Saturday, March 27, 2010

Never Ask a Barber if you need a Haircut

MOS almost fell off the chair laughing after reading comments made by leaders on the Asian property space.

One director from a prominent HK developer argued that bubbles are good for the market. Another appeared to suggest that the non release of sites at low prices to developers in government auctions has contributed to the exuberance today.

These remarks remind us of Chuck Prince's 2007 comment. Prince, the former chairman and chief executive of Citigroup said in July 2007 that "as long as the music is playing, you’ve got to get up and dance. We’re still dancing.".

We always like to say that it is never wise to ask a barber if you need a haircut. Or the fruit seller if his oranges are sweet. The wider implication to all this is that it is tantamount to establish one's interest or agenda behind each pitch.

For so long as interest rates are low and the apparent recovery is taking root, demand for apartment units will continue to move quickly. Developers who are in the business of selling units will, understandably, launch units to feed the frenzy.

So investors/individuals have to be discerning. Shrewd property investing requires one to have a very long time horizon and a through analysis of demand and supply conditions; and not just buying shoe box size units because they are affordable at today's low rates. Examining "what ifs" are necessary too: What if the unit cannot be rented out? What if rates go up? etc etc.

Whilst we are at it, we would like to draw attention to the first line of Prince's complete quote which is less often run: “When the music stops, in terms of liquidity, things will be complicated."



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