Why Buying Shares in Property Developers Might Be Smarter Than Owning a Second Home
As Singapore’s luxury housing market heats up, a compelling alternative is emerging for investors: buying shares in listed property development and investment companies instead of a physical investment home.
The Case for Property Stocks Over Condos
Singapore’s housing market has seen strong momentum, with new condo launches like Emerald of Katong and Chuan Park performing exceptionally well. But while owning an investment home can provide rental income and potential capital appreciation, Yee argues that the risks and costs often outweigh the benefits. Rising property taxes, inflation-driven condo management fees, and relatively low net yields—around 2%—are some of the challenges investors face.
By contrast, shares in property firms like City Developments Limited (CDL), Bukit Sembawang Estates, and UOL Group present a more liquid, less capital-intensive, and potentially higher-yielding investment. CDL, for example, trades at a staggering 48% discount to its book value and offers dividend yields significantly higher than the net yield of a private home.
Key Advantages of Property Stocks
- Deep Discounts and Value Unlocking
Buying shares in property companies often comes at a steep discount to their net asset value (NAV). CDL, for instance, trades at a 73% discount when fair-value gains and revaluation surpluses are included. Such undervaluation provides room for major gains, especially if these firms undertake strategic reviews or restructuring to unlock shareholder value.
- Steady Dividends
Property stocks can offer dividends that outperform the returns on rental income from private homes. Bukit Sembawang Estates, GuocoLand, and UOL Group provide dividend yields ranging from 3.8% to 4.5%—substantially higher than the skinny net yields of rental properties after taxes and maintenance fees.
- Lower Leverage Risks
While leveraging home purchases can enhance returns, high interest rates on loans often exceed net rental yields. With Singapore’s three-month SORA rate at 3.2% and fixed home loan rates around 2.6%, the borrowing cost for a home can erode profits. Property stocks eliminate this risk while requiring far less upfront capital.
- Portfolio Diversification
Investing in listed property groups offers exposure to professionally managed, diversified portfolios of assets, which mitigates the risks associated with owning a single property. Unlike physical homeowners, stock investors avoid complications like tenant issues or collective sale resistance.
Catalysts for Stock Performance
The undervaluation of many listed property firms presents opportunities for strategic moves that can unlock significant shareholder value. Successful privatisation offers or restructuring efforts—like those undertaken by CapitaLand and Hongkong Land—have historically led to substantial share price increases.
A Smarter Bet in Real Estate?
As developers and agents continue to drive demand for new condos in Singapore’s stable housing market, investors may want to consider a different route. Instead of tying up funds in a second home with limited returns, buying shares in listed property firms could offer greater liquidity, consistent dividends, and the potential for outsized capital gains.
For savvy investors looking to ride Singapore’s real estate wave, the stock market might just be the better address.
