Comparing Property And Stock Market Investments

By on December 20, 2012

When most people hear about investments, the immediate thought would go to financial investments like stocks, unit trusts, insurance, or another savvy sounding exclusive collective scheme.

This is hardly surprising because when you walk into the bookstore, you will find many books, magazines, biographies and articles have been written and published by major publishing houses on how to make money in the stock market during good and bad times.

Property markets have very big potential especially in emerging market. Yet it does not receive as much attention as the savvy sounding futures traders and derivatives cowboys.

Both stocks and real estate have a place in your portfolio if you want to diversify and limit risks.

Many of us have made money in the stock market. The integrated systems in developed economies allow anyone to easily buy and sell shares and pocket a profit or make a loss.

To get your hands on IPO shares, all a rookie has to do is go to apply to subscribe and wait for an allocation. Then get online to sell it and bank in the balance cheque.

Unfortunately, many of us have also lost money in the stock market mostly always due to “timing”.

This issue of “timing” has led many investors thinking that the stock market is created to make the rich even richer.

Choosing stocks and monitoring them throughout the day is also a tiring process. How is anyone going to monitor movements when they have actual jobs that pay them a monthly salary?

Looks like he needs a bubble tea to calm down

For people with an analytical mind and willing to take the time, picking the right stock can be the best feeling in the world.

It can also be the most rewarding.

It is also in my opinion that if one is given a choice between similar guaranteed returns for either a stock and a property, one would always choose the former.

All you have to do is make a few clicks to buy stock. While managing an investment property can mean a lot of tedious work.

But because of the global uncertainty in the financial markets, properties have become hot investment vehicles in markets such as Singapore.

The government is getting great cash flow from land sales, developers are making big profits from new condominium launches, banks are benefiting greatly from the market explosion and supporting industries like interior design are cashing in big time.

And for the individual property investor, the temptation of real estate investment multiples ten fold when you consider that paper gains on properties are outperforming stocks.

The leverage you can use for properties is also very attractive when you can use $200k to take control over a property worth $1m.

The other big factor why investors in Singapore are preferring properties for investment is that when you invest in properties, you are making decisions based on actual numbers you obtain directly from the selling owner or from trusted credible public records.

You do not have to put your relentless trust on a remisier or broker.

The numbers you evaluate before buying a property is all verified through the due diligence process. There are also a lot of parties involved who can point out irregularities to you.

Players in a property transaction include:

  • property agents
  • mortgage brokers
  • bankers
  • lawyers
  • insurance agents
  • appraisers
  • sometimes even civil servants
  • etc

And the seller will have these people working with them as well.

When the numbers presented to you hold true and you find them favorable, you can sign on the dotted line with confidence.

If a seller is trying to be funny with numbers, the people on your side will point them out to you. And you can use that information to counter offer or renegotiate.

And if the numbers are still unfavorable, you can always walk away from the deal on the table without a guilt in the world.

The stock market however is fueled by sentiments and emotions.

People speculate on management changes, possible dividends, technological impact, new product launches, etc. The entire market moves with market rumours. And these can snowball to major uncertainty just from rumours alone.

The good thing about properties is that your deal with a real physical asset that you can inspect and deal with. Rumours do not do much to hamper property prices.

There is this evergreen number of people looking to buy and rent properties. People need a roof over their heads. Rumours are not going to put a huge dent on demand and supply.

Whereas a sudden technological advancement can create bubbles like the internet. Employees in a company can get your money into trouble like Barings. And the best people in the company can move on. Many factors can put a market darling into hot water.

And this is all going on when the currently period is seeing disruptive technology progressing at a record pace.

Property investment is so much more straight forward. Singapore for example, have scarce land. People need homes to live in not only for themselves, but for their families as well. And with the influx of foreign talent into Singapore, it does not take an economist to predict that there will be a huge demand for housing.

The principle of demand and supply determine that property prices will rise over time. There will always be cyclic changes.

But real estate will always come back and perform well again. This is good enough for an investor who has no aspirations to be “savvy”.

All I want is to put my money into a vehicle that will keep up with inflation and possibly make some extra cash for me. Compared to the volatility of the stock market, property investments are most reassuring to me.

Impeccable even though he has lost money :S

But when you are ready to move up a level in property investing and be a little more advanced, you will learn that the key to making a lot of money in real estate is in understanding the timeless real estate market cycle.

Identifying this is an absolutely vital skill for seasoned property investors.

Because even though properties and land are clearly one of the best investments you can make for you and your family over time, it does not go straight up like a rocket in value.

But, once have the ability to identify these stages in cycles, you will be taking your investment to another level compared to a lot of property players who’s only play in their hands is to buy and hold.



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