Monday, 19 October 2020

Property vs Stock Market Investment

Property market needs a reset button | The Star

There is no doubt that property and stock market are the two most popular investment not only in Malaysia, but all around the world.

Which one is a better investment?

A successful property investor will tell you that property investment is better and stock market is too risky.

A successful stock market investor will tell you that stock market is better and property is too slow.

When I started my investment journey, I started with unit trust and then stock market. The reason is simple, how can a person with a saving of RM7000 and monthly salary of slightly over RM2000 invest in property?

After 5 years of working life, I got a better-pay job and that's the time I started to look into property investment.

The first property I bought was for my own stay in 2009 and after that, I actively looked for other investment properties.

I was lucky because that was the time when property market started to boom with new property price kept on increasing and people queued overnight to get a unit.

Around year 2012-2013, I felt that property market was not that attractive anymore and shifted my investment focus more to stock market.

Only since June 2013, I started to be more serious and more disciplined in stock market investment. Before that it was more like playing around without any goals and strategies.

I notice that I have written about this topic back in 2015. Has my opinion changed throughout these 5 years?

If you ask me now which one is better between property & stock market, it's really not easy to answer.

I like both and both are serving me quite well at the moment. However, if I really need to choose one, then the answer is stock market.

Most people don't like stock market because they think it's too risky. They heard people committed suicide or bankrupt during a stock market crash or may be their own hands got burnt badly before in stock market.

I have a wealthy friend who is doing very well in property investment. He advised against investing in stock market because it is risky.

"Risk comes from not knowing what you're doing - Warren Buffet". This is very true.

Risk comes from not knowing what you're doing.

My friend doesn't even know how to read a company's financial reports, or more accurately, he does not seem to have the interest to learn it.

If you know what you're doing in stock market, I think it is almost impossible to lose in stock market in long term.

Property is widely regarded as "safe" or less risky investment because property price can only go up in long term.

This is also very true, but only for those who make correct decision and have holding power.

I've seen quite a few new commercial properties which cost over a million each are left vacant for many years. It will be quite stressful for investors with not much holding power.

To me, a vacant investment property without a tenant is a disaster, unless you have fully settled the loan.

With such a low occupancy rate, it's not easy to find a buyer to sell at good price and it's unlikely that the property price will appreciate too.

The major advantages of stock market are its high liquidity, hassle-free low cost transaction and income tax-free gain. If you decide to buy or sell shares, you can do it in the next one minute through online platform.

Of course we need to do homework before buying shares and properties. In property, we have to look for developers or agents or sellers, arrange for an appointment and then go to view the property. 

This is quite troublesome and time consuming even though it can be enjoyable for those who are really interested in property investment.

In stock market, we just need to sit in front of our computer to do our homework which can be done in one day.

To buy a property, we need to get a lawyer, pay legal fee & stamp duties, sign thick documents, pay assessment fee, quit rent and maintenance fee etc.

While we are delighted at securing a tenant, managing it can be a big headache. Tenants might not pay rental on time, they might damage the property, asking landlords to repair this and that and worse, they don't want to move out when asked to.

Selling a property is also slow. We need to get an agent or find a buyer ourselves and get a lawyer. May be after many potential buyers come and view the property then we get a serious buyer. It takes months to get the cash into our bank account.

If you compare all these to stock market, it's a vast difference in term of liquidity & simplicity. 

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Don't get me wrong, I don't mean that property investment is not good, it's just more troublesome. I didn't regret going into property investment at all.

In fact, I'm actively looking for my next property at the moment as I hope to take advantage of current Home Ownership Campaign.

If you get a property at correct price, correct location with correct tenant, then it's wonderful and this property might serve you well financially for your whole life!

The main advantage of property investment is its leverage on other people's money. The ideal situation is, investors pay 10% (or less) of the property price and get 90% loan, then quickly rent out the property at a rental higher than monthly loan repayment plus other fees. 

With monthly positive cash flow or income, we can easily get our second property when we save enough for the 10% of  the next property price.

Then we get our third, fourth, fifth properties...

In the last few years, it's almost impossible to buy a new property and secure a rental higher than monthly loan repayment. That's why property investment is not that attractive to me anymore.

Sometimes I think that if I did not invest in property, I'll have much more cash than I presently have to invest in stock market.

If I use all the cash invested in property to invest in stock market, am I able to generate more cash and become more "cash rich" by now?

Nevertheless, while my cash level is still relatively low, I'm more towards "assets rich" at the moment because of property investment. 

The "rich" is in apostrophe marks because it's not really rich yet and there's still a rather long way to go to achieve financial freedom.

Anyway, there is no doubt that property will play an important role in my journey toward financial freedom.


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  2. Having investing in both, my experience tells me property investment is "easier"; it is a lot more easier actually. What need most is the common sense. Besides, one needs to have interest and spend time to see more properties in many areas so that better comparison can be made. The valuation method for a property (i.e. comparison method) is also much straight-forward than stock's.
    Stock investment needs strong and consistent commitment. There are a lot needs to learn and time consuming. In addition, a stock investor needs psychological strength to avoid him making wrong decision especially during a crash.
    My opinion is we can have a "passive" property investor yet successful but not easy for a "passive" stock investor to succeed in stock market.

    1. Agree with you, picking a good stock is harder than picking a good property, it's just that making a buy decision on a property is much harder than a stock. I have tried to be a "passive stock market investor" in 2018, and we can see the consequences... while my property investment in 2018 still continued as usual.

  3. If u want to buy a new property for investment now, i do think now is the good time. Countries like Taiwan, Korea, China & etc are reporting the appreciation of property price lately due to low interest rate and a lot of hot money are looking for assets to invest. The environment now have some similarities with what i saw in year 2009. Malaysia's property market is somehow still not out of the woods yet, but i think it will follow suit and turn positive from mid 2021 onwards.

    1. My cash level is already "behind schedule" for my financial independence target. If I put more cash into the wrong property, it will be a disaster. I'll be extra careful and only consider to buy another property if I can find a really good one.