The New Rich Club of 2020 or How to price real estate in 10 seconds?

It is scary to watch people queuing to buy prime area condominiums in Singapore recently. They are not buying properties. They are speculating and hoping to make a quick buck. There are so many lessons GLOBALLY on people being hurt by real estate speculation, that you really wonder why humans never learn from history.

Watching people queue to speculate on properties is as scary as watching people watch WWF or wrestling matches. There is nothing wrong watching our favorite WWF heroes choking each other to "death" at the arena. That is not the really scariest bit. The scariest bit is when they think it is real.

There are enough cautionary articles in the newspapers (thanks goodness) to explain why a valuation of S$3,000 per square feet (psf) is almost suicidal in terms of risk and return. Rather, a good friend of mine, Cheong Hian, has come up with an Idiot proof 10-second valuation rule. It goes like this:

Since a condominium unit is really a space in the air and you have 99 years to occupy that space, imagine a 3-D space in the air, ignore all the glitzy computer graphics and the pretty sales consultants, ignore the Feng Shui "face north" is good (or whatever mumbo jumbo), ignore the Spa-like swimming pool and the Club-Med facilities (you won't use it anyway because you are too busy working hard to repay the loan; it is only useful in the first "house warming" party, the bragfest event before you are enslaved to your property), ignore the news of how someone made a killing speculating the Sentosa Cove (those guys have first thinkers' advantage, not you), put that all aside and focus on the suspended virtual space in the air and ask yourself this:

Is it worth paying this space at S$XXXX for an option to use it for 99 years and will someone looking at it with the same perspective as I do pay MORE?

You may walk out empty-handed but it may be the cleverest thing you ever think about. Come to think of it, the above may be the BEST ADVICE Beyond SG can offer to our gentle readers!

I have another good friend cum mentor, Heng C.M. who was my former colleague back in MAS. He is very interested in financial planning and he shared this scary story to me once. He said that out of curiosity, he started evaluating the financial situations of many Singapore yuppie couples and many of them are suffering from financial terminal cancer and they still dont know it.

I think this is a maths problem. I think the financial maths (the way we compute, not the method) we use still harks back to the good old days when you will have a nice retirement ceremony at 55. It makes assumptions of a world when you will be given a Rolex watch for loyal 25 years service. The new world cannot make such assumptions. You have to assume the evil cost-cutting CFO (by the way, that is my daytime job) is targeting you at 42 years old when you have a condominium (my impolite friends called them the Condom. Heroes), a branded car (Alpha Romeo, ok, no more puns), two children preparing for JC/University, a maid and a huge salary the CFO wishes to reduce. He knows you will beg for mercy when he strikes and you probably can't find a better job. CFOs, by default, love to see people beg. Those who dont just dont become CFOs.

Hence, if you rework the financial maths and assume your earning capability ends at 45 or more conservatively, at 40, and make preparations for such a scenario, your life will be much happier, more fulfilling and less stressful. I think the schools are teaching our kids (Gen Z, Z1, Z2?) to lower our expectations these days that but for us, the Gen X and Y, we are taught the wrong things. Many wrong things.

So the second most important question you should ask yourself is this:

When I am forty-five, will my employer still pay me equivalent money to stick around?

Ask these two questions at the condominium sales office/the mock up units and one thing for sure, you will be the New Rich Class in 2020. Oh, and ignore the babe with the Oxley sunglasses at the top of her head snobbing around in the showroom and pretending to be the New Rich. Once she signs on the dotted line, statistically speaking, you win :-) See you at the Singapore New Rich Club in 2020!

Harold Fock

Comments

[nameless]

if everyone thinks that way, the property market will eventually collapse ( not that it hasnt hurting a great many in the process ), resulting in high social economic ramifications blah blah blah and with thousands already burnt to charcoal, investors/PRs should also wise up and stay away from our property market since it is a stupid idea like you said hmm...i think we all should revert back to cheap kampung housing or move up north where cheap properties can still be had?

My 3 cents worth>

Do your financial planning carefully. Never be too overly optimistic that tomorrow will be even more rosier(wishful thinking).

Never take a risk beyond what you can bear.

Lastly, a quote I heard:

"Many people buy things they don't need,
To impress the people they don't know,
With the money they don't have."

Are you the one of the many people?

[fisker]

Very well said. People are so caught up with this showbiz that they are willing to spend in thousands and even lacs just to make sure that others will take notice of them even if they are not important to them.