Residential property is an asset class that an investor can invest in. The residential property can be rented out for monthly rental income. The rental yield over the capital sum invested in the property can work out to be better than the interest income earned from the CPF ordinary account (2.5%).
The Residential Properties Scheme allows CPF members to use their CPF savings to buy private residential properties in Singapore for home ownership or investment. Refer to CPF Website.
If you have excess cash sitting in the CPF Ordinary account, and you have a stable monthly income and your potential to earn in the future is not in doubt, then consider investing in a residential property in addition to the one you lived in. The second property is for letting out for rental.
Having said the above, residential property is an illiquid asset and it will take a while to sell your property. This may take months to realise, unlike stocks and shares. You must have the holding power and is in no desperate need of immediate cash from the property. Residential property can depreciate in capital value from the original price you paid for. Hence, if you do not want to realise the loss from the sale of the property, you may want to hold on to it until the price has risen. This may easily take several years or not at all.
Renting out the property requires patience and you may not get rental at the price you can agree on with the tenant. If you are lucky, you may get rental you want that can provide a rental yield of least better than the mortgage loan interest rate (if you require a loan from the bank in addition to your CPF savings).
More will be written on the subject.
Written on 12/26/2006 2:26 PM
Copyright © 2006, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.