This might seem to be a drastically different stance from my last post on the dangers of being overly emotional when it comes to property investment, however, I come into contact with a broad spectrum of investors, buyers, sellers, and tenants in my line of work. My purpose is to provide a balanced commentary, and to help moderate potentially self-harming behaviours I come across.
As I’ve mentioned in earlier posts, real estate, particularly residential property, is a very unique asset class. Even for brand new units direct from developers, units with exactly the same floor plan will have a slightly different view by virtue of the fact that 2 units cannot possibly occupy the exact same airspace, thus the views, elevation and orientation will be at least marginally if not drastically different.
I believe this is also why real estate contracts are one of the areas where specific performance can be ordered by the courts. I suppose it is recognised that sometimes monetary compensation simply cannot replace the enjoyment one obtains from owning a particular property.
If even homes with exactly the same layout can have nuances of difference, then is not rather artificial to compare homes on a per square foot basis? I can safely vouch by the sheer number of times I have people asking me, “what’s the floor size for this place, ah?”, that the average human being is unable to accurately gauge the floor area of a home. So why do we dwell so much upon this magic ratio of price to floor area?
I suppose it is difficult to quantify how pleasant or livable a space is in a strictly scientific manner. The pleasure one can potentially derive from a well-designed, ideally-located home is in fact priceless! But a good way to gauge the “homeliness” value of a property is how much a potential tenant is willing to pay to live in it. The irony is that transient tenants looking to stay in a home for a 2-3 year time line are, I think, a lot more focused on the value of a good home, whereas home buyers tend to get overly distracted by comparisons of numbers and ratios that may have little effect on the ultimate enjoyment of their homes.
The other point to note is that there are many ways in which transaction prices can be skewed. The condition of a unit, for instance, is not accounted for in simple psf comparisons. It is also perfectly possible to broker a deal whereby the buyer obtains a lower price than the seller’s original asking price, but agrees to lease back to the owner for a reasonable period at an attractive rental price. As the deal maker, it is the role of the property agent to determine the objectives of the parties and negotiate a happy middle ground. Very often selling price is not the only factor (though of course it’s a hugely important one!)
This post was partly inspired by a prospective home buyer I met recently, who struggled with the idea of paying “above market $ psf”. He clearly loved the property I was marketing, bringing his family to view it not once, not twice, but thrice. As I told him, “market $ psf” is merely a snapshot of what has transacted to this point; today’s record price will be tomorrow’s market price. When we deal with property, we are not transacting a homogenous product that can be easily quantified in terms of $ per unit. It’s a real shame when people are unable to trust their own gut feel on a home and force themselves to conform to arbitrary figures.
Of course, that’s not to say that people should throw caution to the wind, ignore transacted psf prices, and just buy on blind gut feel. But I believe that psf prices should not be applied wholesale, but modified based on your own personal needs and preferences. Let your heart and your head work in tandem, rather than struggle between one or the other. We have a good guide on how to go about this here:- https://natashagoh.com/2012/06/13/how-much-should-you-pay/