Saturday, July 24, 2010

Property Prices and Investment Decisions

With reference to a discussion on the suitability of property as an asset class in investment. Someone quoted the Bubble decade and slump of property prices in Japan which have not recovered yet while I find that property is a suitable investment vehicle for long-term.

Yes, when you do investing, you are pitching your judgement call against or with the market.

We make our judgement call using data we obtained and sometimes extrapolate to see what we want to see.

I could also extrapolate similarly by looking at the chart below. For me, I am looking at the chart and see a similar pattern of the blue line and the purple line (since you also using pattern recognition for your jap bubble chart). When I look at the chart, I think we are at the start of a great bull run again (similar to 1990).

But for someone else, he is probably looking at the chart and see us at the start of the 1997 Peak which took 10yrs (in 2007) to retake its peak and subsequently overtook it in July 2010. So for that person, his pattern recognition is that of 1997 peak and so he stay out of the market.

That's why there is buyer willing to take from the seller. People see different things from the same chart. When doing investing, you cannot be right all the time. Whenever you made a judgement call on the market and take action, you must have figured out the downside invovled and how to mitigate it or whether you can survive it. If you have taken care of the downside, the upside will take care of itself.

And by the way, if you think we have a property market about to go into a 10yrs slump. Then probably stock market is not going to do any better.

Chart Source : The religion of Propertism as preached by a property guru in a property forum

Disclaimer : we are using charts pattern only.. but property prices and movement have a lot more to do with :-
1) The strength of the global & local economy
2) The power of inflation/deflation
3) The tightening/easing of monetary policy
4) The demand/supply

So when making property investment decision, remember to make your judgement call on the above factors and then deduce where property prices are headed.

Short-term (<10yrs) - we might be at 1997 peak.
Long-term (>20yrs) - we might be at the start of the 1990 bull run.
It's your perspective and time horizon and your faith in the religion of propertism.


Singapore Stock Picker said...

do you think that there is a property bubble of sorts propped by the government? Was thinking more like a sub-prime situation whereby more and more people cannot pay their loans, default, and we will see a pin burst.

Wealth Journey said...

Govt is trying to make the "bubble" become more sustainable by introducing moderating features. It always goes in cycle.

1) DPS
2) IAS
3) 5-10% cash for downpayment
4) loans of 70-90% loan
5) tightening measures on HDB ownership
6) Bridging gap between Private and HDB (thru DBSS and EC).

For me, I think the safest to buy a property (don't think. Just WHACK!) is when govt starts giving out DPS and 90% loan (that is usually the doldrums of property cycle and the start of a bull run).

Right now, if you are buying for own-stay, just go ahead as long as you can afford it. But for investment, I will wait for another 3-6months to see the 'cooling effect' (if any).

Anonymous said...

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Anonymous said...

I did a similar review of the previous property cycles in my blog.

The slowdown of the property market often lags behind that of the stock market.