Many forward-thinking millennials are planning to invest in Singapore real estate. Isn't that great?
As reported in a recent Businesstimes article, the latest Manulife Investor Sentiment Index survey shows that a majority of Singaporean millenials are keen to purchase local real estate for investment purposes. However, the rental yield of Singapore property is seen to be less satisfactory than properties in other Asian countries like Indonesia and the Philippines. But is this sentiment accurate?
Global Property Guide, an international property research site, certainly thinks so. By comparing the rental yields of 120sqm apartments located in a city centres across 10 major cities in Asia, Singapore emerged third from bottom with a paltry 2.54% rental yield.
In an even more pessimistic outlook, a financial blog estimated the Singapore property rental yield at -1.74%, which meant that monthly rents do not cover the property loan installment. Indeed, this could be the case as excited investors snapped up new real estate units in the years before the authorities implemented the property market cooling measures.
Other opinions suggest that a rental yield of between 1% to 2% is already satisfactory in today's market, with the rental index still in a downward trend. To quote a landlord interviewed by the Straits Times, "I'm just glad someone is taking it."
With the overall sentiment that investing in Singapore property does not offer the best bang for the buck, why would a new generation of Singaporeans still plan to jump into the fray?
Millennials expect to work well into their retirement, to maintain their lifestyle and liabilities. Hence, there is less inclination to avoid big ticket purchases that require hefty loans.
8 out of 10 millennials believe that life will be better in the future as they work towards retirement. This encourages making bigger bets today, in the hopes of paying it off easier in the later years.
While not mentioned in the Businesstimes report, millennials might be swayed to invest in property because of the massive appreciation in resale prices over the past decades. Baby boomers and Gen X-ers had profited from investments in houses purchased decades ago, and every Singapore homeowner still harbour the hope of cashing in the trend.
Also not mentioned in the report, the ease of buying a property might also be a factor in this trend. For most other financial instrument, some knowledge of markets are required. For instance, an investor needs to have a trading account to buy a bond, a stock or a REIT. Mutual funds are even more complicated, which may overwhelm and dissuade the young investor. In purchasing a property, an agent would do the 'market analysis' for the consumer, and also handle the paperwork. All the investor needs to do is have enough salary to get the loan.
Having said that, there are savvy young investors who can read the market and identify developments with good potential and offer excellent value. In today's placid market, these come few and far between, which means consumers need to do enough research before committing to a long term investment. For millennials looking to build a family and live comfortably in an increasingly unpredictable economy, the risk is greatly magnified.
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