20181107 What property will be most affected during a downturn? Part 2

20181107 (Wed)

What property will be most affected when there is a downturn? Part 2.

The fast answer to this question is “expensive” properties. Well, who is to buy an expensive property when the sentiment is risky? And, when an “expensive” property is sold “cheap” the quantum of discount can be substantial. It is fair to say it has lost ‘value’ the most.

So, the second most important consideration to this question is would you suffer that loss? During a downturn, you can keep your position by not selling. Then, there is no loss – at least on paper. BUT, are you this type of investor?

Therefore, do NOT buy into luxury property – which are usually at high street and high price. For example, buy into the signature building of the HOTTEST ESTATE in the middle of a city would be looking for trouble. During the good time, it becomes speculative. You might make a fortune having such unit in the city centre, selling at RM0.5mio profit. BUT, do NOT dream of such scenario in the next 5 years in Malaysia.

Another most affected properties during a downturn would be mega under-construction projects. This is not about price. It is about risk during construction. During a downturn, mega projects just go under. Not because they are no buyers, but because of business risk and cash flow of developer.

So, to summarize – most affected are High Street High Price and Under-Construction projects during downturn, period.

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