{"id":1296,"date":"2023-08-14T13:28:03","date_gmt":"2023-08-14T05:28:03","guid":{"rendered":"https:\/\/sgtayjeremiahj.com\/?p=1296"},"modified":"2023-11-22T17:29:14","modified_gmt":"2023-11-22T09:29:14","slug":"finance-103-investing-in-real-properties-vs-reits-amidst-country-gardens-restructuring-and-chinas-property-sector-concerns","status":"publish","type":"post","link":"http:\/\/sgtayjeremiahj.com\/finance-103-investing-in-real-properties-vs-reits-amidst-country-gardens-restructuring-and-chinas-property-sector-concerns\/","title":{"rendered":"Investing in Real Properties vs. REITs Amidst Country Garden’s Restructuring and China’s Property Sector Concerns"},"content":{"rendered":"\n\n\n

Introduction<\/p>\n\n\n\n

The real estate investment landscape has always been a dynamic and complex realm, with various factors shaping investment decisions. Amidst the traditional debate between real properties and Real Estate Investment Trusts (REITs), recent events have brought a new layer of complexity. In this comprehensive guide, we will explore the pros and cons of both investment avenues, delve into the captivating world of REIT dividends, and address the heightened concerns surrounding China’s property sector, epitomized by Country Garden’s restructuring. The real estate investment landscape is at a crossroads, with investors grappling between the allure of real properties and Real Estate Investment Trusts (REITs). While examining the merits of these options, recent events within China’s property sector have introduced a global dimension to this decision. In this comprehensive guide, we will explore the pros and cons of both investment avenues, delve into the intriguing world of REIT dividends, and analyze how China’s property sector concerns could influence the broader world economy.<\/p>\n\n\n\n

Part 1<\/strong> <\/p>\n\n\n\n

Investing in physical real properties involves purchasing tangible assets with the potential for rental income and capital appreciation. Here are the key advantages and disadvantages of this approach:<\/p>\n\n\n\n

Advantages of Real Properties:<\/p>\n\n\n\n

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  1. Tangible Asset: Physical properties provide a direct sense of ownership and control. You can influence property management, improvements, and customization.<\/li>\n\n\n\n
  2. Rental Income: Rental properties can yield a consistent income stream through tenant payments, offering a reliable source of cash flow.<\/li>\n\n\n\n
  3. Potential for Appreciation: Real estate has historically exhibited the potential for long-term appreciation, allowing investors to benefit from capital gains upon property sale.<\/li>\n<\/ol>\n\n\n\n

    Disadvantages of Real Properties:<\/p>\n\n\n\n

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    1. Capital Intensive: Investing in real properties requires substantial upfront investment, including down payments, maintenance, and potential renovation costs.<\/li>\n\n\n\n
    2. Active Management: Property management demands time and effort. Landlords must handle tenant relations, maintenance, and other responsibilities.<\/li>\n\n\n\n
    3. Illiquidity: Real properties are relatively illiquid, meaning it might take time to sell a property and access funds compared to other investment options.<\/li>\n<\/ol>\n\n\n\n

      Leveraging Costs for Real Properties:<\/em><\/p>\n\n\n\n

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      1. Mortgage Interest: Leveraging involves borrowing funds to invest in properties. The cost of leveraging includes mortgage interest payments, which can significantly impact cash flow and overall returns. Current private home loan rates in Singapore fluctuate in the range of 4.19% to 3.20% (Lowest Fixed) as at publication.<\/li>\n\n\n\n
      2. Down Payment: While leveraging allows you to invest with a smaller initial capital, the down payment required for the property purchase is an essential upfront cost. If you are using a private bank loan in Singapore, you will need to make a downpayment of 25% of the purchase price or valuation, whichever is higher. A minimum of 5% of this downpayment MUST be in cash, while the remaining 20% can be paid using your CPF OA or cash.<\/li>\n\n\n\n
      3. Risk and Reward: Leverage amplifies both gains and losses. While it can enhance returns during periods of appreciation, it also exposes investors to higher risks during market downturns.<\/li>\n<\/ol>\n\n\n
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        Tax Considerations for Rental Income in Singapore:<\/em><\/p>\n\n\n\n

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        1. Rental Income Tax: Rental income earned from Singapore properties is considered taxable. Tax rates are progressive, varying based on the amount of rental income earned.<\/li>\n\n\n\n
        2. Expenses Deduction: Property-related expenses, such as property tax, maintenance costs, and mortgage interest, can be deducted from the rental income to reduce the taxable amount.<\/li>\n\n\n\n
        3. Owner-Occupied Property: If you live in the property and rent out a portion, you may be eligible for certain tax exemptions or reliefs.<\/li>\n<\/ol>\n\n\n\n

          Capital Appreciation: Not a Guaranteed Outcome for Real Properties:<\/em><\/p>\n\n\n\n

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          1. Market Volatility: Real estate markets can experience fluctuations due to economic conditions, demand, and other factors, affecting property values and potential appreciation.<\/li>\n\n\n\n
          2. Local Factors: Factors such as location, infrastructure development, and neighborhood changes influence a property’s appreciation potential.<\/li>\n\n\n\n
          3. Active Management: Successful capital appreciation often requires ongoing investment in property improvements and maintenance, which might impact overall returns.<\/li>\n<\/ol>\n\n\n\n

            I am grateful to Josh Tan from The Astute Parent for providing insights in his video below. Also drawing from my own experiences, I’ve come to realize that opting for central locations (e.g. CBD area) might not always guarantee substantial capital appreciation. This is particularly relevant because many investors prioritize rental income for the long term. While the paper valuation might appear elevated, it doesn’t necessarily translate to the actual sale value, especially if transaction volumes are inadequate to substantiate it. Therefore, for first-time buyers, I personally advise against becoming overly enthused by the location or potential rental income and rushing into a situation that may lead to financial losses.<\/p>\n\n\n\n

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