Property no longer the best retirement investment in S'pore: DBS report

Based on current prices, a family wanting to upgrade to a similar-sized or bigger private property has to pay 15 times what they are earning in a year. ST PHOTO: DESMOND WEE

SINGAPORE - Property has long been seen as a pot of gold for Singapore investors, but a new DBS study that came out on Tuesday (Oct 12) shows that in the future, it might not be the treasure trove it used to be.

This is especially as new properties are smaller and more expensive as property price growth outpaces income growth.

Property analyst Derek Tan from DBS Group Research told reporters in a media briefing that the property price-to-income ratio is projected to hit a multi-year high as properties will cost 15 times the annual pay of a median-income family.

This means that a family wanting to upgrade to a similar-sized or bigger private property has to pay 15 times what it is earning in a year, based on current prices.

Mr Tan said: "This figure is the highest we have seen in 20 years. It means that current prices are not sustainable unless we see salaries increase at a faster rate, and it also implies that households increasingly need to have dual sources of income."

Historically, the price-to-income ratio - which measures property prices over annual income, including Central Provident Fund (CPF) contribution - has been from nine to one, to 12 to one.

The DBS report also showed that the average property price per sq ft (psf) has jumped 50 per cent since 2010, an increase which has grown more significant in new property launches.

The psf price has risen from around $1,200 in 2015 to $1,800.

Yet, homes have been getting smaller instead of larger, even with the higher price, Mr Tan noted. Three-bedroom flats are now 900 sq ft to 1,000 sq ft on average, and median house sizes for new launches have shrunk by some 20 per cent.

But with new work-from-home norms and children doing home-based learning due to Covid-19, families might want bigger homes, which will stretch their budget to attain.

Data from DBS on nearly 1.2 million mortgages found that the average Singaporean can spend 20 per cent of their income on servicing their home loan. This can even go up to half their income for some.

Middle-aged earners are the ones who stretch their income the most to service their mortgage while having a lower propensity to invest in other assets.

Mr Tan also observed that properties might not be as in demand in the future as investors hope, with Singapore's population expected to peak by 2045 if it continues on its current trajectory.

With tight immigration policies, it might also be difficult for property buyers to find tenants who want to meet their rental prices.

Instead, other assets can bring higher returns and offer liquidity as compared with property, he said.

"Property yield is close to 2 per cent or slightly lower," he added. "But a portfolio with real estate investment trust (Reits) that is professionally managed can have more diversity and higher yields of 5 to 6 per cent on average, tax-free."

He noted that the best-performing investment in the last two decades is the S&P500, a stock market index of the 500 largest publicly traded firms, so investors can consider a fund focusing on S&P500 stocks. This is followed by Singapore Reits, then private property and Housing Board flats.

Ms Lorna Tan, DBS head of financial planning literacy, said: "We can consider assets like equities, bonds, Reits, exchange-traded funds, alternatives and definitely CPF savings to maximise the risk-reward from all investments.

"This will alleviate the undesirable situation of being too weighted in property in our portfolio, with little left over for other investments that can offer better returns and liquidity."

Join ST's Telegram channel and get the latest breaking news delivered to you.