That's why I never really encourage property investment. One of the reason being we never know whether recession will hit us or our tenant. If it happens, who is going to pay for the loan? Another thing being I'm not that familiar with property investment. I believe if your relative hedge on stocks, hence he will not need to sell off property at loss. Anyway, it's been an illusion to almost everyone that I know that property investment will earn more as they thought that the price of property will not collapse. I always believe in one thing....what goes up will eventually come down. So......I will only invest in equity, but not property.


Just my 2 cents

Well, dunno much about SG, but here in MY, property prices hardly goes down unless we're talking about highly speculative areas like MK and KLCC.

Anyway, since Jan 2008, KLSE has dropped more than 40%, no? Property prices on the othher hand has generally maintained (again, not referring to speculative areas like KLCC and MK), to I've yet to see any properties experiencing massive drop. Just 5% drop at best as of today.

If you mean KL area, I suppose we haven't reach to that point yet. If not mistaken, after the 97 crash, my relatives got few houses in KL area for very low price. We still haven't reach to that point of cheap sale in property yet, though some properties in Pg and Perak already started to drop. Once our financial sector affected, KL area will be the affected. But generally market will go down first, follow by others. Market is always ahead and even if market drop, you do not need to sell off your holdings if you are retrench, unlike property. Not to say property investment is bad or equity is better, just that generally in property investment, if you are jobless or ur tenant "lari", then you are so screwed.

Anyway, KLSE drop is expected, but if you invest smartly, you are actually earning money. Most of my counters still holding up well, until I'm in dilemma whether to hold it for dividend or just to sell it now for fast $$$. Look at AJI, Ytlpower, Mamee, and you'll know what I mean

Mr. Jason,

I invest in both equities and properties. Equities were my first love, until I met properties. I buy and hold long term. Some of the stocks I own are like Jusco, YTL power, Public Bank, Digi, PBB, etc etc.

I enjoy their dividends. And even though they have been hit badly in the last 2 years or so....my capital has not really been hit....because my investments from the pre-2004 era are still holding up well.

They have their uses. And even in volatile times like this - I still believe in occasional bargain hunting. Any volatility in stocks are a good reason for me to accumulate on weakness.

However - IMO - the returns in properties which u can get are mind blowing. I won't show u the math here.....too long to type. But properties have a power over equities which is lacking - which is the power of leverage.

Let me give u one example. bought a condo at 140K - market value is at 200K, rental at 12,500 p.a, 20K downpayment, Loan at 120K. The return is 125% for the first year alone.

And what if I told u that properties could consistently achieve 60% p.a. returns? - with the right methods, of course.

My stock portfolio is only giving me 15% p.a. return today (capital gains + dividends). Granted, the market is volatile at the moment.

My point is this - I do not know how to consistently get returns of 60% or higher for equities. Whilst, i can do that for properties. If you could share some of your insights here - I'd appreciate it. I'm willing to listen, but I think you shouldn't discount properties entirely, until you have experienced all the alternatives.

By the way - I disagree with your comment about a property investor being screwed if you lose your job or "tenant" lari. With respect, - it reflects your lack of understanding of the property business. I could lose my job tomorrow - and my properties would still be self-sustaining. Is there a risk in tenants "lari">? Of your properties being trashed my irresponsible tenants? Of course there is. But then again, every investment including equities have risk.

Like it or not, people still need a roof over their heads - recession or no recession. Your risk is significantly lower if u understand your target segment, target areas and learn more about tenant management. Certain areas will consistently go up in price, recession or no recession. I guarantee you areas like TTDI or BU or DJ will NOT experience price declines. Look at the profile & demographics of the residents, my friend. Then you'll understand what I mean. Too much to elaborate. Too little space.

Phoeni_142,

Leverage works well if you know how to use it. It requires certain level of knowledge and maturity. It takes a lot of effort to study well and know what you are doing. Hence, you are getting a GREAT return.

Unfortunately, most people are NOT willing to take the effort. But, they still jump in with both feet. Hence, they will be killed by leverage.

Dreamer

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Added on March 3, 2009, 2:46 amAndrew Lim,

This story show that this person is NOT a good property investor to begin with. A GOOD property investor is CASH FLOW positive. The property PAYS you every month. You do not have to put money in. Now, if you have to put a lot of money into your property every month, you are CASH FLOW NEGATIVE. You are buying the wrong property to begin with.

<<So... I guess the moral of the story is - investment is good, but don't go overboard.>>

The CORRECT moral of the story is if you DO NOT KNOW what you are doing, do not invest on property.

Dreamer

This post has been edited by dreamer101: Mar 3 2009, 02:46 AM

Same difference, really. Don't go overboard if you don't know what you're doing.

