ST – “Have property, may not profit”

There is never one “sure win” asset class. The principles of investment also apply when you invest in real estate.

Like the stock market, the property market moves in cycles, and if you are caught at the wrong end of the cycle, it may take years before you get to see the price you paid for that dream home again.

An old friend in the real estate business once estimated that only one in four investors here made any money out of investing in property.

Another friend remarked that on paper, it would appear that he had made a hefty gain on a condo unit he had bought for investment 15 years ago. But after deducting the interest paid on the mortgage and the sums spent over the years on repairs and maintenance, the returns worked out to a paltry 3 per cent a year.

And there lies another twist to his story: He said that unlike the current tight rental market, where landlords can pick and choose their tenants, there was a period between 2002 and 2005 when condo rentals plunged so badly that it was uneconomical for owners like himself to let out the unit.

However, those aiming to buy a condo unit as an investment should realise that it is not a sure road to riches.

Read the article by Straits Times Goh Eng Yeow here.

China’s Ghost Cities

It’s said that there are around 64 million empty apartments in China. This is a documentary by SBS Dateline (Australian TV) about the Chinese real estate market.

One remarkable piece of economic news barely rated a mention this week, China surpassed the United States as the world’s leading manufacturer. It is hard to grasp the magnitude and speed of China’s economic transformation, however, things may not be as rosy as they seem. It’s estimated that ten new cities are being built every year – a sign of future growth or just another bubble waiting to burst? Adrian Brown reports.

History going one full circle – Property crash of 1996

STI – PPI – HDB Chart

Fast forward 14 years later to the current state, the property news that are making to the papers now are generally the same as in the past though the property market now is not as hot as it was back then. Similarly, it is also seen that the government has introduced an increase in land sales to meet the demand and HDB will also be ramping up its flat supply. Measures to counter speculation have also been introduced though they are not as draconian as in the past. To me, it seem like history is going one full circle in a milder manner though. So the question is where will the market head to from now? That is something for you to think about.

This article serves as a reminder that property, like any asset class, follows a cycle as well. There is also an interesting chart linked in the article with a chart of the property price index from 1960 to 2010.

Also, a sober reminder -> 1 semi-D + 1 cluster house = 1 flat and $700k loss

Alternative Investments

I am sure you are aware of the recent property regulation changes to HDB ownership. If you are considering landbanking in your investment portfolio, do note that an interest in residential land, even vacant land, constitutes ownership of private property. More from this article: http://www.asiaone.com/News/AsiaOne+News/Singapore/Story/A1Story20101001-240058.html

Having alternative investments in your portfolio is important as asset classes that were previously uncorrelated performed equally bad during the last financial crisis. However, some investors may not be aware that landbanking does not fall within MAS regulations.

MoneySense has come out with a consumer guide, “Land banking – Look Before You Leap”, highlighting the risks involved in such investments. In fact, the same cautious approach should be taken towards investing into other popular, unregulated instruments like Gold Bars and Wine. Most investors find such instruments palatable because it deals with physical goods and they are promised fantastic returns. However, like any investments, risks exists and investing through unregulated platforms is not encouraged.

News of such unregulated investments:

1. Land Banking – “Get Rich Quick” Property Scheme, 200 Lose $6m in Land Deals

2. Gold Bars – Tan Kin Lian’s Blog: Invest in Gold Bars, 60 Duped in Gold Bar Scam

3. Wine – Wine Deal Goes Sour, Investors worried after firms being investigated close shop

You can still invest in Real Estate, Gold Bullion and Wine through MAS regulated securities. Let me know if you like to find out more.

Hope you enjoy the read the have a great weekend ahead!