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The Emperor’s New Clothes

Singapore’s private residential property index continued to climb to 211.9 in Q4 2012 from 208.2 in Q3. This is a hike of 1.8 percent compared to the 0.6 percent increase in the previous quarter. HDB re-sale prices have hit an all-time high and Executive Condominiums (ECs) have reached record-selling price of S$2 million dollars. The statistics are already well-known to you so I’m not going to further bore you with it in this article.

While writing this article, frustrations have gotten me to a point of banging the table and screaming, “STOP saying ‘fairy tales’ to property buyers!”

Listening to the ‘property experts’, you’d never guess it was the 21st Century. They all seem to be teaching the same old strategies for property investing and telling unwitting buyers that beautiful ‘fairy tale’ endings are a reality, financial crisis only belong to pre-historic times and property downturns are just myths and legends!

Too many investment myths have gone unchallenged lately. And we love to believe that tomorrow will be like today. So the best thing to do is relax, drink ‘Teh-Tarik’, and talk about how easy it is to make money buying properties now.

With our property landscape changing all of the time, largely as a result of global economic influences, savvy investors/buyers have to keep up and realise that everything is changing rapidly.

Here are 3 investment myths circulating right now from ‘property experts’ that annoy me. Let’s look at these myths, which are perpetuated by so-called “investment experts”, whose interests lie in selling ‘dreams’.

I believe these investment myths have kept many ordinary people from creating wealth, or even a comfortable retirement.

The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth – persistent, persuasive, and unrealistic.   –  John F. Kennedy

Myth 1: ‘Expert’ Investment Opinions/Comments in the Media Are Always Right.

It’s always puzzling to know why journalists often love asking buying and investment advice from the very people who has self-vested interests for profits: – Property Developers, property agencies, property salesman, property investment companies, etc.

The press at large though often tend to play on it for the sake of news in today’s very “noisy” media circus.

Lately, some interesting media comments from ‘property experts’:

“By 2014, projected prices would not differ substantially; however, rent on investment may provide a healthy gross yield, caveated between four to six percent per for astute investors.” (‘Expert’ with a large well-known local property agency, marketing a recently new launched condo)

On another recent new launch property,

“The strong demand for ‘XXX’ is reflective of its premium location…., which demonstrates the value and potential price appreciation of this locale and its surroundings.” (Property Developer who sells the project).

“It is expected that the trend will continue in 2013 with OCR prices likely to surpass 2012’s increment attaining close to 10 percent price increment.” (CEO of a large well-known local property agency)

And again, the same CEO should be awarded the year’s ‘Oscar-award’ for ‘Best Acting Fortune Teller’… (He made similar euphoria comments back in late 2007)

“It’s almost a given that if you buy an EC today and wait 10 years, you could make a quarter of a million dollars in profit.”

These ‘experts’ made similar euphoria comments in the media before the panic of 2008’s global financial crisis, then property prices plunge.

“We expect the office sector to remain resilient. Investment sentiment to remain positive in 2008, given continued economic growth.”

“Prices unlikely to fall yet…”

“Private residential property sector for 2008 will continue to perform well.”

“Price index for 2008 is predicted to grow in the region of 15 to 18 per cent.”

If you look back to the previous years, hardly any (in fact none!) of these “experts” predicted any financial crisis and property downturns. Their predictions were always up and positive, like flipping a coin, to their own side of interest!

Don’t believe the “fortune-telling” media hype. A delusion of rising property prices is that prices will keep going up forever…and they never do!

Myth 2: The Long-Term Capital Gains on Your Investment Property Will Compensate for the Fact You Bought at a High Price and Its Cash Flow is Negative, Marginal or Even None.

I believe it is getting harder to  justify the “dream” of strong capital growth as in the previous years, particularly with properties bought in the higher price brackets. My view is that in the coming years, with an already matured and a peak Singapore economy, property investors and home buyers who bought a high price today, could be disappointed by the capital growth of their properties in the years ahead.

If you buy a property that is positively cash-flowing from day one, it doesn’t matter whether there’s any capital gain. Why? Because rents will continue to rise in the fullness of time and you can then turn those rents into paying down the principal on that loan and eventually you actually own all of it or a large percentage of it outright. There could still be some capital growth, so you’re still miles in front than the investor/buyer who is betting solely on great capital gains.

Over the years, property has gone up in value everywhere. However, buying property at a super inflated price is not a good idea. It will take a long time for you to make your money out of that investment, if you ever do, and in the meantime you will be in a risky situation if the market goes down.

Myth 3: Property Speculators are Investors (Who thought they are)

Do you buy lot­tery tick­ets as an investment? The peo­ple who gam­ble in real estate lose money all the time. The peo­ple who invest in real estate rarely do, if ever. Even if they do lose money, most of the time it’s just a tem­po­rary paper loss. In all the years I’ve owned property, I’ve never lost money. I may not have made all that I should have (I’ve had ten­ants not pay rent, dam­aged prop­erty, etc.) but, by mak­ing the right pur­chases up front, they’ve always pro­duced a profit for me, not to men­tion their cap­i­tal gains. The dif­fer­ence, I invest in prop­er­ties, mean­ing I picked a good cash flow­ing prop­erty and didn’t just buy any property.

Don’t con­fuse suc­cess with invest­ing either. There was a time, not long ago, where you could buy a property and resell it for a profit a month or year later. Just because you made money in a crazy econ­omy, doesn’t mean you can make a sus­tain­able profit later. Peo­ple who bought Facebook, Enron, World­Com, waste lands from Profitable Plots were not investors…investors were the ones who did their research and avoided them. You can make money some­times buy­ing stu­pid things, but that doesn’t make you an investor.

Are You Wearing The Emperor’s New Clothes?

I hope not.

The Emperor had no clothes on but everyone told him how fantastic he looked in all his robes and crowns, only to realize the truth later. Just because someone says so and everyone is doing it, doesn’t make it true.

Unfortunately, the truth is usually unpleasant and most people prefer to pay thousands to listen to half-truths and untruths which make them feel good.

For savvy investors, you should raise the question: “which other myths do I believe that keep me from achieving my financial goals?’

Be sure you KNOW what you believe in to be true.

 

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To your investment success,

Gerald Tay

 

 

 

 


About the Author

Gerald Tay Author, entrepreneur, professional investor and loving father, runs crei-academy.com with a tongue-in-cheek approach to property investment - and himself. He is widely regarded in the industry as 'The Common-Sense' Investor. Gerald writes with passion and straight-forwardness, disclaiming wild claims and impractical investment strategies behind lies and ignorance pervasive in the property industry for vested interests. His well-known statement, "All I did is to value my investments with science, logic and common sense.'

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