Personal Finance

4 reasons why property may not be the best asset for retirement

Property investments have long been favoured in Asian cultures, and Singapore is no different. The appeal is as much psychological as it is financial: you can stand inside a house you own, but you can’t see a stock or bond (well, not unless you bother to get the certificate). But take away this appeal, and what’s left in terms of real numbers?

The pros of property

Let’s look at the basic upsides to property:

  1. Over time, property prices tend to rise. In most countries (not just Singapore), property prices tend to rise over time. As a country’s population and wealth increase, the available land space tends to decrease. In particular, central areas (such as districts 9, 10, and 11 in Singapore) become overcrowded, and demand for housing starts to exceed supply. As such, the prices of properties naturally rise. This happened quickly in Singapore, due to our rapid rise from developing to first world nation. A combination of land scarcity, fast rising population, and an increase in wealth helped property investors to make big returns, up to the last peak in 2013. In general, almost any property will rise in value if you wait 15 to 20 years. This applies in almost every major city, whether it’s Singapore, New York, London, Hong Kong, or so forth.
  2. Property can be a regular cash generator. Assuming the rental income from your property exceeds the monthly cost (mortgage, maintenance, and tax), it can be a regular cash generator. There may be a bigger sense of satisfaction compared to dividend paying stocks or bonds, as a landlord can collect cash every month. Whether the pay outs are predictable is another issue; that comes down to the rental market, the length of the lease, and the reliability of the tenant.
  3. Rental income can move with inflation. Unlike a bond coupon, or fixed pay-outs from CPF, rental income can rise with inflation. As prices go up, landlords simply raise their rates to match.
  4. There is a greater sense of control. There isn’t much you can do to improve the value of a stock (in theory you have a say at the annual general meeting, but you’re seldom heard unless you own a jaw dropping amount of equity). With property, you can take steps to renovate the rooms. You can also extend the house or add floors, in the case of some landed properties. Of course, there is no guarantee that such improvements will “pay for themselves” upon rental or resale.

The downsides

Some of the main drawbacks to owning property are:

  1. Illiquidity. The main problem with property assets is the lack of liquidity. You can sell a stock with a few clicks of a mouse, and get your money in three days. You usually can’t do this with a house, not without incurring a major loss. Most of the time, property is bought with a mortgage. You will be making repayments every month for your investment, and the money that you pay this way is locked down till the end of the loan tenure. There are some ways to get it back out, such as cash out refinancing, but even these methods can take months to get approval. To simplify: if you invest in property, and you need money for an emergency, you probably can’t take it out of the house. And if you end up in a personal financial crisis, such as an unexpected retrenchment, you must sell if you can’t service the mortgage – that sale could lead to a capital loss, if done in a hurry.
  2. High maintenance costs. HDB flats have conservancy charges and private housing has maintenance costs. In general, the fewer the units in a development, the higher the cost (as it is shared by fewer residents). First time property buyers are often shocked by how high these costs are. Even a 20-year-old condominium, such as Changi Court, can cost about $250 a month in maintenance. Luxury condominiums in districts 9 and 10 can have maintenance costs that run into thousands as they often have concierge services.
  3. Capital intensive. The maximum loan-to-value (LTV) ratio that a bank can give you is 80%. This means you’ll have to fork out 20% of the property price as down-payment, of which 15% can be drawn from CPF. There is a minimum of 5% in cash. However, as we are discussing property as an investment, we will assume you already have an existing property (your home) and are buying a second one. Having an outstanding home loan reduces the LTV to 60%, and Singaporean buyers pay an extra 7% for the additional buyers stamp duty (ABSD). This is a huge amount of money to commit and you can build a sizeable portfolio of stocks for such an amount.
  4. Returns are deceptive to a layperson. Lay investors are often confused by the returns on their property. This is because they’re taught a simplistic way to view it. Here’s an example.
    • Let’s say you purchase a condo for $800,000. You wait 25 years, and then resell it for $1.4 million. It’s easy to think that’s a profit of $600,000, but it isn’t.
    • First, consider the interest on the loan. Assuming you got the full LTV (a loan quantum of $640,000), at 1.8 per cent interest per annum, for 25 years. You would have paid $155,236 in interest by the end of the loan.So now, your profit is really ($600,000 – $155,236) = $444,764.
    • Next, consider the cost of renovations. Assume that the first renovation cost $30,000, and that you subsequently pay $10,000 in renovations on the 15th year. Your profit is now ($444,764 – $40,000) = $404,764.
    • What about the maintenance fees and taxes? We’ll be conservative and say these all come to around $5,000 a year (it’s usually much higher). At the end of 25 years, that’s $125,000. Now your profit is ($404,764 – $125,000) = $279,764.
    • Over 25 years, that’s roughly an annualised return of 1.2%. For comparison’s sake, the typical insurance policy will get you 3% per annum (and also give you health coverage). A well-diversified portfolio of stocks can net you 5-8% per annum, as can your CPF Special Account. (For more on how to start building such a portfolio right now, check out The Investment Quadrant on The Fifth Person).

