Be careful with property investment today

“Prudence is a key accounting principle which makes sure that assets and income are not overstated and liabilities and expenses are not understated.” I learnt this in my first few lessons on Financial Accounting during my Pre-University days. I do not think this is a principle practised by every company these days, especially when expansion in revenue is always followed by even higher costs and most of the time, losses. Since I am not a CEO of any online start-up, let’s talk about prudence as a key principle in property investments today. Do note that the concept of prudence and the concept of not doing anything are two totally different things altogether.

Be wary, bad times are here.  If we intend to buy many units and quickly sell it off when we get the keys, think again. The number of transactions has been falling for many quarters. The average price has just recently dropped which meant that the market is indeed extremely negative, in terms of sentiment. Demand is now fully restrained by everyone who continues to say negative things about everything. If I am a first-time buyer today, as soon as I have spoken to three different people, I would most probably decide to WAIT and SEE instead of view, compare and buy (primary) or view, negotiate and buy (secondary).

Be savvy, bad times may also be the best times. Okay, perhaps the sheer number of friends from the real estate industry which has publicly stated their wish to be Uber driver can be another good sign for bad times too. So, is this the sign to step out of the market or jump in. Neither actually. It simply meant that before we sign on any dotted lines, we need to make sure what we buy is really worth what we pay for. Just a few years ago, say 2010, nearly anything and everything we bought would have given us great returns.

Be safe, compare seriously. Today, it is much more important to understand what we are buying. Compare it to all the property prices within the same area and neighbouring areas. A rebate from the developer cannot save us when the property we bought today is still much higher priced than everything nearby. By the way, is it really necessary to pay a huge premium for a LRT / MRT station 500 metres away versus another development about 10 minutes away but 15% lower priced? No right or wrong. There are markets for both. Former means you target people who opt for convenience. Latter means you are looking at affordability.

Be warned about the world economy.  It remains extremely fragile. Google for ‘financial crisis’ for some readings. Then google for ‘property bubble’ for some readings as well. We may note that the countries mentioned in those articles include the big and developed ones as well and not just the emerging markets like Malaysia. This is not the time to over-leverage or to take more risks than necessary. Of course, if we did not buy anything and nothing really happens within the next 5 years, then we may have lost one cycle of opportunity.

On a longer term basis, when we look at the overall cost of doing business, the demand from a young population, the continuous urbanisation as well as a growing economy, the property prices has just one way to go; up. it will not be a straight line and this is the reason why whatever we invest in, we must always be prudent. Minimise unnecessary risks by understanding a little more about what we are investing in. By the way, any fast returns being promised today, it’s better to step away. I already have a few friends who bought into some properties in a faraway land which is now potentially a pyramid scheme. I just hope they could get back their money. Happy investing.

written on 7 July 2016

Next suggested article:  Still true, “property prices too high.”

 

5 thoughts on “Be careful with property investment today

  1. Dear Charles,

    Always enjoys reading your articles which I do on daily basis. Even bookmarked your page.
    Wise and very thoughtful writing… I have learnt a lot. Perhaps one day (once i am back in Malaysia), need to buy u cup of Latte !! Thank Charles… Continue sharing. From Affendy Kamal

  2. Hi Charles

    The further away from MRT, the lower the value. It will be interesting to formulate a value for every k.m from MRT in terms of psf. Just collect data of a few developments of varying distances of hopefully, equal age, and after doing it for different areas and collate.

    • Haha.. Quite true Frederick. However, I do think there’s a limit. Actually, there’s already a study by one property site. It did a study on how many steps away that the property is from a public transport station and the corresponding price. I disagree with such a study lah…. Haha. Of course,if MRT is right below your condo, then that’s another story lah.

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