Is property a hedge against inflation?

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abbby
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Is property a hedge against inflation?

Post by abbby » Sun, 14 Jun 2020 12:33 pm

So..it seems like prices are not coming down as some of us have discussed before and with more foreign funds coming in, it could only go higher even with times like this.

Is property investment or simply just buying up any property in Singapore a good hedge against inflation?

I personally think it's better than keeping money in the bank...the same amount of money in 5 years' time cannot get you the house for the same price as today.
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Re: Is property a hedge against inflation?

Post by PNGMK » Sun, 14 Jun 2020 4:19 pm

Historically in most countries yes. War and disaster can change that curve but in general most developed or developing countries see real estate rise in the long term. There are some parts of the world where it is falling though due to falling population (Japan for example).
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Re: Is property a hedge against inflation?

Post by Max Headroom » Mon, 15 Jun 2020 12:56 pm

It's bound to be better than cash.

That being said, since Singapore's property market has peaked, and arguably is still peaking even now, I think values going up are the least likely scenario, certainly in the next 2-3 years or so, though even beyond that, I don't really see it happening. Nor would it necessarily be beneficial as such.

Again though, it's probably still going to do better than cash.

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Re: Is property a hedge against inflation?

Post by TropicalExpat » Sun, 12 Jul 2020 2:23 pm

It's too simplistic to think "oh funds are coming in i should buying up any property in Singapore".

Just say you are a SC, you buy a residential property for 1mn - your stamp duty is 24,600; total outlay (ex lawyers) = 1,024,600
For you to get any profit out of it, you would need prices to rise 2.5%
Sounds reasonable right? Yes

Now of if you buy a second residential property for 1mn, your stamp duty is 144,600; total outlay (ex lawyers) = 1,144,600
For you to get any profit out of it, you would need prices to rise 14.5%
Sounds reasonable right? A bit more difficult

Now of if you buy a third residential property for 1mn, your stamp duty is 174,600; total outlay (ex lawyers) = 1,174,600
For you to get any profit out of it, you would need prices to rise 17.5%
Sounds reasonable right? Even more difficult.

There are different rules for commercial properties, so ... it's not something jump straight into.

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Re: Is property a hedge against inflation?

Post by PNGMK » Mon, 13 Jul 2020 10:17 am

TropicalExpat wrote:
Sun, 12 Jul 2020 2:23 pm
It's too simplistic to think "oh funds are coming in i should buying up any property in Singapore".

Just say you are a SC, you buy a residential property for 1mn - your stamp duty is 24,600; total outlay (ex lawyers) = 1,024,600
For you to get any profit out of it, you would need prices to rise 2.5%
Sounds reasonable right? Yes

Now of if you buy a second residential property for 1mn, your stamp duty is 144,600; total outlay (ex lawyers) = 1,144,600
For you to get any profit out of it, you would need prices to rise 14.5%
Sounds reasonable right? A bit more difficult

Now of if you buy a third residential property for 1mn, your stamp duty is 174,600; total outlay (ex lawyers) = 1,174,600
For you to get any profit out of it, you would need prices to rise 17.5%
Sounds reasonable right? Even more difficult.

There are different rules for commercial properties, so ... it's not something jump straight into.
A couple strategies around this:

1. Decouple when the first property (private of course) has enough equity so the highest income earner can go onto the next property purchase. (Decoupling means if the prop title has multiple names take them all off except one).

2. Buy through your children or other younger relatives if you trust them.

Edit 3. Third strategy is apparently to buy with 5% down but not transfer title but flip for a profit.

Edit 4: Use a trust. There are penalties but also advantages.
Last edited by PNGMK on Fri, 09 Oct 2020 5:20 pm, edited 2 times in total.
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Re: Is property a hedge against inflation?

Post by midlet2013 » Wed, 15 Jul 2020 2:49 pm

How much do condo prices appreciate in general over time. Is it better than Stocks ?

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Re: Is property a hedge against inflation?

Post by PNGMK » Wed, 15 Jul 2020 3:55 pm

midlet2013 wrote:
Wed, 15 Jul 2020 2:49 pm
How much do condo prices appreciate in general over time. Is it better than Stocks ?
Midjet - long time no see!

Yes - in Singapore for sure if you compare indexs.
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Re: Is property a hedge against inflation?

Post by midlet2013 » Wed, 15 Jul 2020 5:22 pm

HI PNGMK

How tall are you? But I hope u r doing well. I don't have much reason to visit this forum anymore.

What index are u talking about . Singapore or US ? Cuz I did pretty well in US stocks in the past few years. Mostly tech so worked out well. So I feel US stocks seem like a good bet for passive income.

We have been PR for 6 and 12 years so can buy either HDB or condo. But I never liked the idea of owning a flat. I also don't think its a great financial investment in the first place. But I mite be wrong.

What is the appreciation of condo prices in general. Is it like 10% annually. I checked some data and I felt that mostly its between 2-5% over a 10 year period. Which is not impressive.

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Re: Is property a hedge against inflation?

Post by Max Headroom » Wed, 15 Jul 2020 6:01 pm

That's because the property gravy train here has decelerated considerably over the past few years.

As Singapore pretty much tripled its population since the early 80s, supply was always going to lag behind demand. But now that the equation has run its course, I don't think we're going back to those halcyon days.

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Re: Is property a hedge against inflation?

Post by TropicalExpat » Fri, 09 Oct 2020 11:39 am

PNGMK wrote:
Mon, 13 Jul 2020 10:17 am
TropicalExpat wrote:
Sun, 12 Jul 2020 2:23 pm
It's too simplistic to think "oh funds are coming in i should buying up any property in Singapore".