So does that mean property is bad?

This doesn’t mean property is a bad retirement asset. It just means we shouldn’t assume property is always the best or that it’s automatically “safer” than other forms of retirement assets.

The fact is, we cannot predict the final price that a property will sell for. We cannot even predict the mortgage repayments over long terms as Singapore banks do not have perpetual fixed rate mortgages. Finally, we cannot predict when an emergency might require us to sell the house, which could mean a potential loss.

In light of that, a property asset should be treated as just another asset, not a sure-fire solution. Don’t sink every penny you have into a house and assume you’ll be set for life.

Ryan Ong

Ryan is a successful property investor and has been writing about money, saving and spending, and personal finance for the last ten years. His articles have been featured in leading publications including Yahoo! Finance, Esquire, Her World and AsiaOne.


  1. “4 reasons why property may not be the best asset for retirement” – really open my eyes towards the pitfalls of property investment. I better inform my friend who believes 100% in property for retirement to think again, citing the last of the 4 “reasons are deceptive to a lay person” for his consideration. He got burnt in stocks and shares, and he believes 100% in property and says so far, he can rely on the rental income generated to live on.

    1. Property can still give good returns — as long as you make the right investment at the right time (just like any other asset class).

      The point of this article is to show that there is more than one way to invest successfully, and that both stocks and property can be part of your retirement portfolio.

  2. Hi Ryan

    Appreciate your attempt to discuss about property as an asset.

    At least the asset is REAL asset unlike stocks. Although stocks need only small amount to own but most of the time, there is no control over the company. As you say, you can raise the issue in AGM, but the unlikelihood of the motion being carried is 99.xx%. When you own shares, you own 0.0xx% of ownership. In property, mostly the ownership is total. You do whatever you want with it. The control is also total. Rent, holiday home, AirBnB or whatever. In shares, esp in recent times, shareowner can get ‘privatised’ and not at your price. You have no say in many things , like the running of the company or even the amount of dividend!

    1. Hi Fred,

      You’re absolutely right. One advantage of owning property is that it gives you outright control over your asset. And just like other asset classes, there are both pro and cons to consider.

      Property can be great asset, as can stock, bonds, etc. and investing in each one depends on the individual’s personal financial needs, investment goals, risk appetite and time horizon 🙂

  3. If you are talking about property investment, no one would leave an investment property vacant for 25 years; especially since renovations are done to upkeep the place. The example is indeed a simplistic way to view property investment.

    Perhaps you can include the rental received for those 25 years, and then recalculate the annualised returns of 1.2%. This would give a fairer, less biased review of your example.

    Leaving the received rent out in your example is akin to leaving out the dividends paid out by REITS. Its like someone saying “REITS are horrible, they don’t appreciate in value. They increase an average of 1% annually”.

    1. Hi Derek,

      You’re right. The returns should include rent if it’s an investment property. Thanks for pointing that out!

  4. The way I look at it, too many people are not educated in the pitfalls of property investment as they are not financially savvy to understand concepts like time value of money and the actual ROI after cost. It doesn’t help that many headline news from media like papers and magazines like The xxxx who are stakeholders in the real estate industry use simple calculation to herald million profit deals transactions before cost. Many older properties that made million dollar profits were on way much higher cost of borrowing before the GFC and thus after interest cost, it is not even a million dollar profit anymore but it was often very conveniently not mentioned. BTW, in your article, you might have overlooked also sunk in cost like upfront property stamp duties which easily is close to 2-3% of the pruchased price. Smaller fees like legal conveyancing from buying and selling. Cost of agent fee every 1-2yrs to rent out unit, regular upkeeping of property if it’s a rented investment property and one of the killers that people often overlook other than just investment property taxes is the income tax that you have to pay for every dollar of rent that you collect after deduction of propert related cost. I have seen and often wonder why would high income earners want to own so many properties under their own name, maybe for ego and bragging rights of being a multiple properties owner? Especially with income tax top bracket now at 22%, every dollar they earned nett is 22% going into Govt’s coffer. I can’t think of another investment that can generate ROI of 22% using other people’s money with no risk 🙂 Compare that with dividend income from REITS which is TAX FREE, way better yield return, it’s a no brainer which is in my opinion more superior, liquid and benefit from economy of scale without the hassle of being a landlord which can be a nightmare if you have tenants from hell. Actually all the initial sunk in cost like downpayment, property stamp duty and renovation will easily be hundreds of thousand and above depending on how expensive your property is and if you just run a conservative compounded rate of return of 3-4%/yr which is not hard to get think OA 3.5% for your first 20k,SA 5% for your first 40k or bond fund for this huge lump sum which you would otherwise have made elsewhere, that million dollar profit gain is just a fantasy played out by all the stakeholders in the market. Ultimately, the ones that profit the most are the ones who sold the lands, the ones who developed the properties, the ones who financed your homes and the ones who sold you the properties 🙂

