Reply to COS Debate on Real Estate as an Investment

Date: For Parliament Sitting on 7 March 2013

Name and Constituency of Member of Parliament

Ms Tan Su Shan, NMP

Question:

Real estate as an investment

Answer by Mr Lawrence Wong, Acting Minister for Culture, Community and Youth on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in Charge of MAS:

1   The government has been concerned about the buoyancy of the property market, which has been partly driven by the very low interest rate environment globally.  We have taken several steps to cool demand and expand supply, so as to avoid a sharper correction further down the road, which could happen when interest rates eventually rise.  Any such major correction would be destabilising for households, the banks, and also for the broader economy.

2   The latest round of measures in January 2013 were calibrated to be tighter on property ownership for investment, as well as foreign buyers.  Taken together, the government’s aim is to ensure a stable and sustainable property market. 

3   Like all investments, returns from property investments are not assured.  This is especially so when property investments are financed through bank loans. Their leveraged nature could result in investors having a negative equity position in an economic downturn and when interest rates rise.

4   Ms Tan asked if there are other options for Singapore investors.  As an international financial centre with well developed capital markets, Singapore has a diverse range of investment options available to investors, each with its own risk-return profile.  Some focus on generating income whilst others emphasise capital gains.  These include stocks, corporate bonds, listed real estate investment trusts, unit trusts (including bond funds), exchange traded funds and Singapore Government Securities. 

5   Ms Tan raised the concerns about retail investors or investors from the lower middle income group who many not have access to these products. But in fact many of these investment products are readily accessible by retail investors.  They can either purchase them on the Singapore Exchange or through product distributors.  For example, in the case of corporate bonds, there have been more corporate issuers offering their bonds not just to the wholesale market, but also directly to the retail market.  These issues have a low upfront minimum subscription amount, and are traded on the Singapore Exchange in small board lots (each board lot typically comprises S$1,000 in principal amount of the bonds).  Besides investing directly in corporate bonds, retail investors may also achieve similar investment objectives through bond funds which aim to make regular distributions.

6   I think what is important besides talking about investment products, when making an investment decision, however, investors should bear in mind that none of these products are risk-free.  They should be clear about their investment objectives, understand the risk of investing in the products, and be realistic about their ability to withstand risk and loss.  Where necessary, investors can consult financial advisers to formulate an investment plan that addresses these considerations.  For Singaporeans who do not have significant savings, it is best to keep their investments simple and conservative.

7   Ms Tan asked for the government’s view on inflation-linked bonds.  She had also raised this question in Parliament last year.  As I indicated then, MAS was studying the feasibility of such bonds.  The findings show that in the current low interest rate environment, investors are likely to have to pay a premium to purchase inflation-linked bonds.  It is not a small premium. For a three-year inflation linked bond, this would work out to a premium of approximately 10 cents per dollar, so about 10%.  Furthermore, as I explained at that time, inflation linked bonds are based on expected inflation and should inflation fall below expectations, investors would be worse off than if they had purchased a nominal bond, a plain vanilla bond.  Hence, the assessment is that it is not necessary to issue an inflation-linked bond in the current circumstances.  However, we will continue to review the matter, and consider this possibility in the future.

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Last Modified on 26/11/2016