What Should Property Investors Do With Their Money Today?

April 9, 2013， propwise.sg

By guest contributor Gerald Tay

Dear Readers,

I want to share some personal thoughts and investment decisions based on the 2013Q1 URA PPI flash estimate and what it means for the property market.

The 2013Q1 estimate of 213.1 represents a 0.5% quarter-on-quarter increase, which is a moderation from the 1.8% q-o-q pace we saw in 2012Q4, but suggests that the market prices are still rising, albeit slightly, despite seven rounds of government cooling measures.

Today, we’re at the record peak of the property cycle since 1965. It does not take a lot of common sense to tell us we need to tread extremely carefully, especially in the current uncertain economic climate.

Prices likely to continue to increase, but…

My personal predictions (I personally hate to invest on predictions), if you may, is that there might be further price increases in all segments of the property market. The residential market is still being supported by local first-time buyers (though we don’t know for how long yet), while the commercial and industrial sectors have experienced continued hot money inflows resulting from the severe cooling measures on the residential sector.

However, this does not mean investors should simply rush out to buy that new launch property today and hope to cash out in the next few years. The potential downside is much greater than the upside, and based on the price-rental index which indicates a 57% over-valuation (based on The Economist), buyers and investors today are already paying for future price increases for years down the road.

I have done my personal investment calculations for the residential market, comparing price versus rental. Even with the current low interest rates , most properties (resale and new) are already fetching negative yields, not to mention when these rates start to rise back to ‘normal’ levels in future.

“Phoney” money supporting the market

Today, the Asian property market (especially in Singapore, Hong Kong and China) is being supported by ‘phoney’ money. Money is printed endlessly in the trillions of dollars by irresponsible governments for political motives. Banks are either lowering their reserve rates or cutting interest rates and these have fuelled the inflow of more hot money.  The money is finding its way into Asian markets like Singapore, in the hopes of so-called higher returns and inflating many asset bubbles.

When a financial crisis erupts (e.g. a Europe, USA, or China crash), this ‘phoney’ money would find its way back ‘home’ faster than a speeding bullet, resulting in severe price deflation and chaos.

A word of caution to investors

I personally urge you, if you are an investor who is still in the midst of growing your wealth for your retirement, to be very careful where you are putting your money today. If you are investing in overseas property, make sure you know that country inside out. When I mean inside out (NOT as a tourist), I mean you have been living in that country for years and are very familiar with the local real estate market.

Or, you have credible partners who are locals in that country who are willing to invest together with you. If you are simply investing in an overseas property and expecting good returns based on a piece of paper, some cocktail champagne, a nice sales talk or because you think you spent one full month to do some due diligence, I have to candidly say best of luck to your investment.

As for local properties, invest on cash flow and never capital appreciation.

For myself, I’ve stayed away from our local property market since 2011 and have expanded to the USA real estate market. I work with experienced local USA investors who are more familiar with the terrain and have invested their own money with me.

If you do not have that kind of connections or expertise, then my best wealth advice for you TODAY is to leave your money in the bank, despite the low interest rate on deposits. Be patient to take advantage of massive opportunities to grow your wealth within the next few years when prices start tumbling down again.

Please Remember: The Return of Money is more important than the Return on Money in any investment.

By guest contributor Gerald Tay, CEO of CREI Academy Group, who exposes widely-held property investment myths that have proven highly ineffective in creating wealth, and prevent a comfortable retirement for the ordinary investor.