Targeting the right segments

 October 29, 2010

Tips on investing in property in the current market

In my recent talks to property investors, I would conduct a straw poll with the question: “How many of you believe property prices will increase, go flat or decrease within the next twelve months?” Inevitably, I would get three different groups of respondents.

My follow-up question would be: “In the worst-case scenario, would prices decrease at the same time across all property sectors, including all segments of the residential, commercial, industrial and overseas properties?”

Even the most pessimistic of investors would disagree. Herein lies the truth about property investments.

It is wrong to think prices across all sectors will march to the same tune up and down the property cycle. The cycles of any two properties are never the same.

There will always be properties – during good or bad times – that are more attractive than the others and have more upsurge potential for profit. There will be good investments at any point in the economic and property cycles.

In fact, many of these property gems can be found during times of major change and uncertainty – which could be the situation now.

How, then, should you invest? May I suggest three possible target segments.

OUTLIER PROPERTIES

Outliers are properties that are available or transacted at prices that are much higher or lower than their respective market prices.

As up-to-date information about property prices and terms and conditions for the transactions are not readily available, the resulting imperfect market may cause sellers to sell low.

There are also other reasons, ranging from ignorance and apathy, negative property outlook, need for cashflow, to sudden migration. One night at any of the two casinos can also produce such sellers.

On the other hand, there will be some buyers who will offer high prices to acquire a property. There are many reasons why they do it, including emotional attachment to the property, need to stay near a relative, and desire to move into the property fast.

As the longest-established mega-agency since 1980, we have come across many reasons for such property outliers.

They can be strangely irrational and even absurd – many of which reasons make property investments more appealing. Suffice to say, you should reward the right agent to source for these property outliers and transact them at a higher profit.

GAP PROPERTIES

Gap properties refer to properties that have the potential to increase in price due to the impact of current or future factors.

Unlike the stock market, which is supported by comprehensive information and is more closely monitored, the property market has comparatively fewer investors and fewer of them are investing on a full-time basis.

Many investors rely mainly on hear-say and will not conduct due research to find out how various factors will support property prices and respond to it.

There is a longer lag time for the market to respond to major changes, especially in the resale market.

For example, proximity to major facilities such as MRT stations, business hubs and good schools can help properties to appreciate higher and faster in value.

However, when plans are being made known to build such facilities, the prices might not increase immediately. Property investors who diligently do their homework and make quick decision can capitalise on these gap properties.

UNPOLISHED GEMS

Unpolished gems are properties you can add value to, the end result of which is they can be sold at a higher price.

Most residential property buyers are owner-occupiers and will probably transact about five properties in their lifetime. They are usually not educated or experienced in property investment.

However, this trend may change because, in recent times, we are seeing more astute investors signing up for real estate agent courses to sharpen their skills in negotiation and investment.

Many buyers follow the crowd to invest in properties that have mainstream appeal, without due consideration for how they can market and profit from them in future. They evaluate properties based on what they see rather than what these properties can become. They are inclined to prefer convenience rather than, for example, carry out additions and alterations to enhance the value of the property.

The advantage of property investment, unlike other instruments of investment, is that there are an infinite number of ways to add value to properties. You can add on or remove parts or all of the property; destroy or rebuild the property; change the theme, use and tenancy mix; improve the design and decor; enhance the furnishings and fixtures … the list goes on and it is only limited by the creativity of your mind.

A simple coat of paint or installation of new lighting to brighten up the place can also increase the appeal and profit potential of a property. The question you need to ask yourself is: “How can I add value to the property so as to sell it at a higher price?”

During challenging times, there are more of these three types of property gems and lesser people to compete with to capitalise on them.

From wisdom of hindsight, do you wish you had bought a reasonable property shortly after the Lehman Brothers crash? You would have done well, wouldn’t you?

After reading this article, mark today’s date in your diary. In the near future, you will wish you had taken your cheque book, mine the market, and profit from the property gems in the current market.

By Callie Liew, the founder and COO of the HSR Property Group. She won the Asia Pacific Entrepreneurship Award 2009 and the Entrepreneur Of The Year Award 2010 for social contribution.