HDB resale or car ? Which is the better investment in Q1 2012 ?

Recently an article mentioned a 0.6 percent increase in HDB prices while private properties have fallen. At the surface level, some HDB buyers may be feeling a little smug. They took in smaller losses than the folks who bought a condominium.

If you look at the projected inflation rate in 2012 which is expected to come at 4.5%, a 0.6% increase is way less than the inflation rate in Q1 2012. Comparing HDB prices to equities which have risen over 10% in Q1 2012, it's pretty clear which asset class is likely to be the winner in Q1 2012. In fact, a 1.6 litre second-hand car would have performed better as an investment in Q1 2012. COEs went from $46,889 to $58,501 through Q1 this year.

Here's some considerations for folks who intend to get wealthy by property ownership :

a) Rental yields of residential properties are pathetic.

Rental yields of residential properties straddle around 2-4% in Singapore. You are better off looking for industrial or commercial property if you are looking for yields.

b) This leaves capital gains which does not look good in the medium term.

By cutting down on foreigners, Singapore should look to less demand on resale flats. Making matters worse, HDB is expecting to ramp up the development of BTO flats for second timers in Singapore. Without any personal expertise in property, with shrinking demand and increasing supply, it does not take a genius to figure out that HDB flat prices will generate negative real returns.

( Note that politically I doubt the government will allow prices to decline, but having a n increase below the rate of inflation is one way of easing prices without a political backlash, hence I'm betting Q2-Q4 of 2012 to have similar results. )

Here's a better way of thinking about property:

a) Buy a flat or condo only if you need to stay in one.

Don't make your assets multi-task. Buy insurance for protection, equities for investment gains and a HDB to stay in. The moment you think that you are Warren Buffett's second incarnation if you own a resale flat, you will be expecting a disappointment pretty soon.

b) If you really think that you are some property punter, then get a good location.

Personally, if your unit is within 10 minutes of an MRT, your HDB may outperform the others. There is a psychological reason for this - Commuting ranks as one of the most unpleasant moment's in a person's working day, once people realise this, flats in a good location will become more expensive relative to a larger unit at inaccessible places.

Of course, some locations start out bad but future developments can make things better.