Is buying properties a saving plan?

Amid a softening market, property agents are struggling to look for buyers and close the deal.

With a changing landscape, those old sales pitches like ‘buy now before prices climb further’, ‘buy properties to beat inflation’, or ‘units with a guaranteed return of x percent’, now seem inadequate to convince buyers that ‘any time is a good time to buy’.


The new sales pitch: buying properties for saving

A team leader of a local property agency recently shared his new perspective on property purchase:

1. Instead of just buying and selling properties, property agents should also act as ‘financial planners’ of their clients and create saving plans for them.

2. Buyers can consider purchasing properties for saving rather than for investment.

3. Buying properties is a form of savings, similar to buying endowment plans from insurance companies.

It may be that team leader’s attempt to address the all too common question of ‘Should I park my money in properties or in deposit accounts’, trying to find a solution from the best of both worlds.

Maybe he is assuming that acquiring a property can help buyers to put their extra cash into good use, while helping them to develop a good habit of disciplined saving by paying the monthly mortgage.


Property agents acting as financial planners?

Experienced property agents advise customers on property market trends, properties that meet customers’ criteria, pros and cons of different projects, property purchase process, while earning a commission from selling the property.

On the other hand, certified financial planners run risk analyses to understand their clients’ financial goals, suggest suitable investment portfolios, give advice on specific types of financial investment, while earning a commission for their service or any financial product sold.

If you have no clue about investment, you can consult a financial planner or a wealth manager, preferably a certified one.

If property agents also wish to assume the role of ‘financial planners’, besides the compulsory registration and licensing by CEA (Council of Estate Agencies), should we require them to pass the CFA (Chartered Financial Analyst) exams as well to be qualified to provide professional investment advice to their customers?

I am not sure whether any financial planner is interested to play the role of a property agent. But I won’t imagine my property agent acting as my financial planner. I would rather she concentrates on renting, managing and selling my properties.


Buying properties for saving?

Both your saving and investment (including property investment) can be assets, but the two are totally different in nature.

Saving is a liquid or fixed fund for storage, or a regular disciplined saving plan. It can be hard cash, bank saving account, fixed deposit in local or foreign currency. The latter comes with a guaranteed interest or return. The amount can be withdrawn at any time. Even if the saver breaks the contract before maturity, the principal is protected.

Properties, on the other hand, are not necessarily income producing. No property investment can guarantee a perpetual positive return. There is always the probability that the rental return cannot cover expenses, namely the loan repayment, management fee, property tax and repair cost.

Property investment is never as liquid as a saving plan. A property owner usually takes months to find a buyer and spend another 12 weeks to complete the sale before getting his money back. If the property cannot be sold in time, the owner may have to bear the opportunity cost of failing to invest in another investment that promises better return.

In property investment, there is no capital preservation policy to protect the invested capital. The return from properties may be higher than a saving plan, but it also requires higher risk tolerance level and longer term holding power from the owners in order to bear with unexpected price fluctuations.

That is why in a balance sheet, cash in checking, saving and fixed deposit accounts are under ‘current assets’, while properties are under ‘long-term assets’.


Buying properties like an endowment plan?

Honestly, I am totally puzzled by this presumption. If buying properties can be treated like buying an insurance saving plan, please enlighten me with the following:

– In what ways are the policy holders protected financially?

– What are the guaranteed interests, cashback or lump sum payment over a fixed period?

– How can policy holders choose the plan’s holding periods or maturity terms?

– Where is the policy on principal protection or money back guarantee?

By the way, Singaporeans are already contributing to a compulsory saving plan through the government’s CPF system. We all have an MediSave account and MediShield Life will soon be made compulsory too.

No, I don’t think I need another one. Thank you.