Just say you are a SC, you buy a residential property for 1mn - your stamp duty is 24,600; total outlay (ex lawyers) = 1,024,600
For you to get any profit out of it, you would need prices to rise 2.5%
Sounds reasonable right? Yes

Now of if you buy a second residential property for 1mn, your stamp duty is 144,600; total outlay (ex lawyers) = 1,144,600
For you to get any profit out of it, you would need prices to rise 14.5%
Sounds reasonable right? A bit more difficult

Now of if you buy a third residential property for 1mn, your stamp duty is 174,600; total outlay (ex lawyers) = 1,174,600
For you to get any profit out of it, you would need prices to rise 17.5%
Sounds reasonable right? Even more difficult.

There are different rules for commercial properties, so ... it's not something jump straight into.
A couple strategies around this:

1. Decouple when the first property (private of course) has enough equity so the highest income earner can go onto the next property purchase. (Decoupling means if the prop title has multiple names take them all off except one).

2. Buy through your children or other younger relatives if you trust them.

Edit 3. Third strategy is apparently to buy with 5% down but not transfer title but flip for a profit.
Question for you PNGMK, and feel free to tell me to bugger off.

If I own a property and my spouse doesn't (i.e. it's in my name), my spouse would be classified as buying their first property. Is this correct?

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Re: Is property a hedge against inflation?

Post by PNGMK » Fri, 09 Oct 2020 5:19 pm

Absolutely correct TE. You are only "coupled" through the title (having both names on a title). Singaporeans are also starting to use trusts a lot more to hold property in which provides even more arms length.
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Re: Is property a hedge against inflation?

Post by malcontent » Sat, 10 Oct 2020 1:25 am

If you look at the very long term historical trend here over longer 20-30 year timeframes, the appreciation rate here is about 5-6% per annum, which is very similar to other parts of the world. What is not similar is the wild swings in between that can cause even a 10-15 year holding period to end up with abnormally high or low appreciation levels. That is really what the government is trying to get a handle on.
It’s not what happens to you, but how you react to it that matters ~ Epictetus

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Re: Is property a hedge against inflation?

Post by TropicalExpat » Sat, 10 Oct 2020 3:15 pm

PNGMK wrote:
Fri, 09 Oct 2020 5:19 pm
Absolutely correct TE. You are only "coupled" through the title (having both names on a title). Singaporeans are also starting to use trusts a lot more to hold property in which provides even more arms length.
Thanks for the clarification.

Unfortunately with your expansion on holding in "trusts" you have lead me to ask another question.
What is the benefit of holding in a trust? I assume it's considered an entity: which would mean it's subject to 25% absd.
Is it because then, in theory, one could hold a freehold property for eternity without having to worry about paying for absd on death of the original owner?

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Re: Is property a hedge against inflation?

Post by PNGMK » Mon, 12 Oct 2020 11:52 am

TropicalExpat wrote:
Sat, 10 Oct 2020 3:15 pm
PNGMK wrote:
Fri, 09 Oct 2020 5:19 pm
Absolutely correct TE. You are only "coupled" through the title (having both names on a title). Singaporeans are also starting to use trusts a lot more to hold property in which provides even more arms length.
Thanks for the clarification.

Unfortunately with your expansion on holding in "trusts" you have lead me to ask another question.
What is the benefit of holding in a trust? I assume it's considered an entity: which would mean it's subject to 25% absd.
Is it because then, in theory, one could hold a freehold property for eternity without having to worry about paying for absd on death of the original owner?
Trusts are for wealthy families who don't care about ABSD - it's pennies to them. What they care about is hiding their wealth from govts and other entities (such as the Indonesian tax authorities) and being able to distribute and use the income from that wealth in tax efficient manners. Trusts are used here so that if one person stuffs up only that persons personal wealth is at risk and not the families wealth. Think of the Shaw family for example. Yes - trusts are entities and yes ABSD rules specifically address these from what I recall.

One thing to keep in mind around ABSD is that some countries (USA, Lichenstein, Switzerland? and maybe NZ) have an exemption to ABSD.
I not lawyer/teacher/CPA.
You've been arrested? Law Society of Singapore can provide referrals.
You want an International School job? School website or http://www.ISS.edu
Your rugrat needs a School? Avoid for profit schools
You need Tax advice? Ask a CPA
You ran away without doing NS? Shame on you!

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Re: Is property a hedge against inflation?

Post by TropicalExpat » Mon, 12 Oct 2020 12:33 pm

PNGMK wrote:
Mon, 12 Oct 2020 11:52 am
TropicalExpat wrote:
Sat, 10 Oct 2020 3:15 pm
PNGMK wrote:
Fri, 09 Oct 2020 5:19 pm
Absolutely correct TE. You are only "coupled" through the title (having both names on a title). Singaporeans are also starting to use trusts a lot more to hold property in which provides even more arms length.
Thanks for the clarification.

Unfortunately with your expansion on holding in "trusts" you have lead me to ask another question.
What is the benefit of holding in a trust? I assume it's considered an entity: which would mean it's subject to 25% absd.
Is it because then, in theory, one could hold a freehold property for eternity without having to worry about paying for absd on death of the original owner?
Trusts are for wealthy families who don't care about ABSD - it's pennies to them. What they care about is hiding their wealth from govts and other entities (such as the Indonesian tax authorities) and being able to distribute and use the income from that wealth in tax efficient manners. Trusts are used here so that if one person stuffs up only that persons personal wealth is at risk and not the families wealth. Think of the Shaw family for example. Yes - trusts are entities and yes ABSD rules specifically address these from what I recall.

One thing to keep in mind around ABSD is that some countries (USA, Lichenstein, Switzerland? and maybe NZ) have an exemption to ABSD.
All clear now. Thanks!
Basically trusts don't matter for us plebs

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