Well, what you mention is during the best scenario. For an employee like myself, what if he or she is about to be retrench? And then suddenly no tenant like tenant runaway or less demand for the rental because of economy uncertainty? How are we going to pay the loan installment? A lot of ppl might end up selling their properties because of this, and if recession is deepen, I wonder how long can the property price holding up? I know that I can easily negotiate a house at lower price that what the previous owner expected. Btw, I don't really think there is no place that is recession proof. I mean, if suddenly the govt taking out development in "popular" places, the price will go down eventually - though I might be wrong, as I'm not familiar with the property prices in KL. I remember there was once cheap properties selling in KL areas, and my relative manage to bought some of it.

IMO, if property is really giving good returns, the banks would have bought it themselves. Even banks would not like to absorb properties as property that is valuable now could worth nothing tomorrow.

There's no way to consistently achieve 60% pa for equities. Even WB only consistently earning about 20%. I'm not sure about properties return though.

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Added on March 3, 2009, 8:45 amAgree with this. I do not really know about property investment, hence I will forgo it until I really understand about it


This post has been edited by jasontoh: Mar 3 2009, 08:45 AM

I only see a failed investor who speculate for capital gains.

There are 6 basic steps to become a succesful RE investor.
You should ask more details of why he failed instead of believing it outright.
1 or 2 of the steps are missing will make the whole deal go bad.

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Added on March 3, 2009, 9:13 amTenants will come and go. It will always happen.
If everyone you know believes property price would not collapse, it is advise that you go to an environment where people think differently about property prices. Birds of a feather flock together.

This post has been edited by jasonhanjk: Mar 3 2009, 09:13 AM

Hi My friend.

1. It seems that my arguement is lost on you. You are risk averse to people running away, tenants not paying, installments not being serviced etc etc. You yourself have acknowledged that you do not understand the property business or leverage for that matter. Like I mentioned, a deeper understanding is warranted first - then u can mitigate your risks and dispel your fears.

2. By the way, equities can be a good investment too. So, why don't banks buy it then? Banks are in the business of lending, my friend. They have no business doing property investment. It's not their core business! Why do you think they auction of their units at FSV? They are willing to let go at a lower price in auctions because they DON'T WANT to hold on to the collateral.

3. Well, Warren Buffett is one of my early heroes. He does not buy equities, my friend. He buys businesses.......literally. This has paid handsomely for him. I'd just like to reiterate my last point - this is not about deciding which investment - prop's or stocks are better. Rather, it is about understanding both types thoroughly - and then deciding which vehicle suits your investment philosophy.

I don't think it's fair to critique something before understanding the basic mechanics first. cheers.

This post has been edited by Phoeni_142: Mar 3 2009, 10:25 AM

1. My understanding on property business is not that deep. But I do know that the scenario that I mentioned will happen. Besides, what goes up will eventually comes down is very true.

2. Banks buy it. See how PB use PM to buy equities. I think CIMB also has it. And Maybank as well. The 3 big banks in Malaysia do invest in equities. Why do you think they are willing to let go at lower price? Think again. If you know that you can earn from House A in next 3 years, are you willing to let go at lower price. The banks will hold on to some of the valuable properties, but not all as what you think valuable now will lose value maybe in just a blink of eye.

I do not criticize on property investment, rather I would always advice others to really understand the risk involved. In fact almost all people will think that property prices will never go down because of this and that, but when I try call some of the sellers, and guess what. They are willing to let it go to me at 100K lower, but I will still wait for them to drop lower. I've seen few cases in Penang, BM, Ipoh. I'm not sure whether it applies to KL or not. I only know that when more and more KL people jobless, some will choose to stay with their family rather than moving out to cut on some expenses. By that time, we can really know how low the property prices can go. It is still too early to say that property prices will not go down, as I myself know sellers will be willing to let it go at all cost when recession do deeper. Btw, I do invest in REIT, so it is something like property investment. Just that I will not spend heavily on something I'm not too familiar.

Hi,

Good that you are willing to spend time to learn. Myself included.

I won't bother trying to make you see my point of view. There's no point really, if you are already stuck in a certain paradigm.

Lastly - pls don't make statements like what goes up will come down. It's quite naive really....very sweeping. Read my previous posts - and perhaps u can have more moderation in your view. e.g. area selection etc.

Sigh - You are mistaken. Those banks don't buy shares. They hold it as collateral on their share margin financing business. They are in the business of lending, remember?

On a positive note - u are probably a young chap. So it's great that u have a good attitude in investments. I mean this sincerely.

This post has been edited by Phoeni_142: Mar 3 2009, 11:39 AM

http://www.globalpropertyguide.com/Asia/Ma...a/Price-History
http://truellymalaysian.blogspot.com/2008/...ward-trend.html
http://www.asiaone.com/Business/My%2BMoney...220-123368.html

If you really think property will not have declines....refer to the 3 articles above.

