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STI And Dividends Beat Housing Prices Over Past 20 Years
Perspective | 27 November 2013

This article is written by Geoff Howie from the Singapore Exchange (SGX). Geoff is widely known for providing insightful investment analysis and this article is republished with permission from SGX My Gateway.

The most recent report on residential property prices in Singapore was for September quarter of 2013. The Urban Redevelopment Authority Property Price Index (URA PPI) by residential type was reported to be at a level of 216.3. The full report can be found here.

Over the period from the end of 2007 through to September quarter 2013, the average annualised gain of this URA PPI was 4.2 percent.

Remembering the stock market highs of 2007 – from the end of 2007 through to September quarter of 2013, the Straits Times Index (STI) generated an average annualised price decline of 1.6%. Combining reinvested dividends since 2007 however, the STI generated an average annualised total return of 2 percent. This represented a 3.6 percent reversal of fortune and exemplified the role of dividends to long-term investors.

One difference investors can consider with the STI and housing prices are that the stock index is updated throughout a trading day while the housing index is updated on a quarterly basis. While the opening hours and liquidity of the blue chip stocks that make up the STI are perceived to be a benefit – investing in stocks also has its risks, with the important caveat that past performances cannot guarantee future results.

Looking further into the past, the period from September quarter 1993 to December quarter 2007 reveals that the URA PPI for residential generated an average annualised gain of 3.9 percent, while the STI generated an average annualised price gain of 5.5 percent. Again, reinvested dividends provided a difference and brought the average annualised total return of the STI over the period to 8.9 percent.

The reason for splitting the 20-year period for September quarter of 1993 to September quarter of 2013 is that the STI was revamped and re-launched with the help of FTSE Group in the beginning of 2008. Hence, the 20-year returns of the STI add the returns of the preceding 23 quarters under the STI’s current form to the prior 57 quarters of the STI’s previous form. And 80 quarters equals 20 years.

Combining the two periods for a 20-year return reveals housing prices averaged a 3.95 percent annualised return, while the STI on price alone generated an 3.45 percent annualised return. With dividends however, the STI returns averaged a 6.91 percent total return over the 20-year period.

The data for this analysis has been sourced by Bloomberg and the current list of the 30 blue chip counters that make up stocks and real time prices can be found here.

Meanwhile the SPDR STI Exchange Traded Fund (ETF) has generated an average annualised net asset value (NAV) plus dividends return of 8.6 percent from its inception in April 2002 to the end of the September quarter of 2013. ETFs that track the STI are also a part of the Regular Shares Savings (RSS) Plans that make help to make regular participation a more simpler proposition for investors. If you missed last week’s Five facts about RSS Plans – please click here.

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