Someone respected for his expertise in the stock market spoke about property investment to a few young professionals recently.
Frankly, it is hoped this article will set the record straight because the assertion that property investments are low risk = low returns, is incorrect.
There are many reasons why the stock market or many other types of investments are better than buying a property.
However, to think of property investment as a secondary choice to all these other forms of investments because of the “low risk = low returns” rationale is unfair.
First of all, investing in property is not “low risk = low returns”. Assuming we rent the place we stay in versus paying a mortgage for it, the rental amount after many years will be pretty substantial.
RM1,000 x 12 x 5 years = RM60,000.
How many of us love giving RM60,000 as a gift to some stranger who happens to own the home we rent? The current market is very good for rental because prices have not moved much.
Thus, owners have no choice but to rent out their units even when it’s below their monthly mortgages. Plus, we must rent as low as we can instead of renting high and enjoying it now because we will not be able to buy it in the future.
Here’s an article explaining why. Coming back to the equation of “low risk = low returns”.
We must understand that Malaysia is a young country (media age 29). This means that demand for properties is going to continue.
Assuming the growth in property prices follows the typical inflation rate of 3%, a property will still double in price when we retire.
By the way, the actual property price increases for the periods of 1990–2016 was 6.5%. So, assuming we paid 10% as downpayment for a RM500,000 home, that’s RM50,000.
When we retire, the home becomes RM1 million. Using a super simple calculation of RM500,000 (gain in property price) divided by RM50,000 (downpayment) divided by 30 (years). That’s a simple return of 30% per annum.
Low risk = low returns? When it’s said to represent property investment, think again. Note: Property Investment is NOT for everyone because the returns comes so slow. The stock market is by far faster.
By the way, there’s no need to debate which investment is best. The best investment is simply the one you are most interested in.
Whatever that may be, put your full attention to it, do the necessary due diligence and the return on investment at the end of the day / year / years will be above average versus those who did nothing.
This article first appeared in kopiandproperty.com
Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.