I know banks do buy equities, though I will need to confirm it over the weekend with Maybank Regional branch manager, how it works. In fact, I got a call by CIMB investment house asking me whether I'm interested in becoming fund manager, though I'm not sure whether this fund manager will just go sell funds or do trading on company's behalf. On PBbank and PM, I need to ask my friend how it works out. Bank will do whatever they think is profitable, not only in business of lending, though their core business is that.


I have nothing against property investment, just that I know that property investment is not as easy as it seems. Thus I will always be active in this thread, Stock Exchange, Property Talk forum to continue learning more from others. A point to ponder also, how does this subprime crops out??

JasonToh,

There will always be articles supporting or going against your view. Never did disagree with your statement, chief.....Just that it was too sweeping. Let me elaborate - I do not believe ALL properties which go up will come down. Read carefully.

If I'm being frank - I'm glad that there are people like you. I am not at all perturbed or disturbed that u disagree with me on properties. It makes the market less competitive for people like me

I wish u all the best in your endeavours.

have to continue later, as it's time for my afternoon outings again.

If the property is tenanted, why do you need to worry?

Then you just find another tenant.

Most of the time its the tenants paying your installment. As long as you buy properties with sustainable demand(near LRT, rented for approx 1k) , why fret?

Chief, when recession happens, I GUARANTEE you that your stock's price will tumble 1st, and by a mile. The only silver lining if when you r desperate, stocks can give you better liquidity. Look at today, when KLSE is down by 40% since a year ago, can you find me a property that has experinced 40% drop since a year ago?

As for properties being illiquid, there's "refinancing". The smart investor would have cash in on this before recession happens, hence liquidity wont be a huge issue.

Ample liquidity == longer holding power != property prices to drop

That is correct. But recession doesnt mean that ppl dont need a place to stay, right?

Recession to landlords simply means that our nett profits MIGHT be lower, monthly installments MIGHT be higher, and properties MIGHT have longer availability.

Ask yourself if a bluechip stock could loose 90% of its value during recession?

As phoeni has pointed, banks business is to earn interest from their lending schemes.

Ask yourself this question, why does banks allows property buyers to lend up to 90% of the property prices over 30 year, but no such arrangement for stocks? Are banks just plain stupid or its simply bcoz risk in stocks are much2 higher?

Quickly learn, fren. You wont regret it.

For bolded part - Only best scenario would be that someone else still paying for your installment.

Stock price definitely will tumble first during the recession, thus that is the time we are buying in more (my opinion only). If you want me to find property that has experience 40% drop, I really can't. But I know of some seller willingly to let go their bungalow 50% off, but that is in Ipoh. In BM, I'm seeing decline in some property. But not sure in KL.

Recession for stock investment meaning buying more of quality counters. Besides you are getting the dividend.....so at the same way, it is like someone paying installment (in terms of property).

The only thing property investment is better than stock is that it can leverage.

Bank allows buyers to lend up to 90% of the property prices over 30 year simply because most of the buyers cannot afford to pay too high downpayment and the salary scale in Malaysia is way too low compare to their purchasing power. If banks do not allow that kind of rule, who is going to buy property? How the banks going to make money out of this? It is just like why banks would allow us to have 9-10 years of car loan. It is not because of lower risk and higher return. It is because most Malaysian are not meeting the requirement of 1/3 salary = installment.

Bank business used to be earning interest, but no longer applies now. If you look at the banking industry, it has already evolve to investment house and security as well. Now bank business is to make more money from whatever investment or business they can think off.

Hehehe, like phoeni, I gave up reasoning to you as well. Another man's meat could be another's poison.

I might be reluctant to switch to property investment at the moment, though I do not discount property investment. Nothing against property investment, but I realize that it is not as easy as it seems. Before I start to hedging in equities, my plan was to leverage, then this subprime crops out until I need to re-consider the investment. Maybe for you guys, property investment is better, but personally, I feel that equities is better. I might be wrong in one way or another, but it could serve as a reminder to others that property investment is not as easy as it seems. Think subprime

I agree. Just let them be.
It's easier to change ourself than to change others.

so u shelved your property investment plan in MY due to US's subprime mortgage issue? Do you even know what causes the subprime mortgage problems in the 1st place?

Think subprime? That's a very "nice quote" which made u fall flat in your face.

Do u even know what subprime is?

You know what - don't reply this post pls. I'm going to get a cardiac arrest soon.

Pai - I hand the baton over to you. cheers mate.

This post has been edited by Phoeni_142: Mar 3 2009, 06:12 PM