Written by Dreamer
Humans naturally enjoy socializing and discussing various topics like family, careers, and investments. A common question that often comes up is: “Is a house an asset, and how can you profit from it?”
To answer this, it’s important to first understand how houses transitioned from simple shelters to valuable trading items, and then explore the financial definitions of assets and liabilities.
Contents
- The Origin of Houses and Their Role in Trade
- Understanding Assets and Liabilities
- A House is an Asset when It Generates Positive Cash Flow
- Property Investment Strategies in Singapore
- Buying HDB Flat or Private Condominium for Rental Yield and Appreciation
- Railway Development Linking Malaysia and Singapore
- Is Your House an Asset or a Liability? It Depends on Its Role in Your Finances
The Origin of Houses and Their Role in Trade
Houses have always been more than just shelters; they are a vital part of human civilization. Initially built for protection and safety, homes evolved into valuable resources as societies developed. Over time, property ownership became associated with wealth, with land and homes often passed down through generations.
As trade grew, houses were increasingly seen as assets to be bought, sold, or rented, making property a key part of economic systems. This shift gave rise to real estate markets, where profit could be made from property transactions and leasing.
Understanding Assets and Liabilities
Before we go further, it’s important to grasp what assets and liabilities mean in financial terms.
Assets
Assets are things that you own or control that can bring you future benefits. This could mean earning money from them, saving money, or selling them for a profit. Assets include things like cash, property, or even valuable intellectual property like patents. They are listed on financial statements based on how quickly they can be turned into cash.
Liabilities
Liabilities are debts or obligations that you owe to others. These could be loans, unpaid bills, or mortgages. Liabilities are commitments you have to pay off, usually with money, over a set period of time. They can be short-term, like credit card debt, or long-term, like home loans.
A House is an Asset when It Generates Positive Cash Flow
Now, let’s apply these concepts to the example of a house. We’re often taught that a house is an asset, based on the belief that it appreciates in value over time. But is this always true?
A house may cost hundreds of thousands, or even millions. However, it can also be a liability if you’re weighed down by a mortgage loan. A house only truly becomes an asset when it generates positive cash flow—like rental income—or if you sell it later for a profit.
In Singapore, many homeowners have discovered that not all property investments yield positive returns. According to The Business Times, Singapore’s prime residential properties experienced the biggest losses in the second quarter of 2024, with some properties losing between S$780,000 and S$2.1 million in value. StackedHomes.com added that all the losses came from prime region condos. Almost all transactions involved a quantum of S$3 million or more, and substantial holding periods didn’t help to mitigate losses. The losses weren’t specific to freehold or leasehold properties.
Nonetheless, 80 percent of resale transactions in the Core Central Region (CCR) remained profitable in Q2, as reported by Cushman & Wakefield.
Property Investment Strategies in Singapore
These are some of the common property investment strategies in Singapore.
| No. | Strategy Name | Strategy Overview | Key Considerations |
|---|---|---|---|
| 1 | Buy-to-Rent | Buy property to rent out and generate passive income. | Location is crucial, consider rental yield and property management costs. |
| 2 | Buy-and-Hold | Buy and hold property for long-term capital appreciation. | Analyze market trends and ensure the property is in a growth area. |
| 3 | Decoupling (for Couples) | One spouse transfers ownership to the other, allowing purchase of a second property. | Consider legal fees, stamp duties, and whether the cost savings on ABSD outweigh decoupling costs. |
| 4 | HDB to Private Property | Upgrade from HDB to private property after MOP to gain from private market growth. | Timing is essential; ensure selling HDB at the right time for optimal returns. |
| 5 | En Bloc Sales | Buy older condos with en bloc potential for higher returns when sold collectively. | Speculative, requires understanding of en bloc process and development potential. |
| 6 | Executive Condominiums (ECs) | Buy ECs at a lower price, which can appreciate after privatization (10 years). | Eligibility requirements and MOP; consider potential for future capital appreciation. |
| 7 | REITs (Real Estate Trusts) | Invest in REITs to gain exposure to real estate without buying physical property. | Provides diversification; dividends depend on the performance of REIT-managed properties. |
| 8 | Dual-Key Units | Own a dual-key property, live in one and rent the other for income. | Ideal for multi-generational living or rental income; higher purchase price for dual-key units. |
| 9 | Fix-and-Flip | Buy, renovate, and sell property for a profit. | High renovation costs and market volatility; requires renovation expertise. |
| 10 | Commercial Property | Invest in commercial real estate like offices or retail spaces for higher yields. | Higher initial costs and risks; often involves longer leases and higher rental yields than residential. |
Buying HDB Flat or Private Condominium for Rental Yield and Appreciation
Case Study 1: Buying HDB Flat
Overview: In 2014, Mr. Tan and his wife purchased a 4-room resale HDB flat in Yishun for SGD 300,000. In 2019, they rented the flat out after fulfilling the 5-year Minimum Occupation Period (MOP) for an average monthly rent of SGD 1,900 (this rental income has gone up significantly since Covid-19 outbreak in 2020) over the next five years, providing a gross rental yield of approximately 7.5% annually.
