Property as a key retirement asset is no longer true today?
There was an article which went viral recently. It was shared to me in Whatsapp and I saw it again in Facebook too. This is the article in businesstimes.com.sg The article’s title is: “Property may no longer be pot of gold for retirement, says DBS.” The article gave many great numbers about why property investment is no longer a golden wealth accumulation strategy today versus earlier generations.
It says that prices of the properties have increased faster than salary growth and even an evolving demographics. It also showed the property versus other asset classes too and it does seem that property as an asset does not give the best returns! To cut the long story short, the conclusion from the article is that property is no longer enough to attain one’s financial goals.
So, please do read the article to learn about all these numbers yeah. This is the article in businesstimes.com.sg
A little story about kopiandproperty.com
kopiandproperty.com is a niche property blog and it happened to be the leading independent property blog here in Malaysia. So, it does seem that everything I write is to support property investment. Yes, I support property investment but I will never agree that property investment being the ONLY asset we invest in.
Remember what may happen if all our eggs are only in one basket yeah. No one could control unforeseen circumstances. Now, for that question, “Property as key retirement asset is no longer true today?” If you like to also know some reasons why property investment is so important, read earlier article here: 10 reasons for property investments
Property price then and property price today?
In the 80s, my parents bought a semi-detached landed home in Ipoh. It was RM85,000. It was a very tough decision to be made because RM85,000 then is like RM500,000 today, if not more. My brother bought a similar unit from the secondary market a few years ago for RM540,000. He has no choice because that unit is just in the next lane. So, if he stays there, he will be extremely close to our parents.
By the way, Ipoh has not changed a lot BUT you can see the property price which my parents bought and the property price which my brother bought has increased from RM85,000 to RM540,000 and I think one major reason is INFLATION. So, in this sense, inflation has helped tremendously.
Is the house now a key retirement asset?
That RM85,000 home has been fully paid many years ago and today my parents are retired. Is this house considered a key retirement asset for them? Actually, not really. You see the property does not give them any rental income because they are staying in it. However, it also does not take away their savings which is no longer growing as they have both retired.
They also cannot sell the property because if they did, then where would they stay? I would love to have them to stay with me but they prefer Ipoh by far as all their friends are there and all the neighbours have been neighbours for over 30 years easily. So, if it’s not a key retirement asset, perhaps they should have rented a home instead over 30 years ago? Then, use all the savings into some other investments which could have given better returns as per the businesstime.com.sg article?
How come total paid for mortgage is so high at the end?
The below shows how much one has to pay at the end of the property loan. The interest rate was much higher then versus today. Now it’s probably 3%.
Very briefly, RM561.33 x 12 months x 30 years is equal to RM202,079. This meant that even though the loan was way lower than RM100,000 the actual amount paid at the end was over RM200,000Looks like a bad deal, right? Considering the fact that one has to also paid a lot of other taxes etc. Plus the renovation cost, the repair for wear and tear etc?
No rental income versus no rental forever
Now, we imagine the same family paying rental of just RM500 per month and this does not change at all for as long as they live.
RM500 rental x 12 months x INFINITY years yeah… The reason is because no home owner will allow you to stay for free after the end of 30 years or when we retire.
So, if we paid rental for 50 years , that’s RM500 x 12 months x 50 years = RM300,000. This rental does not stop even for the next generation. Please also remember we assume rental remains totally unchanged which does not happen yeah. Unless any of you here tells me that if you are the owner, you will always charge the same rental forever.
However, if we assume rental only doubled after 50 years, then it’s RM1,000 x 12 months x 50 years (the next generation) and that’s RM600,000.
Now, do we know why in many countries, a poor generation who pays rental will almost certainly remain poor for generations to follow until disruptions happen?
Property may not be the best investment but property is compulsory
If we do not want to make property investment as compulsory, then do our best to earn by far higher income(s) than all the amount stated above so that the earnings from all other investments could cover all the rental easily.
If we do not know how to do so, then please fall back to the minimum which is tried and tested. Buy at least one good property so that the wealth continues to increase for us (simply follow inflation is perfectly fine) and not being paid out as rental forever and ever.
Thank you for understanding and happy diversifying your investment.
Property News Malaysia? Sign up for daily investment news updates (FREE since Nov 2013 and FOREVER). Alternatively, Follow me on Telegram here.
Next suggested article: MRTA vs MLTA. Which is better for property investment?