QUESTIONS WE SHOULD BE ASKING
by Lim Lay Ying
Property Times, New Straits Times
20th November 2004

Finding answers to your questions on real estate investing is easy. The hard part is knowing what questions to ask.

Many questions on investment strategy are obvious: Which location is the most ideal? What type of property offers the best yield and capital appreciation? Which property offers good value-for-money?

But increasingly, the key questions we should be asking about some of the most common real estate investment issues aren’t so easy to figure out. With so many developments and developers launching new products almost daily in the property industry, it’s often impossible for investors to know what’s good value and what’s hype.

Asking the key questions will, at the very least, arm you with new information – and may sometimes lead to dramatic changes in your real estate investment plans. Sure, asking questions of your broker or the developer’s marketing personnel isn’t always easy. Some of the questions may be controversial while others may be awkward to ask because the questions challenge their expertise or authority. Besides, you may not always get the answers you were hoping for.

Still, there’s nothing for you to lose...

So here are some questions you need to ask.

Is this the best place for me to buy into?

Many people buying real estate tend to do so with blinkers. Thus even if you have made up your mind on a particular property in a particular location, you should still seek second options, if only to confirm you have not left any stones unturned.

It’s not that you’ve not picked a decent property or location. But it’s also possible that you could have missed out on one that could potentially be easier to sell off later or let out, besides offering even better returns.

What are the emerging locations offering attractive immediate potential?

Most people don’t ask about this because they don’t want to risk buying into new and untested locations. But not only will asking the question give you important information, it will also tell you how well your broker is keeping up with the latest trends in the industry.

Even the most conscientious real estate agent can’t always keep up with developments. So keep asking the questions, looking to other brokers, investors, industry experts, property publications, and the Web to learn for yourself.

What can you tell me about my short-term risks?

Much of the focus on risk factors like interest rates, the health of the economy, and the demand-supply equation, is aimed at addressing an investor’s risk of investment complication in the future.

Increasingly though, real estate investment advisers are working on identifying those short- and medium-term risks as well. The uncertainties in global economic conditions, terrorism issues, and changes brought about by technology, have been signalling risk for rapid narrowing of investment yields and capital gains.

However, the real estate investor will need to accept the fact that it is a sector with a longer-term outlook and strategy; it’s not for someone who wants to get in and out of the market quickly and try to make big bucks out of it.

Research data will be able to show which sub-sector/product type in the property industry is at imminent risk, and also help identify the ones in specific locations/projects most likely to be subjected to the least risk both in the near term as well as the longer term.

Where and what would you buy?

Real estate buyers and investors are often referred to a project or property by their regular broker, friend, relative, or the sales person of a particular developer.

Almost without exception, the best question to ask any one of them is where they would buy for themselves and what they would pick. You should be saying “Thank you, and if it was your money, which property would you buy and where would it be?”

What’s on the horizon?

Investors should ask if there’s something better that is going to become available in the near future, or even something that will change current trends. If they are a specialist in the industry, they should know what’s coming down the pipeline.

For wealthy Asians, real property has long been a preferred investment choice, accounting for between a quarter and a third of their investment portfolios usually. Many have built their fortunes on property despite its lack of liquidity which makes it seem more risky.

But because the real estate industry offers investors the opportunity to maximize investment returns during periods of economic recovery, they are willing to accept the risk associated with it.

Although concerns have been expressed on rising interest rates, high oil prices, and an expected slowdown in world trade, the gloom is not ubiquitous. Low interest rates so far, coupled with strong recent gains in many overseas markets, including the US, Canada, Australia, New Zealand, and parts of Europe, have fueled strong interest – especially in the residential sector.

Asian real estate markets which have been largely neglected by investors through the past several years, are beginning to look attractive again. So, if you’re in the market to sniff out good deals, get prepared to ask the right questions.