Property investment – staying ahead of the curve

In the mutual funds universe, you have index funds on one end of the spectrum, and “special situation” funds at the other. The former simply track the market index, rising and falling in tandem with the market’s peaks and troughs. The latter, on the other hand, attempt to home in on unique upside opportunities and gain alpha.

As a property investor, you should try as far as possible to emulate the latter rather than the former. I draw inspiration from strategies taken by the fund manager behind a special situations fund I once invested in. He looked for themes that were on the uptrend, then dug beyond the obvious to seek out a more targeted vehicle for harnessing that trend. For instance,when he felt that international trade was set to boom, instead of banking on shipping stocks, he bought into ports, as the latter represented a more finite resource – you can have as many ships as can be built, but ports are strictly limited by geographical and administrative factors, amongst other constraints. Similarly, when he sought a means of investing into Asia’s growing need for infrastructure, he avoided construction companies, and went for the one key player providing the cranes to the many construction companies. This all took place years ago, but I reckon there is timeless wisdom in the investment style adopted.

So how do we apply this principle to our property investments? Stay abreast of current affairs, read the news, but always bear in mind that pretty much everyone else has access to the same newspapers that you do. By the time a particular district is highlighted in the papers for its strong potential, it’s old news and the potential is likely to already be priced in as those selling a home in the relevant area are also going to have read the papers and adjusted their price expectations accordingly. In other words, avoid hype. By the same token, don’t be too quick to write-off properties that have gotten bad press – market tends to overreact both ways, thus negative news may actually give you the perfect opportunity to buy in at a bargain. Form your own thoughts and opinions rather than accept wholesale whatever you read in the media.

The thing is, there are real gems out there, but people often don’t recognize them for what they are until it’s a little too late. For instance, everyone knows landed property is a good long term investment, and nobody knows this better than the sellers themselves. Thus the sector is clearly a seller’s market, and it’s never ideal entering a market as the weaker counterpart.

It’s also common knowledge that non-Singaporeans are not allowed to hold vacant residential land or landed homes, besides Sentosa. But not so many were aware that foreigners could buy strata landed homes found within approved condominium developments. Even fewer realize that this loophole has since been closed, such that future landed-within-condo properties will not be open to foreign ownership. In other words, such foreigner-eligible landed homes, rare in the first place, are no longer going to be built. Simple logic will tell you that limited supply and unlimited demand will result in higher prices. The problem is, the demand is not there yet simply because most foreigners dreaming of owning a landed home in Singapore aren’t even aware of this option. So… do you invest before or after it’s out in the news?

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