Building a Multi Asset Portfolio in Singapore - Property vs Equity

I've been watching videos from the FifthPerson recently. And this week they touched on a topic which I really have an interest in: How to build a multi-asset portfolio

My key takeaway from this video is that property market work in cycles, so one must not over leverage. I think that is a very important advice, especially in the present climate where job security is filled with uncertainties. 

If a working couple purchase a really expensive property together, maximizing their capability to repay the loan, then it will be serious stress should one of them lose his/her job.

However owning 2 properties together with the intention to stay in one while renting the other out will justify this as the 2nd unit is an investment which have capital gain potential and is returning monthly rental income. 

But in order to buy 2 properties as a couple, they will have to pay ABSD of up to 20% on the 2nd property. That is S$160k for an $800k unit. Loan-to-value (LTV) for 2nd property is lower at 45% so that means one have to fork out higher cash/CPF upfront for the 2nd property.

Nowdays, alot of couples buy 2 properties decoupled, thus allowing them to avoid the ABSD and utilize the full LTV of 75% on each unit. Stay in one, rent out the other one. Even if one of them loses the day job, the rental return from the 2nd unit should be enough to cover the running cost (property tax, maintenance cost and loan repayments) with some cash returns.

Of course one will ask where the money for the downpayment for 2 units is coming from. Either through parents or from the sale of the first property they purchased together. The profits from the matrimonial home should be enough to pay for the downpayment of a 2nd home. 

Property Market trend in Singapore for the past 5 years

Many people say that property today does not give the same return compared to 10-20 years ago. I think that's not 100% true. Why not just buy S-REITS which have decent returns without all the hassles? 

The 2 charts above showing the private property price vs rental index for the past 5 years shows a correlation between the property price (albeit a bump in 2023 for rental) and rental in Singapore. For someone who bought a property 10 years ago at S$1000psf expecting S$2.5psf/mth rental return are now getting around 20-30% more 

We used to stay at Parc Seabreeze in a 4-bedder 10 years ago. We were paying around $5-5.5k/mth rental then. Today its easily $7.2-7.5k/mth, an increase of around 30% or more. If you had bought that exact unit 10 years ago? S$2.5mil and today its probably S$3.5mil.

So if you've bought it 10 years ago at S$2.5mil and getting rental income today of S$90k/annum. It's only a 3,6% return before property tax + maintenance + loan repayment. Actual return might only be 1% but the capital gain is already 40%. 

Whoever bought that unit 10 years ago, now they can sell it and use the profit and the original downpayment to fund the purchase of 2 units. There are many resale property opportunities in Singapore which I feel are undervalued and yet can consistently give reasonable rental returns.