Instead of property, why not property stocks? – Part 1

Since property investment requires so much time,  effort and also many risks,  why not we buy stocks instead.  Specifically we buy property related stocks. That is not a bad idea actually.  However just make sure you have looked through the company in three areas below.

Cash position. Does it have cash in the bank? Cash is very important because with cash even if the company does not have land bank,  it can buy land banks.  Especially during crisis, it can buy lands from distressed parties.  It can use the money to cover lull periods. Cash meant the risk to your investment in the stocks becomes lower compared to a high debt / gearing company. If a company is in high debts, it may mean it has used up too much money to buy landbanks or it is inefficient because for efficient companies, they would start developing the land within one year of buying it.

Land banks. Imagine a developer with no landbanks. Hmm… how does it intend to build? If their landbank is huge, look at the location. are the landbanks at places which are hot? if yes, even if they have, they can offer joint venture to those with money. There are a lot of examples of these type of property developers. Huge landbanks but cash position is weak. Especially when you see projects where there are so many joint venture partners!

Third is,  are they already building what they intend to build or are still saying it? Property stocks cannot suddenly rise because they need typically 3-4 years for planning, approval, building dn handing over keys. Thus if you intend to speculate,  property sticks are not for you. Then, again recently, a small counter in Johor which was taken over by a high profile team of management went shooting for the sky. 🙂

At this point in time,  I do not own any property stocks.  Perhaps I should diversify if the stock passes my own requirements above.  There are other reasons such as brand, history,  management etc but frankly without the three important factors above I will not buy that stock.

Written on 18 Dec 2013

Next suggested article: SOHO / studio units, my personal opinion


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