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Decision-making lessons from a Dream Retirement Home.

Two weeks ago, Channel News Asia did a profile on the overseas investors who invested in Malaysian properties.

It is quite a challenging situation because the owners would have to contend with a mixture of:

  1. Not able to rent out. (Homes is affordable to overseas folks to buy, too expensive for locals to rent)
  2. Falling property values.
  3. A vacant estate do not make such a vibrant neighbourhood, which in turn makes it less attractive to people moving there.
  4. Property security issues.

As REIT or property investors, this is a pretty good read as it drives home a point to me. While the property price can be attractive, the value may depend on how vibrant is the location and the neighbourhood. The value is more than just the unit itself.

However, I focused my attention on the words of the owner that shared his experience at the start of the article.

Jonathan bought a 4-room condo at Lovell Country Garden in 2018.

He thought he clinched his dream retirement home.

The home is twice the size of his 3-room HDB flat but cost 50% of the 3-room HDB flat (actually his 3-room HDB sounds expensive).

“The best thing about the unit is the amazing view. You never get anything close to it at such value in Singapore”

The condo overlooks the Straits of Johor and the balcony opens up to a picturesque sea view and there is a sandy beach below.

Jonathan feels it is the ideal weekend home.

But now he feels this condo is a bugbear.

He has problems trying to sell it at the pleasant asking price.

If we look at the price trend it looks disasterous.

You got to feel for Jonathan.

But I also thought this is an odd picture.

By his account, this was an ideal retirement location with a nice view or a weekend home.

But suddenly, he is trying to sell it.

I think if this is such a good place to retire at, with a good view and livable, then despite the price fall, why won’t he just continue to own the place?

Turns out, his business in Singapore has been affected by the pandemic, and so he needs to sell the apartment to gain some liquidity.

Most of Us have Decision-making Vulnerabilities, whether we like it or not.

Jonathan got caught out due to an unfortunate pandemic that few would have predicted will happen.

However, I would like to think that if you own a business, there are going to be some challenges that is quite unknown that you should have enough funds for the rainy day (but I think COVID is exceptional that it may call for more liquidity than normal.)

I think for investors like Jonathan, they might have anticipated that in the worse case:

  1. They could rent out the condo
  2. Or that there is enough liquidity to sell off the property

That can be viewed as an error in decision-making. Someone who is familiar with properties in different places might have been more cautious and be on the fence more and not think that this nice-view home is a no-brainer.

I would like to think, if we take a hard look at some of our decisions over time, we can see a little of Jonathan in all of us.

Some of the decisions made were more well-thought out be we made some life and financial decisions without the best information.

In some decisions, even with good information, things may also don’t turned out our way.

My observation is that… we often do not have a pretty good plan B or plan C.

For some, I wonder if their exit plan is well thought it.

If someone asked me whether they should get this investment property, I would ask them what is their plan to realize the return.

And they would look at me silly wondering what I am talking about.

Property to them, by default, is a buy and hold.

But for some of my friends, they have to sell it someday because they are living in their investment. Or they have to take out a line of credit to spend in their retirement.

Their investment plan is a bit flawed.

You could probably buy and hold an portfolio of ETFs, due to the way the ETF will reconstitution, rebalance itself. But some investment strategies like living in your investment requires a rough plan on selling.

Anyway, they are not the only one not having well thought out investment plans.

Some of my investment ideas or life ideas weren’t that robust or well-thought out either.

It is just that some of us are more confident, some are too confident while others are not confident.

Too confident will invite pain if lady luck do not go your way. Not being confident hinder actions.

But I think a good question to ask ourselves is:

If you put yourself in Jonathan’s shoes, would you have anticipated exactly this kind of fallout (I mean exactly the demand and supply dynamics, how the surrounding amenities turned out)

We could possibly feel skeptical about investing in Malaysia properties due to the track record. But not able to pinpoint what exactly cause the fallout should make us sober to the fact that as much foresight that we do have, we don’t know everything.

And we should make decisions with the view that things do not turned out the way we want.

Mixing Up Why You Buy the Home

Jonathan didn’t suffer from this.

He sold mainly because he didn’t have much choice.

But I feel that some of us struggled with what to do with our flat or condo or maybe a landed property.

Owning a property is an awkward combination of living and investment.

For some it started off as a investment decision. Then overtime, they like living there and a lack of clear investment alternatives stops them from selling off the property to gain liquidity.

The there are some who chose a place because it is great living. But overtime, they get influenced by the news, relatives and friends, social media that they should sell off their HDB flat. This despite the place being a great place for their family to live.

I think as a couple, you guys have to take a step back and ask yourself this question:

Does your life plan going forward calls for monetization of your property?

For some, you have to do something with the property, otherwise you might not have enough income for retirement.

But for others, you might not need to. This is optional.

And if this is still a good place to live, and the home last till you are 100 years old, and you are comfortable living there, then why the fxxk you keep listening to others?

Of course there is the third possibility in that the home value is lucrative and there is an opportunity for location, size and quality arbitrage (right-sizing your home in another location.)

I feel this is a question more older couples (those 35 and above) should be asking themselves more. If they do not have a clear answer, they might need to seek some help to answer it.

A Little More Thoughts on Investment

If I read the article less from the financial planning and more from the investment perspective, I think a few tenets of money management is rather underrated:

  1. Diversification
  2. Adequate liquidity
  3. Historical evidence of investment performance

Unless you are quite a high net worth, you may only achieve limited diversification. I think different property markets have a different level of liquidity and in the case of Malaysian property, I wonder if investors have taken a look at the growth rates and the role of government policies affecting the property market.

If there is a lack of historical evidence, I feel an investment leans closer to being a speculation and if we are speculation.

And if we are speculating, I think we need to understand to a good degree:

  1. The nature of the product (in this case a Malaysian or Johor property)
  2. The structure of the market (whether the market is dangerous or not)
  3. Liquidity

Liquidity has always been a problem and in this case the investors end up holding the bag.

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