When I first started this blog, I wanted to focus on financial products. However, it becomes increasingly frustrating to me how poorly people misunderstand property investment.
Many investors I talked to, treat property as “safe, high yield” investment.They borrow to their neck and struggle for the mortgage payment for their second or third properties, while the same group of people treat stock or even bond investments as “highly volatile, losing money” business.
Many failed to understand
- The leverage effect of property investment applies not only upside but also downside
- The interest rate impact to their investments
- The un-leveraged yield of private property investment is poorer than many stocks
- The property investment itself is as volatile as stock investment.
Take a look at the chart below. PPI refers to Private Property Index, where STI refers to Straits Times Index. It is not hard to see that the private property market moves inline with stock market in Singapore. To be more precise, stock market is a leading indicator for property market, which means property price movement is typically a few month lagging the stock market.
STI vs PPI vs HDB (source: www.singaporerealestate.info)
I hope this blog entry and recent comment about property market by new minister of Ministry of National Development Khaw Boon Wan serve as a wake up call for many property investors. During financial crisis, many property owners learn the truth in a hard way. But why the misunderstanding of private property investment is still so prevalent, just like those Gold Bugs. I will discuss this in greater details in the future.