ETF?
« Reply #3 on: January 09, 2019, 08:13:45 pm »
well.... i think dloreangel hits it spot on.

except buying SG properties on your own may have 1 jackpot - enbloc.

so you can be selective and buy older properties with good leasehold left, and potential plot-ratio (to be redeveloped) and buy and hold.

any jackpot will allow you to earn more than REITS.


i am just curious not many pple write about ebloc potential of properties, mostly because property agents prefer to sell newer units, coz older units tougher to sell ( i think)


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beaverjuice

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Re: Property or REITS? or Stocks Index ETF?
« Reply #4 on: January 09, 2019, 09:03:35 pm »
thats the thing, u can get exposure to property capital appreciation with REITS rather than outright buying the property on your own. You don't have to decouple, don't have to worry about LTV, don't have to worry about lawyer fees.

Apart from the levarage on properties that you mentioned that could potentially magnify returns above REITs?

There is no residential REIT in Singapore btw .... to gain exposure indirectly you have to buy property stocks like CDL, UOL or Capitaland.

S-REITs are a slightly different class from residential property if that's what you are after. A slight distinction.  Behaviour might be different as asset classes go.

Quote
REITS can do all these advantages of properties without the taxes, fees, disadvantages.
I don't disagree, apart from the distinction mentioned above.  Liquidity is a big factor as well as diversity both as a subset of property classes and geographical coverage for its attractiveness

Another point is the minute to minute volatility of REITs.  If you can stomache fluctuations eg. Capitalmall Trust (sgx.C38U) fell to $0.80 thereabouts during GFC ...  ;)
Quote
BTW, short of having another secondary residential address outside Singapore, how to go around the way of buying SGX stocks on IB?

I think BBCWatcher on Moneymind has outlined some ways
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dloreangel

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Re: Property or REITS? or Stocks Index ETF?
« Reply #5 on: January 09, 2019, 09:11:05 pm »
I think BBCWatcher on Moneymind has outlined some ways

got url? i tried googling bbcwatcher, IB, singapore stocks etc but could not get the results.
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beaverjuice

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Re: Property or REITS? or Stocks Index ETF?
« Reply #6 on: January 09, 2019, 09:11:58 pm »
well.... i think dloreangel hits it spot on.

except buying SG properties on your own may have 1 jackpot - enbloc.

so you can be selective and buy older properties with good leasehold left, and potential plot-ratio (to be redeveloped) and buy and hold.

any jackpot will allow you to earn more than REITS.


i am just curious not many pple write about ebloc potential of properties, mostly because property agents prefer to sell newer units, coz older units tougher to sell ( i think)

En-bloc is in the freezer now.  I'd be interested if the holding period to realize profit is less than 3 - 4 years.  But right now you are betting against the government. 

My cajones is not so big ...    :-[
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beaverjuice

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Re: Property or REITS? or Stocks Index ETF?
« Reply #7 on: January 09, 2019, 09:30:00 pm »
got url? i tried googling bbcwatcher, IB, singapore stocks etc but could not get the results.

I'll try to look for it.  Might be in an older shinythings thread.

SCB is the alternative but you already know that right?

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dloreangel

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Re: Property or REITS? or Stocks Index ETF?
« Reply #8 on: January 10, 2019, 09:07:46 am »
I'll try to look for it.  Might be in an older shinythings thread.

SCB is the alternative but you already know that right?

Thanks! Will be great to use IB for all my stocks.
Yeah SCB I have too but haven’t use for a while. Sticking to IB.
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beaverjuice

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Re: Property or REITS? or Stocks Index ETF?
« Reply #9 on: January 10, 2019, 10:34:42 am »
Thanks! Will be great to use IB for all my stocks.
Yeah SCB I have too but haven’t use for a while. Sticking to IB.

I did recall there was a couple of hoops to jump through and involved setting up an address when you are in US for holiday.

SCB is quite low cost if you have priority banking.

Else POSB Investsaver might be a way to buy the index. Fire-and-forget?

