June 23 marks the independence of Britain which has finally voted out of the European Union. Other European countries are pledging to stand behind the EU. But deep down they are probably guessing which country will be the next one out.
Brexit may start a chain reaction that leads to Frexit, Grexit, Luxexit, Spexit and Swexit. Sorry about my spellings but don’t forget we also have Byegium, Czechout, Finish, Goatia, Italeave, Latervia, Oustria, Portugo and Slovakout.
Perhaps only Remania and Iremand will stay.
A dysfunctional EU versus an unprofitable property investment
Nobody said it better than Cambridge University professor Christopher Hill who called the previous European Community back in 1993 a ‘capability–expectations gap’ – a gap between what they said they can do and what they can actually deliver.
Jan Zielonka in his book Is the EU Doomed called the EU an ‘embarrassment’ when the promise of prosperity becomes austerity; when an agreement of integration becomes dysfunction; and when the opportunity to overcome a crisis becomes a wasted crisis.
EU members continue to suffer worsening economy, uncontrolled immigration, loss of national identity and increased terrorist threat.
Properties bought at the peak of the market in the last few years are similar to the situation of the EU now.
There exists a ‘performance–expectations gap’ – a gap between the future prices industry stakeholders predicted and the actual prices turn out to be; or a gap between the rental return agents said owners can get and the actual rent owners are fetching now.
It is a disappointment when an income source becomes a monthly deficit; and when an asset becomes a burden.
The owners continue to suffer worsening market, uncontrolled market supply; financing restrictions and interest hike threat.
Should I hold or sell?
Back in 2011 to 2013, readers of my blog often asked me questions like “Is this a good time to buy?”; “Should I go for HDB, Built-to-Order or EC?”; “What do you think about this new launch?”; or “Project A, B and C, which one is a better investment?”.
These days my mailbox is flooded with messages from people asking very different questions:
– “I bought project xxxxx when it’s launched in 2012. The developer is now offering 15 percent discount. Should I sell now or wait for TOP?”
– “The rental return of my unit is lower than expected. With the risks of falling prices and rising interest rates, should I let go if there is a good offer?”
– The currency has depreciated 25 percent since I bought my property in this foreign market. There are talks about market oversupply and further currency depreciation. Should I hold on or cut loss now?”
I am sure that people asking me these questions are not loyal followers of my blog; otherwise, they wouldn’t have ended up in such a dilemma.
– Is buying properties a saving plan?
– The resurrection of property prices
– Tough times ahead for Iskandar and Malaysia properties
If only they have read my blog posts written in the last few years and taken the advice from a fellow property investor. And if they have already made up their mind, why do they come back and ask for advice to exit or remain?
Propexit or Propremain?
Whether you choose to hold your properties and remain in the market, or decide to sell your properties and exit the market, it depends on your financial situation, property portfolio and investment strategy.
If you are overcommitted and do not have much holding power, you fit into the profile of a typical ‘propexiter’. Since you have to deal with your loss making investment sooner or later, before the market goes further south, cut your loss and move on.
If you have bought your properties at good prices and intend to hold them for a long time, keep the faith and optimism to continue as a ‘propremainer’. It takes courage to embrace uncertainty over certainty. Nonetheless, if you have the holding power, you shouldn’t be afraid of being exposed to the unknown future.
If you are still undecided whether to remain or exit, or to enter or wait and see, the last four points below may give you some hints:
1. Before you make any investment, always have an exit strategy in place.
2. The key to an elegant exit is advance planning.
3. In times of uncertainty, there is no safe haven. Cash is king provided that you are holding the right currencies.
4. The EU may be doomed, but Europe is not. Properties bought at the last peak may be doomed, but the property market is not.
Have you decided to be propremain or propexit? Tell me what you think in the comments.
Haha…like the way you sync the exit and remain. I totally agree with you on advises dispense to readers who have already purchased their properties. If a Singaporean buys for own stay, and he/she is eligible for BTO, then go for it, as it is a Singaporean’s priviledge instead of wasting good money to vie with foreigners on private condos, resale HDB etc.
Purchasing investment property is a different ballgame. Patience, good understanding of property cycles, and value-investment principles are paramount. Getting only a 5% discount is really a no-brainer. In a person’s working life time, there will be at least a few opportunities to buy a property at a great bargain. With property cycles getting shorter and the world becoming more volatile, there will be ample opportunities. Opportunities appear when a confluence of factors converge like crises, oversupply and poor economy( resulting in high unemployment).
