As I was reviewing the queries that I have been getting via our DealMatcher service, I noticed that the questions I get from home buyers can typically be grouped into the following:
- Fair pricing, i.e. “Is Villa Mont Kiara worth the RM6,000,000 asking price? Or do I have the word SUCKER imprinted on my forehead?”
- The “hotness” of an area, i.e. “Is Bangsar South hot, or just a fancy rebranding of the Slums Of Kampung Kerinchi?”
- Timing, i.e. “I’ve been considering Iskandar for some time now. Is this a good time to buy? How much will the price go up next hour/day/week/month/year/decade?”
- Dirt-digging, i.e. “I heard Scumbag is a real scumbag in this business. Is it true?”
- Nosey questions, i.e. “How does GoodPlace make money, Khai Yin!?”
I’ve already adequately addressed property pricing in our freebie downloadable guide as well as in this blog post. Also, guides on area prospecting can be found here and here. And as for the nosey dirt-digging, stop treating GoodPlace as a gossip blog plz!
I’ve never really talked about how to time the market, and I’m in super good mood today (I’m breaking records again this month) and so I thought I’d dish out a guide on this very popular topic.
And if you’ve been reading GoodPlace for long, then you’ll know that I like to take the mickey out of pseudo “Gurus” who make a living NOT by buying and selling properties, but by teaching people how to make money by buying and selling properties. And so I decided to send an email to a rather well known Guru and solicit his (her?) feedback about how to time the property market.
As you can see below, I used my “real” Gmail account i.e. I did NOT pretend to be someone else. Also, the email subject should be a dead giveaway that I was trolling but the Guru didn’t seem to notice…
That, ladies and gentleman, is the best ever non-answer that I have gotten from people who make careers out of bullshitting the masses: real estate gurus, MLM scam artists, slimy politicians. The degree of bollockery displayed in that email reply is almost unreal.
Another popular piece of Gooberu advice is to “buy low and sell high“. That’s almost as meaningless as it’s stupid. Do you know anyone who deliberately buys high and sell low as a strategy!?
Timing The Market: What Really Works
Enough of Guru bashing already; now let’s get into the serious stuff. But first let me get this straight with you – this short guide ain’t gonna turn you into a Property Market Timing Ninja Grandmaster. But if you’ve been wondering what the experts do to know what’s the best time to enter and exit the property market then these are the steps that they take.
Like every other guides you find here on GoodPlace.my, use this as a starting point and then develop your own method around it. Nobody’s gonna spoon feed ya… certainly not me. 🙂
And so I’ve been hanging out with investor extraordinaire Lanky Ari a lot lately at Komugi at Main Place, USJ (read the back story on how I met this chappie), and last Thursday afternoon, between sips of black coffee and gobs of mille crepe I managed to sucker him into telling me his insider Ninja level knowledge, darkest secrets, shady shit that he had done over the years, etc.
And after much coaxing and some blackmail, he reluctantly shared with me his Super Top Secret System which he used to reliably time the property market and make most of his filthy lucre –
Lanky Ari’s Three (3) Step Market Timing Turbo® Expert Predictor Master System Pro™ (As Sold By Gurus For $9,997.97)
- STEP 1: Learn about property cycles.
- STEP 2: Plug in the data.
- STEP 3: Make a guess.
Wot, a guess?
“Yes, you make an educated guess,” Ari told me. “Of course, whether you can make a good guess or not depends on how good your data set is. But first, understand this. Everyone guesses because no one knows for sure. At any given time, nobody has got a perfect knowledge of the market. Not you, not me, not Donald Trump, and certainly not those suit-up pundits on TV. Nobody!
“Look here man. We are all taking shots in the dark here, and that’s the truth! But whoever who has got a good understanding of property cycles will have an edge over the others. And trust me, not many people bother to learn how to do this properly. And they wonder why they suck!”
STEP 1(a): Understand The Property Cycles Theory
There are some good books out there which covers the theory of “property cycles” (or in some circles, the “market clock“), but what I’ve written below is a practical, abridged version which might just be all that you need, really. No need to spend lots of time reading on academic stuff that has got little to no resemblance to the real world.
To understand about property cycles, you first need to know how supply and demand varies over time for a particular project or area. Take a look at the diagram below which shows the supply and demand levels as a function of time for a project (or a cluster of properties in a defined area).