Edit:  ohhh .... individual REITs .... scratch investsaver option
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beaverjuice

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« Last Edit: January 10, 2019, 07:06:35 pm by beaverjuice »
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beaverjuice

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Re: Property or REITS? or Stocks Index ETF?
« Reply #11 on: January 10, 2019, 11:18:29 am »
for those more inclined to buying ETFs,  there are also 2 REIT ETFs listed on SGX

SGX: CLR (focuses on Singapore listed REITs)
https://www.poems.com.sg/wp-content/uploads/2018/03/Fund-Information.pdf
Fund size:  $128million

SGX: CLA (focuses on APAC listed REITs)
https://www.nikkoam.com.sg/files/sp/reit/documents/nikkoam-straitstrading-asia-ex-japan-reit-etf_product-info-sheet.pdf?v20170317

comparison between sgx:clr and sgx:cla
https://www.poems.com.sg/market-journal/nikko-asia-reit-etf-and-phillip-apac-reit-etf-a-comparison-with-additional-information-on-interest-rates/


personally not vested because I can invest directly into the individual REITs at even lower cost (their TERs aren't exactly low at 0.6% and 0.65% which is unlike Vanguard and Ishares ETFs which are typically at the 0.2% level). 

even on the merits of diversification,  i'd watch their total asset size carefully.
« Last Edit: January 10, 2019, 11:23:37 am by beaverjuice »
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beaverjuice

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Re: Property or REITS? or Stocks Index ETF?
« Reply #12 on: January 10, 2019, 03:36:32 pm »
Thanks! Will be great to use IB for all my stocks.
Yeah SCB I have too but haven’t use for a while. Sticking to IB.

so I had a little free time today and the news is not good on using IBKR to trade SGX stocks.  I am wrong to give you false hopes.

https://forums.hardwarezone.com.sg/money-mind-210/interactive-brokers-sgd-now-available-funding-4053471-232.html
https://forums.hardwarezone.com.sg/money-mind-210/interactive-brokers-sgd-now-available-funding-4053471-212.html


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eliseed

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Re: Property or REITS? or Stocks Index ETF?
« Reply #13 on: January 11, 2019, 11:09:25 am »
for those more inclined to buying ETFs,  there are also 2 REIT ETFs listed on SGX

SGX: CLR (focuses on Singapore listed REITs)
https://www.poems.com.sg/wp-content/uploads/2018/03/Fund-Information.pdf
Fund size:  $128million

SGX: CLA (focuses on APAC listed REITs)
https://www.nikkoam.com.sg/files/sp/reit/documents/nikkoam-straitstrading-asia-ex-japan-reit-etf_product-info-sheet.pdf?v20170317

comparison between sgx:clr and sgx:cla
https://www.poems.com.sg/market-journal/nikko-asia-reit-etf-and-phillip-apac-reit-etf-a-comparison-with-additional-information-on-interest-rates/


personally not vested because I can invest directly into the individual REITs at even lower cost (their TERs aren't exactly low at 0.6% and 0.65% which is unlike Vanguard and Ishares ETFs which are typically at the 0.2% level). 

even on the merits of diversification,  i'd watch their total asset size carefully.

what reits have you bought into?
more importantly... any REITS u will recommend now at the current market situation?

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beaverjuice

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Re: Property or REITS? or Stocks Index ETF?
« Reply #14 on: January 11, 2019, 11:29:15 am »
what reits have you bought into?
more importantly... any REITS u will recommend now at the current market situation?

my biggest positions in descending weightage:
sgx.C38U CapitaLand Mall Trust
sgx.C61U CapitaLand Commercial Trust
sgx.ME8U Mapletree Industrial Trust
sgx.A17U Ascendas REIT
sgx.N2IU Mapletree Commercial Trust
sgx.M44U Mapletree Logistics Trust
sgx.RW0U Mapletree North Asia Trust


I can't recommend REITs with conviction at this juncture.  there has been a strong run-up recently and we're close to reporting quarter which tends to skew prices to the upside.

https://sginvestors.io/sgx/reit-listing/alpha

caveat emptor.
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