Poor performance of the stock market is usually a clairvoyance of the softening in property sector. Couple it with other crippling events, opportunities for great property purchase will be manifested.
Holding cash as standby for opportunity buy is important.
Fred, thanks for speaking my mind And great minds think alike : )
The critical success factors of property investment is patience and prudence.
Haha…like the way you sync the exit and remain. I totally agree with you on advises dispense to readers who have already purchased their properties. If a Singaporean buys for own stay, and he/she is eligible for BTO, then go for it, as it is a Singaporean’s priviledge instead of wasting good money to vie with foreigners on private condos, resale HDB etc.
Purchasing investment property is a different ballgame. Patience, good understanding of property cycles, and value-investment principles are paramount. Getting only a 5% discount is really a no-brainer. In a person’s working life time, there will be at least a few opportunities to buy a property at a great bargain. With property cycles getting shorter and the world becoming more volatile, there will be ample opportunities. Opportunities appear when a confluence of factors converge like crises, oversupply and poor economy( resulting in high unemployment).
Poor performance of the stock market is usually a clairvoyance of the softening in property sector. Couple it with other crippling events, opportunities for great property purchase will be manifested.
Holding cash as standby for opportunity buy is important.
Fred, thanks for speaking my mind And great minds think alike : )
The critical success factors of property investment is patience and prudence.
Hello PropSoul!
Ive been following your blog for a while now and an avid reader of your no BS book! and i thought that i really love the way that you explain your ideas and concepts with such Clarity and insight 🙂 The tips and tricks given are rather applicable in sg and its not like some other courses out there whos marketing their course as some ‘Own a hotel with no down payment~!’ dubious intend.
Thank you
Thanks for your encouragement!
As a fellow property buyer and investor without taking salary or commission from any local or overseas industry stakeholder, I am free to express my independent views here. I am also against those thousand-dollar intensive seminars, no money down tricks, crowdfunding schemes or get-rich-quick programs.
I know it is a luxury for many people to be able to say this. And I am enjoying this luxury right now.
Hello PropSoul!
Ive been following your blog for a while now and an avid reader of your no BS book! and i thought that i really love the way that you explain your ideas and concepts with such Clarity and insight 🙂 The tips and tricks given are rather applicable in sg and its not like some other courses out there whos marketing their course as some ‘Own a hotel with no down payment~!’ dubious intend.
Thank you
Thanks for your encouragement!
As a fellow property buyer and investor without taking salary or commission from any local or overseas industry stakeholder, I am free to express my independent views here. I am also against those thousand-dollar intensive seminars, no money down tricks, crowdfunding schemes or get-rich-quick programs.
I know it is a luxury for many people to be able to say this. And I am enjoying this luxury right now.
Buy when others are in fear, sentosa is a good choice to enter the market right now
Yes, some say CCR, some say Geylang, some say wherever developers are launching new projects …
But my question is: Do we have enough people who are fearful? Because I still see first-time buyers and upgraders going after mass market condos.
That’s why can only buy sentosa but some say it will never recover to its former glory
Buy when others are in fear, sentosa is a good choice to enter the market right now
Yes, some say CCR, some say Geylang, some say wherever developers are launching new projects …
But my question is: Do we have enough people who are fearful? Because I still see first-time buyers and upgraders going after mass market condos.
That’s why can only buy sentosa but some say it will never recover to its former glory
Most crowdfunding platforms are honestly just glam up legalised internet Ah-Longs. Some platforms claim that they cater only to SMEs who cannot borrow from banks. If these SMEs cannot pass the credit test of the banks, then we should be worried. Also for property crowdfunding, i have always raised the below questions ( which the speaker/marketer never gave a satisfactory answer)…1) legal ownership/structure of the properties 2) how do i know if the invested amount is really used to buy the property 3) who has the first charge on the properties? 4) how can i get out?
The problem is that there are not enough regulations to govern both property and business crowdfunding. Investors are on their own if these ‘investments’ run into troubles.
Thanks for sharing the four key questions to ask for any crowdfunding project. Can’t agree with you more.
1) legal ownership/structure of the properties :
U have to set up a investment holdings, and according to amount of investment to distribute the shares lodge
2) how do i know if the invested amount is really used to buy the property
You/ the company to purchase the property need a lawyer , or you can get ur own lawyer to counter check for you
3) who has the first charge on the properties?
If purchase by company, its will be the board of owners/directors/share holders, so any decision can go by voting
4) how can i get out?
