Selling at a loss, would you?
Every time people ask me about falling property prices, I ask them about their holding power. “Would you sell at a loss if you were not forced to do so by circumstances?” The answer is almost always a no unless of course you were selling because you wanted to use the proceeds to invest into something else. For example, selling at a loss to buy glove stocks? WHOA, that would have been the greatest decision ever… Anyway, some owners may not be so lucky. They may be selling because they really have no choice.
Article in SouthChinaMorningPost. According to this article, the coronavirus and the economic slump have forced some mainland Chinese owners to dump their luxury Hong Kong properties at steep losses. It quoted 10 recent transactions where the owners incurred losses of as much as HK$8.2 million (RM4.42 million).
Derek Chan, head of research at Ricacorp Properties said, “The economies in both mainland China and Hong Kong are so-so during the pandemic, causing some mainland buyers to sell their properties at lower prices and losses, because they need cash.”
This was what Savills said in a report in July, “The recurring virus outbreak and the political situation may push more luxury buyers to consider reallocating some of their real estate investments overseas, with luxury volumes in the second half of 2020 likely to fall back to previous lows.” The article quoted many examples. Please do read the comprehensive article here: Article in SouthChinaMorningPost.
Preparation (in advance) becomes key
No one could have predicted the current situation. Of lockdowns all over the world. Of second wave of COVID-19 happening in many countries which had actually managed to reduce their initial infections down to nearly zero. This is why we should have emergency savings. It may not be enough, I know but if we have none…? We should strive to to actively build up a passive income stream. We will never know if this second income stream may just be helping to sustain us during bad times.
Property is illiquid and is a big ticket item
Selling a car is far easier than selling a property because a car is cheaper and more people could afford it versus a property. This is why during times of uncertainty, in order to sell a property, discounts to the usual market price is a certainty. When we look at luxury homes, then the number of people who could afford it becomes even fewer. This would be one major reason why the homes would have to be sold at a huge discount or even at a loss. (if it was bought at a high price in the first place).
As the price is high, It is also harder to sell too and this may make the attempt to sell becomes even more desperate. This is why when it comes to property, the decision must come with a lot of due-diligence yeah. The one important thing to note is that based on history, home prices do recover yeah. The only issue is that COVID-19 is something new to this modern world. We will just have to see what happened next year then. Vaccines are all on the way…
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Next suggested article: FIRE up our property investment journey. Just do not forget property