  5. Thanks for the very informative article. Just for the sake of clarity, point no.4 within drawbacks does not take into account the rental income that can be earned from the property. Our assumption here as in earlier points is that the property was purchased for investment. If this is the case, then the returns that have been presented would change significantly. If you have considered various costs such as interest, maintenance fees, renovations, taxes, etc. then it would only be fair if the incomes are appropriately represented as well. Otherwise, it would not be a case of comparing apples to apples.

  6. Thank you Ryan for your detailed enlightenment. I also owned properties for rental income before. I hate dealing with tenants. When times were bad, they came to ask for rental reduction (usually there is a Break Clause after the first year). However, the commission I had paid to agents were for 2-year lease & there was no refund. From time to time, I had to entertain trivial things (e.g. water dripping from taps) or something even more disastrous. The wear & tear was definitely worse than owner-occupied. Therefore, Ryan’s assumption of 15th year renovation is “too comforting”. Every time when tenants moved out, I had to get the poor maid’s help in cleaning the place upside-down. I tell myself that if I can’t afford to engage a property manager/ agent to run such errands (e.g. owning more than 5 rental properties to justify the costs for both agent & me), I won’t put myself into the situation of landlord any more. Every time when I received any call from tenants, surely there was nothing good. This caused extreme anxieties, no matter for people with full-time jobs or for retirees.

  7. I assume the analysis above is for a owner-occupied property? In which case the value of the imputed rent needs to be taken into account.

  8. In all area of investments, there is a time to go into the market when the time is right and then there is a time to wait and sit on the fences. Despite all the hyping by the stakeholders, now is the time to rent then own a property or buy one for investment. Why? Because your dear landlords are subsidizing you while you stay in their properties. It is correct guys, you’re getting paid to stay in your landlord’s investment property. It is now a renters’ market and it has been like that the last few years and it will be at least for the next 2 years while the market is trying to absorb the oversupply. With such depressed rental market, one can rent a 3 bedder property in prime district 9/10 for as little as $3k – $3.5k/mth for older projects or $2k – $2.5k/mth in the suburbs. Talk about staying in prime district at HDB rental. Taking an example of a D9 project like The Oxley Rise or 338A or Regalia where a 3 bedder is selling for around $1.8m-$2m, you must be out of your mind to be buying it to rent out at $3.5k – $4k/mth. Why? Because just interest repayment which the bank will earn from you for at least the first 10years is easily almost $2k/mth. Maintenance is easily $400-$500/mth, rental property tax is easily $100/mth, agent comm to rent out is easily $150/mth, income tax from property income $100/mth, reinvestment losses from the initial down payment + renovation + Stamp duty which easily runs up to $400k for a $1.8m property which you would otherwise be earning 2.5% in your OA which translate to around $800/mth, if you are a little more savvy, that initial $400k would have been churning out $20k/mth income elsewhere for you instead which is a reinvestment loss. When you add all these cost up, you will realise if you manage to rent a D9 3 bedder unit for $3.5k/mth and below, you are better off than if you had bought it and stayed in it. Unless rental markets improve which means ah gong needs to reopen the flood gates to welcome more FT, there are better ways to make your money than sink your hard earned savings into a property, hoping to hit the jackpot like the good old days. The good old days are over my friends. As long as income stays stagnant or at marginal growth and the same for our GDP, it’s better to make your money from doing business or from other form of investments…. cheers, peace out…

  9. I have been investing in both listed equities and properties for the last fifty years and found that there is as all will agree no perfect perfect investment.Remember always there old adage high gains high risk , no risk no gains. So it all depends on the point of time when one invest. After all these years I still find that investment in real estate is still better.
    Investing in listed equities require your almost daily attention to market news, especially bad news .Overtime one could gain dividends from well picked stocks like properties yielding rents . In other words there is dividend gains and rental gains and it is hard to say which is better. while stock investment depends on management performance property investment depends on on ones own self entirely. However in Singapore context I would still prefer to invest in property in the longer term given the political stability. So far so good. In case of stocks a syndicate can attack and bring the stock price down over night but, not with property. Thank God.

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