3 Hidden Risks Most Property Investors Fail To Consider
To anyone who is either interested in or has invested in property,
When you think of the property market in Singapore, as well as the potential ROI of investing in property, what comes to mind?
When I ask this same question to my clients, here’s the sentiment I get:
“It’s long-term, but it’s safe.”
“It is the most stable form of investment in Singapore.”
“I can potentially make a good profit down the road!”
That’s the impression many Singaporeans have about property investment. But is this sentiment accurate?
Now, the above statements may be true for some. But that is based on one thing:
That everything goes according to plan.
You see, as with any investments, property investment comes with its risks. I’m sure you know this.
But many fail to realise how each individual risk affects their potential returns especially if they are using that investment property as part of their retirement planning.
So now, I’d like to discuss the 3 most often neglected risks even existing property investors miss out on and if property investing is the best way on how to plan for retirement in Singapore.
INTEREST RATES
The standard belief most investors hold about property is that property prices are bound to appreciate, given enough time.
Unfortunately, that’s not true.
In fact, there are examples of promising properties that actually depreciate against market expectations.
And for many of these cases, the reason is because of rising interest rates.
A Straits Times article from January 2018 talks about how many homeowners are affected by banks increasing their interest rates. While this story may not focus on investors, it goes without saying that this current trend will also affect those looking to invest in property for the long term.
Right now, at the rate in which interest rates are currently rising, what will your final property valuation be? How will it be affected?
Answer: Chances are your property valuation, as well as your potential for ROI, will naturally decrease.
LIQUIDITY
Now, many property investors may already know of this:
Property investment naturally comes with the risk of liquidity. Or in other words, not being able to buy or sell a property due to lack of supply/demand.
What many fail to consider, however, is the extent to which this may affect them.
The risk of liquidity is the highest form of risk for the property. That is because the market supply and demand for property fluctuate constantly. It has an inconsistent rhythm.
And it is this irregular heartbeat that has caused many property investors to either gain back lower returns (or even lose money) on their investments!
A Business Times article from late last year zooms in on the effect of market supply and demand on property developers, where it is clear to see that those who own investment property are also at the mercy of this unpredictable “buyer’s market -> seller’s market” cycle.
So to sum it up:
Property investors will always have to factor in the risk of liquidity, no matter what the market climate may be.
SOCIO-POLITICS
The state of property investment in Singapore is very profitable when compared to many countries around the region. In many ways, we have the government to thank for that.
Our government has made it such that property in Singapore can be both affordable for citizens to own, as well as profitable enough to be seen as a stable long-term investment instrument.
However, it is also the government’s responsibility to ensure our property market remains stabilised at all times.
Because of this, at times it is necessary for the authorities to step in and introduce property cooling measures. This helps to ensure the imbalance between buyers and sellers does not go out of control.
But at the same time, many property owners ended up being unable to sell their property at their desired price (or even find a buyer at all).
This is a good example of how socio-political factors affect the overall risk level of property investment. But who’s to know what other elements might come in the future?
All in all, property investment has its own unavoidable risks. But if executed with precision, as well as the right knowledge and experience, it can still be a very stable and profitable investment tool.
The important thing to note here is that successful investors don’t simply limit their projections and decisions to specific markets or investment models:
They have the wisdom to tailor their investments according to their own needs and wants.
So ask yourself this:
How are you making your investment decisions? Are you guided by certain market trends and sentiments, or are you guided by a sensible overarching investment strategy?
If you’d like to find out more about how you can improve your investment portfolio, I’m more than happy to speak with you! Just do me a favour and fill out the form below, so that I may get in touch with you:
