July 27, 2021

19 thoughts on “The Fallacy of “How to be Rich” from Investing in Real Estates (Part 3)

  1. Hi Rolf,

    Nice article, have u looked at the reverse? The downside?

    I know market plunge 50-80% from recent high is highly possible. I mean equity market.

    Do property market plunge like that? From recent high? I don't have data, just asking since u have data on hands

    That's could be one reason.

    Property more protection from the downside?

    Counter can go bust and value go to zero.

    Unless u cannot finance your loan, but we are excluding amplified effect on leverage in returns, so we assume we dun have financing risk, there is hardly any chance your property is worth zero no matter how ulu.

  2. Hi SI,

    Thanks for the compliment. It's an extremely good and valid point you mentioned – "Protection of the downside!"

    Unfortunately I do not have the data, but if you look at the first graph of Sg residential index, the biggest decline in history of Sg is during the AFC where a tumble from 130 to 70 (-46%). In the same period STI fallen from 2400-2500 to 800-900 (-65%).

    Otherwise you can also refer to the link herein where I refer to the article from Boring investor blogger Chin Wai. He has some data referencing EC vs Stocks!

    Frankly the protection of real estates is better I think in Asian society bcos of our perception that real estate is almost like a "save haven". This is very different from the western culture. If I asked my colleagues in Europe (excl. London), they will never invest in Real estates if they have money!

    It's unfair to say on a non leverage basis, bcos then it's the game of the rich as I mentioned.

    Even if u have extra $1 mil, u can only fully pay down 1 or 2 or 3 residential or commercial properties. Compare to when $1mil can allow u to hold many stocks. To me, for anyone of net worth less than S$5 million, I think he/she is prolly baby in the real estate investments still.

    If not, even if u r a top 5% income earner with household income of up to 250-300k, u will still need to leverage or otherwise only have not more than 2-3 properties, unless u r very old already.

    For most Singaporeans, I know, normally when they leverage highly 2 mil n above, they always project that their salary will only go up and up. Therefore if there is a crisis and they lost their job, then they will have no salary to pay the 6-10k installments.

    For public service u will not get retrenched, but similarly, salary of individual is unlikely to hit 200-250k of u r still young, unless u r top few %!

    So for >90% of Singaporeans, real estate is mostly to live and not really your kind of game. Unless u already do well in ur job or business n have lots of wealth (extra millions n above), then u should protect ur wealth by investing smartly in a mix of real estates n financial assets, precious metals etc…

    Just my humble views. 🙂

  3. Oh Ya… actually we cannot even measured real estate in currency, because currency is Fiat and while numbers are increasing, value is decreasing. Hence if we really thought our estate price has increased tremendously in currency terms, it actually meant there is inflation over the years.

    Therefore if you look at Robert Schiller's work, he actually plotted real estates or Dow against gold or silver and or/ oil etc.

  4. nice series, I only skim through but can tell some work put in.

    though I am already pre-biased towards the view both are essentially just tools that become useful at different times because both property and stocks values are derivative of fund free rate even if out of phase. though there are differences such as the borrowing rate for property, leverage, rental of asset …etc

    1. Thanks for the compliment. Yes, agree with you that both property and stocks can be useful tools at different times. End of the day, I believe there is no one tool that suits all. It really depends on individual liking and preference. Different strokes for different folks.

  5. Can we compare property to single stock?

    Do we use the same amount of $$$ to buy single stock?

    No. Right?

    Why do some some people like to compare property to single stock going down to zero? Strange.

    We should be comparing property to portfolio of stocks. Can portfolio of stocks going down to complete zero?

    No. Right?

    1. Actually it's not so much of a single stock but all your wealth or most of your wealth in the stock market is definitely not wise.

    2. again a very valid point, cannot really compare both.

      Property value cannot go to zero, but if you are so dumb to buy an investment property so awkwardly located or designed that eventually it just cannot be sold or rent out, it is also as good as low or no value! Conclusion: both are useful tools, but both need proper skills/education/risk calculation etc.

    3. Yeah… must have little bit here and there…

      How about women? All wealth into 1 woman? Hahaha

  6. Rolf i think you seem to have a recent fascination on fiat currency losing value. it is always the case but i feel that you should compare to someone who was working you your dad's competency level now instead of your dad's salary now. that would be better.

    i think you are also taking it that gold is money and the rest are not money.

    1. Hi Kyith,

      Thanks for dropping by and intriguing comment as always to let me think hard. As long winded as I am, this is going to a long reply so I split into 2 sections

      1) Income/ competency group & 2) Fiat currency.

      Part 1)

      Good point on using the competency levels rather than income. Noted!

      My whole idea in the article is trying to compare 1) Low income 2) Middle income 3) High income group to let the masses (low and middle income) know that we are actually not better off when the flat we lived in skyrocketed in price over the years.

      Many people I spoke to who have only 1 flat, always think they are better off when their HDB flat rises in prices. Well, it is can be true when you downgrade from a bigger more expensive house to a smaller. Then again, I mentioned we are borrowing prosperity from the future generation.

      My dad represents lower income group with low competency level. Hence for this group, housing in SG is severely unaffordable. If you refer to Middle income group, in 1970-80 their house-income ratio is probably 1-3 only. But today Middle income group even with IMPROVED competency is still about 5, hence still in the unaffordable range.

      So while competency and living conditions improves, affordability also widened with longer loan term. This is something we need to bear in mind.

    2. Part 2) Fiat currency

      You spotted my recent fetish! Haha… No lar… it is not fascination but perhaps indulgence in protection/hedge to counter "what ifs" events. I realized as I become more exposed and see more (not just from reading but personal experiences), the more "unexpected" events I came across. Hence this prudence advocates. And not precious metals advocates! I am no dealers n do not get any comm for advocating.

      It is all about hedging for me. If economy is rosy, precious metal price falls, I am happy bcos I can perhaps earn more in my salary/business or stocks n happy for this world. On the other hand, if economic conditions turn sour, my p. metal holdings rise, I am protected. Either way, I am happy. Isn’t it fantastic?

      In my parent's era, many people do not believe in insurance. Today?

      Fiat currency indeed is not exactly money, because it is does not have the characteristic of storing value. Nonetheless, that is the best we have today! Consider the fact that US$, Euros, Yen had lost so much of their value over the years, it can be worrying. Whether if it will lose its complete value to zero in my life time, I DO NOT think so. I am still holding sgd, aud, usd. Perhaps there can be new monetary system seen in my lifetime?

      Yes, Sg work hard in the past, increased our productivity n competence over the years. That is obviously why we have surplus today and our GDP rise rapidly! However, if we says the rate of increase of our GDP to our productivity is linear, then we are somewhat lying. Our economic expansion has seen almost exponential increase. Thanks to leverage, and being globalised, also because US, Europe, Japan, China exporting their “inflation” to us via their currency expansion policy.

      Therefore we better not be over conceited that our entire success today is because of our productivity/competency etc. Maybe also a lot is attributed to our good governance, yes! Nonetheless, I am still confident in my lifetime that I will see Singapore continue to do well, but for my children n if all goes well, my grandchildren, it awaits to be seen.

      By the way, will u buy at least a bit more precious metals after my recent fascination? Let me know? Haha…

    3. yes i would. quite open to the concept. thanks for your detail explanation. can't say i would describe them the same way but that is the way fiat currency is.

  7. temperamentThursday, 7 July 2016 at 18:02:00 GMT+8

    I strongly believe there is a time for everything on earth.
    And your former boss is just like the many "very the rich."
    In facts, many very rich Asian Chinese families have children & kin spread all over Asia and the world.

    What's money?
    If you have a lot, you definitely want your money to spread all over the "places".
    A finger in to as many pies as possible.
    You surely should not put all your money into the stock market.

    Go and ask Stanley Ho of Macau (if he still around) of what happened to his father's fortune.

    And you have not much money, you just can do much lol!

  8. temperamentThursday, 7 July 2016 at 18:02:00 GMT+8

    I strongly believe there is a time for everything on earth.
    And your former boss is just like the many "very the rich."
    In facts, many very rich Asian Chinese families have children & kin spread all over Asia and the world.

    What's money?
    If you have a lot, you definitely want your money to spread all over the "places".
    A finger in to as many pies as possible.
    You surely should not put all your money into the stock market.

    Go and ask Stanley Ho of Macau (if he still around) of what happened to his father's fortune.

    And you have not much money, you just can do much lol!

    1. Hi temperament,

      My ex boss never tell if he has many families in many different places… hahahaha…

      Agree that if u start to have a lot, u will then have finger into as many pies.

      Most people here just have stocks n no investment real estates is also like what u say, they have yet to have a lot!

  9. Great news! It’s awesome, isn’t it? I think that we need to encourage young generations to perform well. My position is following: governments have to be subjective to every student and give an award based on his performance. The majority of students try to check money service to feel independence. And this is cool! Hopefully, in the world there is the possibility to take a loan for studying. After graduating, college students find jobs and return money. So let’s differentiate those students!

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