Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Friday, 14 September 2018

3 Reasons Stocks are Better than 99 Year HDB


Recently, we suddenly start realising that upon reaching the end of our HDB 99-year lease, we are all going to lose our homes - the HDB goes back to the government and we are not going to be getting any money back.
Suddenly, HDB feels like a rented apartment instead of our home, except instead of paying rent every month until the lease expires, I pay for it for 30 years only - and if I'm lucky, I get to sell it for a higher price than I paid.

The biggest and most important asset for most people is their house.
Have you ever wondered why most people remain either middle income or poor?
The correlation is not a coincidence.
It is exactly because of this reason - the bulk of their money are stuck in their homes.
The rich park much of their money in stocks and there are reasons why stocks are better than homes when it comes to growing your wealth.

1) Government Intervenes in the Property Markets
Our Government announced a new property cooling measure in July 2018 to cool the prices of properties in Singapore. This is because they find that the property market seems to be heating up - prices are getting higher than they should. The cooling measure is meant to reduce the rate of increase. This is actually a kind of "limit" on the gains you can have from your property investment! 

This is done so that we can all buy a house to live in Singapore. It is in the Government's best interest to ensure everyone can afford a home because it keeps them in power. If I am a buyer, I am not complaining that my Government is making housing affordable by removing rich people from bidding my house prices up. But if I am a property owner, it sucks to know that the value of my property is being "cooled" by my Government.

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2) HDB is an Appreciating Asset that You Own for 99 Years Only
As your HDB reaches the end of its 99-year lease, it goes back to the Government while you get nothing back.
The asset that you had hope to keep and leave it for your children suddenly no longer exist.
While it is yours to keep and sell within that 99 years, you lose it after 99 years.
It is not a permanent asset for you or your future generations to keep.
While it ensures that every generation gets a chance to buy a home in land-scarce Singapore, it also prevents you from passing your asset to your children and grandchildren, even though you worked hard and paid for it!

3) Government Don't Limit Stock Market Gains
When property prices reach a new high, Governments all around the world tend to step in to make sure prices fall back to normal. Imagine if property prices increased 15% year-on-year for 5 years straight - prices would have doubled, and you would be happy if you are a property owner, but you will never be able to afford a home if you are saving to buy one.

But for the stock market, Governments will not intervene if the market rose 20% year-on-year for 5 years straight. The Government will not intervene in the stock market even if it is a bubble because it is not the job of the Government to ensure the stock market does not overheat. Therefore, you stand to make higher gains in the stock market than from the property market.

Conclusion
Should you start considering to invest less in your HDB and more into stocks?
Since technically stocks are forever and you can pass it down easily.
Rich own stocks while middle-income own HDB.
99-year asset or forever asset?

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4 comments:

  1. I believe you mean it's a depreciating asset.

    ReplyDelete
    Replies
    1. Hi,

      It is not exactly depreciating. Depreciating asset means the price of the asset will keep dropping as time goes by. The thing about HDB is that you can actually profit from it - it can be an appreciating asset! :)

      Delete
  2. Your article is misleading. You mean to say that the buyers didn't know that they are buying leasehold land of 99 years before they put money down? Wouldn't they know that they cannot pass it to future generations? You mean they cannot count?

    ReplyDelete
    Replies
    1. Hi,

      They do. But the believe is that the Govt will payback the price or provide an alternative (say another free flat) for the occupiers at the end of the 99 year lease. Until recently was the "dreams" dashed when it was made know that when the lease is up, the occupiers will get no money back.

      Delete