20180817 (Fri)
The Range of Comparisons: Property Investment vs Financial Investment
Using the calculated modals in the last few days, the comparison are below:
Cost of property
RM762,292 (cost after 20 years)
Property yield:
RM1.762 mio (capital gain after 20 years)
RM2.375 mio (conservative Rental RM1,000)
RM2.353 mio (Medium risk Rental RM1,400)
RM4.031 mio (High risk Rental RM2,000)
Mutual Fund yield:
RM9.385 mio (20%)
RM4.492 mio (15%)
RM2.968 mio (12%)
RM2.004 mio (9%)
RM1.661 mio (7.5%)
RM1,594 mio (7.16%)
Saving Acc yield
RM1.043 mio (3%)
RM1,305 mio (5%)
The conditions for property investment ideally should satisfy the below factors:
Property has a rental yield (2.4%)
Property has appreciation average of market (6.5% p.a.)
Loan interest is kept at normal level (4.55%)
Investment term has to be medium to long (10 – 20 years)
And, return of investment in financial market is assumed to be conservative (like property, it is conservative).
If aggressive investment is used, like above 10%, the risk is obviously higher and the comparison becomes very speculative. So, it would defeat the purpose of comparing like to like.
IN SUMMARY, if you are paying a monthly repayment of RM3,176 for a mortgage of RM500,000 to a property, and this property earns a conservative rental income, you can actually make an equivalent investment outcome compared to a mutual fund return of about 9%. If you manage well the rental return, your property investment would even out perform the mutual fund. If your expectation is higher than 9% return, you would likely favour investment in mutual fund and higher risk instruments rather than property.