Singapore Property Review

BusinessTimes online writes that “Property may be big gainer as real interest rates plunge“, published 26 Nov 2007:

“(SINGAPORE) Rising inflation may be starting to worry policymakers and the man on the street, but it has had an interesting side effect. It has pushed down the real interest rate dramatically and is expected to drive the property market as buyers and borrowers take on more mortgages, which are costing them very little in real terms”

 It highlights that inflation may make putting money in the bank not really a good move:
“As OCBC’s Selena Ling put it: ‘There is no free lunch - our savings are also likely fetching a very low if not negative real return currently (calculated by subtracting the inflation rate from the nominal interest rates). The savings rate is about 0.25 per cent, while the 12-month fixed deposit rate is about 0.83 per cent.”

 In fact with the high rental market, if one look hard enough, one may able to find properties with high-rental yield. One example is Medge in D11 (Novena), in which rental yield is more than 5%. A 2rm unit today is around $900k, commanding rental around $3800-$4000. A 1rm unit at $699k, already comes with $3k rental.

That means, instead of letting you money in the bank earning 1-2% interest rate being erroded by inflation rate of 2-3%, you better off park it in property earning 5%. Not forgetting, you can also leverage on bank (current interest can be as low of 3.5% only).  Supposing you have $500k cash in bank (earning only 1%), you can just borrow from bank additional $200k to buy a $700k property with $3000 rental yield. The net effect, is $500k of your own money now grow 5% annually, and the borrowed $200k may even net 1% (minus interest), that’s additional bonus!  Moreover, you may even see capital appreciation in years to come as our IR becomes ready (that should cover all the misc cost like stamp-duty, legal cost, effectively). For those of you lamenting that your CPF is locked away, which not use it to buy property and generate addition cash income every month?

Rather than lamenting about inflation, why not be pro-active think about ways to cope with inflation, or even profit from it! Food for thought!

You might want to check out Adam Khoo’s blog about the returns on investment from Singapore properties.