Outcome: In 2024, Mr. Tan and his wife decided to sell the flat, which had appreciated to SGD 550,000 due to rising demand in Yishun and nearby developments with good amenities and transportation. They made a capital gain of SGD 250,000 on top of the rental income.
Case Study 2: Buying Condominium
Overview: In 2013, Ms. Lee purchased a 2-bedroom condo in Pasir Ris for SGD 900,000. She rented it out consistently for SGD 2,600 per month, earning a gross rental yield of approximately 3.5% annually. Pasir Ris is a growing area with developments like the Pasir Ris Integrated Transport Hub.
Outcome: In 2023, with the Pasir Ris Master Plan in full swing, property values in the area increased, and Ms. Lee sold her condo for SGD 1.15 million, netting a capital gain of SGD 250,000 on top of her rental income.
Takeaway
HDB flats tend to have high demand due to their affordability, access to good amenities, and convenient transportation links. This demand often translates into higher rental yields and the potential for capital appreciation, particularly in the resale market. On the other hand, private condominiums, which are more expensive and typically purchased by the upper-middle class and wealthier individuals, tend to offer lower rental yields and capital appreciation rates. This is largely due to their higher initial capital costs.
Railway Development Linking Malaysia and Singapore
The development of railway links between Malaysia and Singapore could change the dynamics of property demand. With the convenience of commuting, Malaysians working in Singapore and even Singaporeans may opt to live in Johor while commuting to Singapore for work. This could potentially shift housing demand to areas in Singapore that are closer to Johor.
- Kuala Lumpur-Singapore High-Speed Rail (HSR)
Malaysia is expected to make a final decision on the High-Speed Rail (HSR) project by the end of 2024. The HSR will be a 350 km train line that will make travel between Kuala Lumpur and Singapore much faster, cutting the journey down to just 90 minutes. The train will have seven stops in Malaysia—Bandar Malaysia, Sepang-Putrajaya, Seremban, Melaka, Muar, Batu Pahat, and Iskandar Puteri—before reaching its final stop at Jurong East in Singapore. - Johor Bahru-Singapore RTS Link:
Construction is well underway for the RTS Link, which will connect Johor Bahru’s Bukit Chagar station to Singapore’s Woodlands North station. It will also feature co-located Customs, Immigration, and Quarantine (CIQ) facilities, making cross-border travel more efficient.
Is Your House an Asset or a Liability? It Depends on Its Role in Your Finances
The saying “One man’s meat is another man’s poison” suggests that something beneficial to one person may not be good for another. In other words, what works for you might not work for someone else, and vice versa. The concept of a house has evolved from a basic shelter to a valuable asset and trading item in modern economies. However, whether a house is an asset or a liability depends on how it’s used and what it contributes to your financial situation. Understanding these definitions and their real-life applications is essential for making informed financial decisions.
Seeking professional advice on property can provide valuable insights and guidance to help you maximize its potential. Consider reaching out to an experienced property consultant for consultation.
