Tue. Jan 25th, 2022

Two weeks ago, Channel News Asia made a profile of foreign investors who invested in Malaysian properties.

It’s a pretty challenging situation because homeowners would have to struggle with a mix of:

  1. Cannot be rented. (Homes are affordable to buy overseas, too expensive to rent on the premises)
  2. Fallen property values.
  3. An empty estate does not make this neighborhood so vibrant, which in turn makes it less attractive to people who move there.
  4. Real estate security issues.

As a REIT or real estate investor, this is a very good read as it brings me home one point. While the price of the property may be attractive, the value may depend on the vibration of the location and the neighborhood. Value is more than unity itself.

Still, I focused my attention on the words of the owner who shared their experience at the beginning of the article.

Jonathan bought a four-bedroom apartment at Lovell Country Garden in 2018.

He thought got his retirement home of dreams.

The house is twice the size of its 3-bedroom HDB floor, but costs 50% of the 3-bedroom HDB floor (actually, its 3-bedroom HDB looks expensive).

“The best thing about the unit is the incredible view. Nothing close to this value is ever achieved in Singapore. ”

The apartment overlooks the Johor Strait and the balcony opens to a picturesque sea view and below is a sandy beach.

Jonathan considers it the ideal weekend.

But now he thinks this condo is a mistake.

He has trouble trying to sell it at the nice sale price.

If we look at the price trend, it seems disastrous.

You have to feel for Jonathan.

But I also thought this was a weird image.

According to his account, this was an ideal retirement place with a nice view or a weekend home.

But suddenly he tries to sell it.

I think if this is such a good place to retire, with a good view and livable, despite the falling price, why not continue to be the owner of the place?

It turns out that his business in Singapore has been hit by the pandemic and therefore has to sell the apartment to get some liquidity.

Most of us have vulnerabilities in decision making, like it or not.

Jonathan was trapped due to an unfortunate pandemic that few would have predicted would happen.

However, I would like to think that if you have a business, there will be some pretty unknown challenges that you will need to have enough funds for the rainy day (but I think COVID is exceptional so you can ask for more liquidity than normal.)

I think for investors like Jonathan, they would have predicted that in the worst case:

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

This can be seen as a mistake in decision making. Someone who is familiar with properties in different places might have been wiser and be more on the fence and not thinking that this house with nice views is not obvious.

I’d like to think that if we look carefully at some of our decisions over time, we can see a little bit of Jonathan in all of us.

Some of the decisions we made were better thought out as we made financial and life decisions without the best information.

In some decisions, even with good information, things may not work our way either.

My observation is that … we often don’t have a plan B or a plan C.

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

If someone asked me if I should get this real estate investment, I would ask them what their plan is to realize profitability.

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

Property for them, by default, is a purchase and retention.

But for some of my friends, one day they have to sell it because they live off their investment. Or they have to take one out line of credit to spend on his retirement.

Your investment plan is a bit flawed.

You could probably buy and hold an ETF portfolio, due to the way the ETF will be replenished and rebalanced. But some investment strategies, such as living on your investment, require a rough selling plan.

However, they are not the only ones who do not have well-thought-out investment plans.

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

Is that some of us have more confidence, others are too confident and some are not sure.

Too confident will invite pain if the lady of luck does not follow her path. Not having confidence makes actions difficult.

But I think a good question to ask us is:

If you put yourself in Jonathan’s shoes, you would have foreseen exactly this kind of consequences (I mean exactly the dynamics of demand and supply, as the comforts of the surroundings turned out)

We may feel skeptical about investing in Malaysian properties because of the trajectory. But not being able to identify what the exact cause of the consequences is should make us sober from the fact that, no matter how much foresight we have, we don’t know everything.

And we should make decisions with the view that things didn’t go the way we want.

Mix up why you buy the house

Jonathan did not suffer this.

It sold mainly because I didn’t have too many options.

But I think some of us struggle with what to do with our flat or condominium or maybe with a landed property.

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

For some it started as an investment decision. Then, overtime they like to live there and the lack of clear investment alternatives prevents them from selling the property to gain liquidity.

There are some who chose a place because it lives very well. But overtime is influenced by news, family and friends, the social media that should sell your HDB flat. Although the place is an ideal place to live your family.

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

Does your future life plan require earning income from your property?

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

But for others, it may not be necessary. This is optional.

And if this is still a good place to live and the home lasts up to 100 years and you feel comfortable in it, why do you keep listening to others?

Of course, there is the third possibility that the value of the home is lucrative and there is an opportunity for quality location, size and arbitration (appropriate size of your home elsewhere).

I think this is a question that older couples (35 years or older) should ask themselves more. If they don’t have a clear answer, maybe they should seek help to answer it.

A little more thinking about investing

If I read the article less from financial planning and more from an investment perspective, I think some money management principles are pretty much underestimated:

  1. Diversification
  2. Adequate liquidity
  3. Historical evidence of return on investment

Unless you have a very high net worth, you will only be able to achieve limited diversification. I think the different real estate markets have a different level of liquidity and, in the case of Malaysian real estate, I wonder if investors have looked at growth rates and the role of government policies affecting the real estate market.

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

And if we speculate, I think we have to understand to a good degree:

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

Liquidity has always been an issue and in this case investors end up holding the stock market.

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