This is properly the most relevant question… U have to draft up an exist plan before the share holder agreement , this is very very important..for an example..maybe intend to holding for 3 or 5 years only then exist or if price rise by 30% then you can call a voting to exist early etc etc…again best to get a good lawyer who familiar with this kind of deal 🙂
Happy investing
Most crowdfunding platforms are honestly just glam up legalised internet Ah-Longs. Some platforms claim that they cater only to SMEs who cannot borrow from banks. If these SMEs cannot pass the credit test of the banks, then we should be worried. Also for property crowdfunding, i have always raised the below questions ( which the speaker/marketer never gave a satisfactory answer)…1) legal ownership/structure of the properties 2) how do i know if the invested amount is really used to buy the property 3) who has the first charge on the properties? 4) how can i get out?
The problem is that there are not enough regulations to govern both property and business crowdfunding. Investors are on their own if these ‘investments’ run into troubles.
Thanks for sharing the four key questions to ask for any crowdfunding project. Can’t agree with you more.
1) legal ownership/structure of the properties :
U have to set up a investment holdings, and according to amount of investment to distribute the shares lodge
2) how do i know if the invested amount is really used to buy the property
You/ the company to purchase the property need a lawyer , or you can get ur own lawyer to counter check for you
3) who has the first charge on the properties?
If purchase by company, its will be the board of owners/directors/share holders, so any decision can go by voting
4) how can i get out?
This is properly the most relevant question… U have to draft up an exist plan before the share holder agreement , this is very very important..for an example..maybe intend to holding for 3 or 5 years only then exist or if price rise by 30% then you can call a voting to exist early etc etc…again best to get a good lawyer who familiar with this kind of deal 🙂
Happy investing
Hello KC, your pointers above will apply to properties purchases in the traditional sense. However, crowdfunding structures are very different.
1) Legal structures, most crowdfunding will operate as an investment fund with thousands of other investors each receiving 5-10% returns per year on basis of recurring rental income. Most of their structures are such that you are investing into a fund that owns the properties, you are not owning the property via a company.
2) If the fund is domiciled in US or London, it would be very hard to check on their actual holdings.Also that fund might own several properties. Again the concern is that they probably hold several properties in several funds and with different % of ownership
3) The first charge will likely to be with a bank, so in the event of insolvency, the banks will recover their outstanding loan amount first with little or nothing left for investors.
4)Getting out, again its a fund, so if you get out before the lockin period, your might get back less than the invested amount with no transparency. Some UK property funds already announced halt to withdrawal with 1 of them stating that any withdrawal with be subjected to a 17% discount. Also, so there are thousands of investors, everyone will be signing a standard agreement and you will not be able to get special discretionary rights.
Additionally, 5) what are the measures to ensure that the seller of the property is not a related party to the fund and that the fund did not overpay? Not to say its totally not doable, but just have to be careful….i still think that the tradtional method of setting up a company/invesment holding with clear investing strategies, clear ownership structures and percentage with transparent exit strategies is still the optimal method of which one can get funding via ‘crowdfunding’ by rallying a smaller number of investors. Traditional REIT also better in my opinion.
Hello KC, your pointers above will apply to properties purchases in the traditional sense. However, crowdfunding structures are very different.
1) Legal structures, most crowdfunding will operate as an investment fund with thousands of other investors each receiving 5-10% returns per year on basis of recurring rental income. Most of their structures are such that you are investing into a fund that owns the properties, you are not owning the property via a company.
2) If the fund is domiciled in US or London, it would be very hard to check on their actual holdings.Also that fund might own several properties. Again the concern is that they probably hold several properties in several funds and with different % of ownership
3) The first charge will likely to be with a bank, so in the event of insolvency, the banks will recover their outstanding loan amount first with little or nothing left for investors.
4)Getting out, again its a fund, so if you get out before the lockin period, your might get back less than the invested amount with no transparency. Some UK property funds already announced halt to withdrawal with 1 of them stating that any withdrawal with be subjected to a 17% discount. Also, so there are thousands of investors, everyone will be signing a standard agreement and you will not be able to get special discretionary rights.
Additionally, 5) what are the measures to ensure that the seller of the property is not a related party to the fund and that the fund did not overpay? Not to say its totally not doable, but just have to be careful….i still think that the tradtional method of setting up a company/invesment holding with clear investing strategies, clear ownership structures and percentage with transparent exit strategies is still the optimal method of which one can get funding via ‘crowdfunding’ by rallying a smaller number of investors. Traditional REIT also better in my opinion.