Analysing ABSD impact on potential returns for property investors
Is Paying ABSD a Wise Decision
Many Singaporeans aspire to own investment properties after buying their matrimonial homes but are disheartened by the cost of ABSD.
In this article, we will examine the projected returns on equity (ROE) ofABSD-paying property investors vs other commonly owned asset classes
Case Study: Jimmy and Chantel co-own a property and are wondering if it is still worthwhile to invest in a 2nd property under her name
Scenario:
Jimmy is the sole borrower for their 1st home, and Chantel qualifies for a 75% loan herself
Investment Property Value: $1m
10 Years Investment Comparison
Average Annual Housing Inflation Over the Past Decade
Over the past decade, private properties (non-landed) grew by 3.85%/annum. Assuming history repeats itself, in 10 years time, a $1m property will be worth $1.38m.
Returns on Equity (Property)
Based on 1.8% interest. 25 years tenure
Outstanding Loan at 121st Month
Returns on Equity (Fixed Deposits)
Compound Interest Calculator fromTheCalculatorSite.com
Returns on Equity (CPF O/A)
Compound Interest Calculator fromTheCalculatorSite.com
Returns on Equity (Straits Times Index)
Summary of Common Investment Choices
After accounting for ABSD, Singapore properties still results in a higher ROE compared to other common investment vehicles.
How Investors should view ABSD
ABSD is akin to an investment cost for an asset that generates high returns on equity.
Despite having a higher barrier of entry, it likewise eliminates weaker hands from holding properties, thereby reducing risks for the market.
Benefits of Singapore Properties as An Investment Choice
1. Opens door to safer and higher returns with low volatility
2. Enables low cost leverage to multiply wealth
3. Enjoy the historical compounding effects of property price inflation for growing wealth