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Do Property Always Do Well? It always goes back to Value Investing

I observed this interesting article in The Edge this week titled: How much further will prices fall?

We tend to hear a lot of 2 prevailing thoughts:

  1. Property always does well over time
  2. Richer people are the Smart Money. They are the ones that buys at the right time and sell at the right time

This article discuss on many woes of the current market, particularly the Stamp Duties and TDSR impeding demand and that the Qualifying Certificate (QC), which requires foreign developers (including most listed companies) to sell all the units in their residential development within two years.

What was profiled is a list of shocking deals in 2015. Property prices was lower overall in 2015, but the magnitude is still manageable.

Yet this list includes a list of properties:

  1. Mainly in affluent districts
  2. Purchased in 2006 to 2009
  3. Large floor Areas

And all losing a big percentage.

These properties have been held for 6 to 9 years and was transacted at a loss of 27.7% to 56%. If the folks hold on to them they may eventually work out over time.

What I see here is an investment that is highly risky.

Notice how I phrase it.

I did not say PROPERTIES is highly risky. I said THAT investment.

You have to make a distinction to what you invest in and HOW YOU GO ABOUT DOING IT. This is why I say to gain financial independence you need to build Wealth Machines, it is not putting your money in stocks, bonds or properties, is HOW you go about doing it with these assets.

We define RISK not as volatility of prices but a permanent impairment of capital. Permanent Impairment of Capital is when your capital goes to zero OR that it takes a long long period of time to recover your capital. The properties here fall into this.

It will take some time if they held on to break even. We are just afraid that people cannot take the pain of seeing such a big unrealized loss and do stupid things. Like sell it.

What was learnt in value based investing is applicable in property investing. Its not about the asset or instrument, its THE WAY YOU PROSPECT, EXECUTE and RISK MANAGE IT.

The other important point is, while the rich have better quality knowledge and people that they lean on to, they will suffer the same behavioral issues that we suffer.

These properties are so expensive that you have to do pretty well or are pretty loaded to purchase them. To get there you either are enterprising, have rich support or damn smart to reach that stage.

Investing is a great equalizer that how enterprising, smart or rich you are, if you failed to master it, you will suffer as well.


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Saturday 26th of December 2015

Any investment instrument/product that is marked to market value will require right market timing to profit from it for decades to come. We may call it value investing if we like it; but it is still market timing with fairly large war chest ready to seize these opportunities to have significant impact on our future net worth.


Saturday 26th of December 2015

its active management and value based investing is how you go about doing it right assessing the margin of safety.


Saturday 26th of December 2015

This shows again that any kind of investment success has little to do with being smart. It's all about controlling your emotions and they are heavily influenced by our inborn biases and how we cope with them.


Saturday 26th of December 2015

thats right!

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