Blog #19 Property and the Stock Market

Part of the allure of property as an asset class is that with every dollar of your own capital and an 80% mortgage loan, you can pretend you own 100% of the property.  So, if borrow $80 to finance your property and the price of the property rises by 10% over a year, you earn a windfall profit of $10 (10% x $100). And you can brag to your friends that you made return of 50% ($10 over your own capital of $20) in just one year.

Leverage or borrowing money to own an asset is the name game in property. Of course, borrowed money has to be repaid (with interest). There are also other costs of owning a property. If it’s a condo, there are regular maintenance fees to pay. And don’t forget, you also have to pay property tax. These costs must be accounted before you can say for sure that your property  has been a great investment. From my experience, few property owners actually do these sums to calculate the net return of their property investment.

So, how good an asset class is property versus other asset classes? In this blog, I will revisit history to answer this question.

The URA has been tracking the median prices of all private residential properties in Singapore since 1975. I use this index to compile historical annual returns from 1975 to 2016. These returns are percentage price changes (i.e., income from rents are excluded). You can find the data in this spreadsheet.

Since property and stock prices are both strongly dependent on the economy, I also show the returns from the local stock market side-by-side with property.

FTSE Russell has partnered with the Singapore Exchange (SGX) and Singapore Press Holdings (SPH) to come up with a series of stock market indices tracking different segments of the market. I use the most comprehensive of these indices, the FTSE-ST All-Share Index to compute annual returns. These returns do not include dividends.

There are two worksheets in the spreadsheet. The first worksheet records the annual nominal and real returns of property and stocks. Nominal returns are not adjusted for inflation, while real returns subtract inflation from nominal returns. I use the Consumer Price Index inflation compiled by the Department of Statistics ( to measure inflation. To summarize a long time series of data, I report average returns.

The second spread (“Net Property Returns”) deducts loan repayments (interest and principal) from the annual property values. This worksheet assumes that in 1975, you put $2,000 down as the deposit for buying a property that costs $10,000. The difference of $8,000 is financed by a 30-year mortgage loan (hence the calculations end in 2004). The example also assumes an interest rate of 2% for the property loan and that loan repayment is annual rather than monthly as is the usual practice (this should not make a big difference to the calculations).

Bottom line: first, in terms of real returns, stocks have been a better investment than property though I can’t say for sure that history will repeat this pattern. Second, in terms of net returns on property (i.e., after accounting for the benefits and costs of leverage), stocks again come out ahead of property. The popular perception that leverage makes property a superior asset class to stocks do not quite square with the facts.









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