Call me a boomer, but property should be part of your portfolio

Disclaimer: SPONSORED CONTENT WITH SYFE. Mentions of ‘property’ does not refer to any form of public housing, which should not in any case be considered as an investment. All views expressed in this article are the independent opinion of The Woke Salaryman based on our research.

At the start of 2021, I purchased a 2-bed, 2-bath residential investment property with my girlfriend. 

The intention is to rent this condo out when it’s completed, whilst I continue renting a HDB flat.

Look, I get that property isn’t as sexy as it was in the past. And at the risk of sounding like a boomer, I need to say this – there is still a case for holding property.

Relatively slow growth? Of course.

Yes, in the era of SPACs, Dogecoin, GME, AMC, buying property will give you relatively slower returns.

Unlike in our parents’ era, real estate should not be primarily seen as a wealth growing tool.

Instead, you should recognise the asset for what it’s good for:

• Stable values, won’t lose 30% of its value overnight
• Generating another additional income stream
• When you buy a physical property, you get to borrow at very low interest rates
• A hedge against inflation

So, if you’re hating on the asset class because it doesn’t give you 100% returns every year, then you’re being a little narrow-minded.

If you want insane growth, buy equities or crypto.

But when you need to cash out, it’s time to consider something that’s more stable.

It is as the saying goes: Do not judge a fish by its ability to climb a tree.

What we consider investment property

Of course, there is a lot of confusion about the term ‘investment property’ these days in property obsessed Singapore.

In our opinion, investment property is not:

• Public housing, which is meant to stay affordable for the masses
• Your primary residence

Yes, these are assets, but IMO, I would not consider them investments. They are two different things.

IMO, investment properties are not used as primary residence, and/or are used to generate income.

Having a condo you rent out is investment property.

Having an office space you use to make money is investment property.

Having REITS is investing in property.

On the flipside, a couple with a $7,000 combined income, borrowing money from their relatives to buy a condo to live in are clearly not investing.

They’re upgrading their LifEsTyLe anD SoCiAl sTaTuS beyond what they can afford.

The risks with real estate investments

This article would not be complete with the downsides of property investing.

The big four for me are:

High barrier to entry, which leads to over-concentration of assets– Expect to fork out at least $170,000 to $200,000 downpayment on an entry-level private residential property condo these days. Commercial property usually costs even more.

Illiquid asset – You can’t press a button and sell your property instantly. That makes it pretty terrible if you’re in need of emergency funds. On the flipside, it also means it makes panic selling far less possible.

Selection is key – You can think of buying a physical property like picking your own stocks. There’s a chance you might beat the market, but there’s a chance your pick fails you and becomes a liability. This is no joke when the asset involved costs over a million dollars. In the worst case scenario, my investment condo might end up being a liability.

Maintenance costs and not really ‘passive’ income – Property comes with a lot of associated ownership costs (property tax, maintenance fees, agent fees), and being a landlord isn’t really passive.

REITs – a middle ground

Of course, not everyone has $200,000 lying around to buy a physical property.

For that, we have REITs (real estate investment trusts) – amongst the most popular investments in the Singapore stock market.

These are stock-market listed companies that own a bunch of commercial real estate – hotels, malls, offices, hospitals, data centres. If you buy a data centre REIT for example, you essentially own a very small part of the data centres within the REIT’s portfolio.

REITs earn money via renting these out, and then distribute 90% of their earnings via dividends. This also means that on a quarterly or semi-annually basis, you’ll receive dividend income from your REIT investments. Relatively straightforward.

In addition, REITs have a management team that helps run the daily operations so you don’t need to pick tenants and deal with agents about commissions.

Of course, you pay a fee for all these services, but IMO, it’s closer to ‘passive income’ that’s often advertised.

How to buy REITS? You can take time to research individual REITs – think stuff like Keppel DC REIT, CapitaLand Integrated Commercial Trust, Parkway Life.

If that sounds like too much effort, you can also invest in a ready-made portfolio of REITs, such as the one provided by our sponsor (more on that at the end of the article).

REIT Weaknesses:

As much as it’s tempting to tell you that REITS are the best of both worlds of equities and properties, they’re not. They make tradeoffs between the asset classes.

The two biggest?

The first is stability. Because REITs are so easily liquidated, expect their prices to be less stable compared to property.

The second is the lack of leverage. You can’t get a cheap bank loan (1-2% interest) to fund your REIT investments.

The one important thing to note about Singapore’s property market

We’ve read compelling opinions from both camps (and a lot has been said about Singapore’s property market.)

In one corner, we’ve people who say ‘property will always go up!’

On the other hand, we’ve got those who think that Singapore’s property market is headed for absolute disaster.

But our main takeaway is this:

Unlike other nations, which can witness the boom and bust of multiple cities, Singapore’s real estate is very much tied to the nation’s future – all 728.3 km² of it.

This is the unavoidable truth of being a city-state.

Right now, Singapore’s ranked amongst the world’s most successful cities and wealth hubs. It’s attracting talent, global companies, foreign investors who find it a safe haven. These pull factors increase demand for property prices here, which keep prices up.

However, the city is not without its challenges – ranging from aging population, inequality, climate change, and of course in the short run COVID.

Would Singapore and its spaces still be valuable in 20 years? To be honest, that’s anyone’s guess.

…But for the record, we’re betting it is.

Stay woke, Salaryman

A message from our sponsor

Syfe REIT+ holds 20 of the largest Singapore REITs in one portfolio. This includes Ascendas REIT, Mapletree Commercial Trust, CapitaLand Integrated Commercial Trust and more. The portfolio tracks the iEdge S-REIT Leaders Index and generated a 4.5% dividend yield in 2020.

The main selling point is that it gives you a cost-efficient way to invest in multiple REITs without incurring expensive fees compared if you D.I.Y.  (Syfe’s management fees are 0.4% – 0.65% per year, versus $10 – $25 per transaction if you trade through a local broker.)  There is no minimum investment to get started and you can withdraw anytime.

In addition, it might work for the following people:

1. Investors who want to diversify their portfolio but don’t have $200,000 to plonk down on a physical property.
2. Investors who don’t want the hassles of being a landlord and prefer having someone manage your property for you
3. Investors who already own a residential property (i.e HDB) and want to diversify their real estate investments without incurring ABSD (Additional buyer stamp duty)

Interested to add REITs to your portfolio? Create a Syfe REIT+ account with the promo code SALARYMAN to enjoy zero management fees on your first $30,000 investment for 6 months.