Applying Sun Tzu’s Art of War strategies in property investment may yield surprising results.
#1: Heaven-Environment outside your control
If you have been following the corporate news closely, you will notice a few worrisome trends that personally spooked me.
Malaysia’s Gross Domestic Product (GDP) growth slows to 4.4% in 3Q19.
To achieve the government’s projected growth of 4.7% for the full year, as stated in the recently tabled Budget 2020, an expansion of 4.8% in national GDP is needed in 4Q19.
From the market sentiment that I am getting, especially from Small & Medium Enterprises (SMEs) in Malaysia, it seems that the worse is not yet over.
But why is this spooky?
Because of a spate of high-profile Voluntary Separation Schemes (VSSs).
Astro has offered VSS to their employees.
Utusan has of course been bailed out Media Prima has offered VSS to their employees.
One major developer has cut more than 200 employees (even though it has not been announced).
If the market has not reached its worse, but we are already seeing a slew of high profile job destructions, how then would the job market be in 2020?
I do not foresee the jobs being cut to be replaced within the next year.
When that happens, how much disposable incomes will be destroyed in the economy?
When there is lower disposable income, how will that impact high ticket items especially a house?
Lower demand coupled with a high supply of properties is bound to create turbulence in terms of our country’s capabilities to absorb the property overhang.
When that happens, do you think the property price will be lowered or will it increase?
#2 Ground-Environment under your control
There are things that are within your control. One of the things is to understand what you are buying and why.
As an investor, and as a “smart” investor, I struggle to understand why this development has so many auction units. I am sure that the units going for auction is NOT for own stay.
It is most definitely for investment. And if it is for investment and it goes into auction, it seems to me that as an investor, you are not very smart.
Which then brings me to the obvious point.
Are you actually putting in effort to tend to the things that you can control?
Secondly, are you aware which methodology suits your investment style?
Taking risks is very different from being risky.
Above is an example where being risky, without putting in effort to control the things you can control (i.e. the right property knowledge) has resulted in a one way ticket to “Holland”.
Which brings me to the next point.
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#3 General-Ability and Attitude
CA = CAPITAL APPRECIATION
CF = CASH FLOW
GRADE A RM300
CA = 20% UPON COMPLETION (MINIMUM 4 BOOSTER)
CF = POSITIVE. MORE THAN EM300
GRADE B
CA = MIN.10% UPON COMPLETION
CF = POSITIVE
GRADE C
CA = NOT MUCH UPON COMPLETION
CD = BREAKEVEN
GRADE D
CA = NO PROFIT EVEN IF SOLD
CF = NEGATIVE UP TO RM500
GRADE E
CA = LOST MORE THAN RM100K
CF = NEGATIVE MORE THAN
RM600-RM2000
Most of the time, what you know wont kill you. What you don’t know may. What you don’t know you don’t know might.
But the one thing that will kill you, is what you know (and think is correct) but it turns out to be completely wrong.
I remember hearing from one property expo that property prices will double every 10 years.
So it does not matter what price you pay for the property, how much is the rental and how much is the negative cash flow every month. So long as the cash back can hold for the next 10 years, then the property price would double.
Sounds simple.
Sounds so logical.
And thus you choose this to become your new property mantra.
You chant it religiously.
You believe it and thus everything becomes ‘investment grade’.
‘Because property prices double every year.’ So you bought the property above.
And later realize that you can’t cover the instalment. And it goes into auction.
And you contemplate committing suicide due to the financial pressure. Do you know where you went wrong?
There is no data to support that prices of property doubles every 10 years. Does it?
If you take this blanket statement and just look at the graph on a helicopter view, this is probably true.But if you dig deeper, you will find some doubts.
Can a RM1 million condo, in an area where a double storey landed property is being transacted at less than RM530k, single storey around RM350k; double to RM2 million?
Can a 3-bedroom condo; being sold at RM500K in an area where the double storey 4 +1 bedroom is being sold at RM600K; double to RM1 mil?
Malaysians, being Malaysians, would always prefer landed properties. If the price of a condo is nearly similar or higher than a landed, do you think Malaysians would choose the condo?
My question is simple- do you have the solution to this problem I call “Sure-Win Virus?”
A “Sure-Win Virus” has got the following symptoms:
• A developer thinks the project is good;
• The agent of the developer sells you the dream;
• The dream is definitely “sure win”;
• Nothing can go wrong;
• No data, no problem. Why?
• Sure win!
So do you have the cure? Do you have an analysis tool that objectively analyses your property investment?
If you have been following FAR Capital, you would find that we use our property grading to grade every investment product.
It is binary. It is a ‘yes’ or a ‘no’.
Does not matter which project. Whether it’s a project supported by FAR Capital or not, you can use this to qualify it objectively.
You can even use this to question the projects that we have bought. Because the grading system is objective and the data can be verified publicly, it is very objective.
#4 Law-Discipline and Commitment
The era of property flippers today has ended. It may make a comeback but as of today, the era is a bygone era.
Why do we not encourage and actively stop people from being a property flipper?
Because we believe that it has nothing to do with your skills and knowledge, but rather it was timing and luck.
Property investment, IMHO, is a ‘skim lambat kaya’. It takes a minimum of 5 years upon Vacant Possession for a property to reach maturity point and for it to reflect the rental and sale equilibrium.
That is the discipline that property investors must have. To be able to hold the property for at least 5 years. And to maximize your returns, to hold it for more than 15 years.
That is not a game for everyone. They want to earn RM1 million within 1 year upon Vacant Possesion.
#5 Way-Your personal connection to other people
Do you know that some people have access to information that is not publicly known? Or access to deals not accessible to the public?
For example, I know of one project that if you walk into the showroom, you get 20% rebate. But if you know who to speak to, you can get it at 35% rebate.
In this current landscape, the crowd and connection that you have access to is key to your investment success.
So, my suggestion is to spend more time trying to find such people or such groups.