Two weeks ago I had sent out (via GoodPlace Digest) a rather “provocative” article I found in The Star about how property may not be the best choice of investment for many people (click here if you have missed it). And of course, as with anything which had to do with the “property is the best investment” sacred cow, responses from GoodPlace Digest readers were fast and (mostly) furious.
I have received many emails disagreeing with that article, and here’s a viewpoint from GoodPlace Digest reader Frederick Ho which would sum up all those emails that I have received.
The article by Evelyn Yeo that you shared in the GoodPlace Digest makes for interesting reading. As a property investor for more than three decades now, however, I had to disagree with her in some aspects which she had excluded in that article.
In comparing with many forms of investments, many of which I, too, have dabbled with, I disagree with her on the following.
Firstly, on life insurance policies. The returns after so many years, about 40 years for my case, the returns are truly abysmal. I am still paying the premiums on many of them. On hindsight, I should just stick to term insurance without any ‘attachments’ like investments, etc.
I once put it this way: why do we have to impoverish ourselves while we are alive paying premiums so that our loved ones become millionaires if anything happens to us? It also hinders other opportunities in the future if you over-commit in insurance as the losses from surrender values can be punitive. For most life insurance policies, surrender values loss can easily be twenty years without counting the loss in interest.
Secondly, on stocks and shares. These are so volatile that they give me sleepless nights – especially in the bear (i.e. current) market.
Sure, comparatively, stocks are highly liquid. Alas, this also means that if one is not disciplined (or brave) enough to see through the ‘storms’, one suffers losses easily. Liquidity is a double-edge sword – it’s really not necessary an advantage. Statistics have shown most investors cannot beat the market despite their best effort. Indeed, it is almost like gambling.
Thus so far, my best investment is in property, and here are the reasons.
Because property is not ‘liquid’, it’s a long-term play. Thankfully, I have fully paid off all my properties and am now deriving the passive income from my portfolio. I can retire happily!
In her article, Evelyn quoted an investor who paid RM2,000,000 into a property. I am just guessing here because she didn’t mention this, but the he or she probably had taken a loan because simply that’s what a smart investor would do. I mean, how many of us have two million ringgit in cold, hard cash to buy property?
OK, maybe the investor indeed had that amount of cash, but if one has millions in cash, property is a poor choice as an investment.
Now ponder about this. Are there any banks which would lend anyone RM2,000,000 to invest in stocks and shares, gold, insurance etc? Exactly my point.
Now here’s my final point. It is leveraging power from a bank that helps a property investor to gain much mileage.
Let me give you an example. A RM2,000,000 property requires a cash upfront of only RM400,000 (20% of the purchase price) while the bank lends out RM1,600,000. Say, after five years holding period, the property is worth RM3,000,000. Your return is significant when you factor your initial RM400,000 to make a cool million even after subtracting the five-year interest of the RM1,600,000 loan. What more if you’re able to rent out the unit? No other investment would give you such returns!
As a plus point, I can also choose to live in my property (unlike intangibles like insurance and stocks), and not to mention the prestige apart from capital appreciation and rental cash.
What I Think
I‘ve probably beaten this old horse to death and back, but for the newer readers of GoodPlace, despite writing Malaysia’s #1 ranking blog on property (ahem), I’m putting my money elsewhere (for now) instead on property.
Why? The reason is pretty simple – I’ve found another mode of investment which makes me more money than property. That’s probably another topic for another day.
What do you think? Leave your comments below.