As pricing is a function of supply and demand, you will see how pricing typically evolves over time just by gauging the levels of supply vs demand.
Common folks usually would decide on their buy/sell decisions mainly on the current property prices. This is a rather unsophisticated approach since as the theory goes, price is a laggard indicator, which means that it’s a result of the supply-demand dynamics in the immediate past. And as such, the savvier investors investigate the supply-demand dynamics in the property cycle and make their decisions based on the PROJECTED price movements in the FUTURE.
Now let’s look at the property cycle in more detail. A typical property would go through three distinct phase in its lifespan:-
- Phase A: Launch. Assuming that the developer has done its homework, a launch will precipitate demand which then rises as awareness spreads. As take-up increases, supply dips.
- Phase B: Peak. At the inflexion point where demand exceeds supply as take-up continue to increase with limited supply into the area. However, as the area continues to be “hot”, new projects are pipelined into the area, causing supply to increase again. Demand will peak and possibly spill over to new, adjacent areas, causing another inflexion point.
- Phase C: Decline. At the point where supply increases with the plateuing of take up rates (or migration of tenants to other areas) with limited or declining demand, prices are typically stagnant or go downhill.
Now with the right model, how do you use it to pinpoint the right moment to buy or to sell? Continue reading…
STEP 1(b): Figure Out The “Right” Entry /Exit Points
The sub-sale cycle typically picks up in the middle of Phase A, and if the area is “hot” then there’s some exuberance in pricing which should be ridden out by the time the phase B inflexion point is reached. See the scribbles in the property cycle chart below.
Now ideally you should be buying near the points where supply is maximized and demand is minimized (which should then “suppress” prices to a more sensible level post the sub-sale exuberance stage). Note that this is also the point where the “buzz” around the property is already tapering off, and in many cases, transactional volume is also on a downward trend. This is the start of the buyer’s market, and should give any serious buyer much leverage and opportunities to bargain downwards.
And since pricing can lag the fundamentals for even months sometimes (remember that property is an illiquid form of investment) there are Ninja-level investors who exploit this “phenomenon” to push as far as it gets in order to maximize profits. Of course, everyone’s comfort and risk level is different, and you’d be well advised to establish your limits and be disciplined enough to pull the plug right before the proverbial shit hits the fan. 😉
Note the “Last Exit Point” indicator in the chart above. This is the start of the period of decline where supply would then greatly exceed demand (developers keep piling up projects in the area, sub sale market getting flooded with stock, buyers and tenants moving away to spillover areas where prices are lower, etc).
Prices DO NOT immediately crash however (unless there’s an overriding situation like a national wide property bubble), and the severity of pricing correction depends on a myriad of factors as well – most importantly how “elastic” the prices are in the area (for example, upmarket properties like KLCC condominiums do not display the same elasticity as, say, apartments in PJ).
STEP 2: Plug In The Data
This framework is simple enough for anyone to understand, but the data is where the secret sauce is. Think about it – without good data inputs even best theory in the world is as useless as a condom machine in Vatican city. Like it or not, property investment is the number cruncher’s domain, and whoever who has got the most timely, accurate data wins. (Don’t believe anyone good at this game that s/he buys and sells based on gut, and gut alone).
First of all, you need to define the boundary of the area to be analyzed. The trick here is to balance between being too broad and too granular. In the Mont Kiara Buyer Guide, I segmentized Mont Kiara into four zones: Central, West, East and Dutamas (or North). Similarly, KLCC can be clustered into Hampshire, Kia Peng, Binjai / Stonor, P Ramlee, Jalan Ampang and so on.
Estimating Supply Levels
Once you have defined the area boundary, then do a quick list of all the properties within the boundary that you have defined. Now figure out the supply levels using this simple formula:-
TOTAL SUPPLY = (1) SUB-SALE + (2) NEW LAUNCHES
Sub-sale data can be found (or mined) simply by looking at listings at property classifieds sites. Tedious, but can be done; in fact, I’ve previously published a guide on exactly how to do this here. New launches, on the other hand, can be tricky and requires a little more research and legwork.
You can be aware of new projects by visiting the area and then getting the information you need (typically number of units) from the developer’s brochures or website. We here at GoodPlace.my are building up a database of new launches for the Klang Valley, and am kicking off the project for KL city launches at our sister website KLCCcondominiums.com.my – check it out here.
Estimating Demand Levels
Compared to supply, estimation of demand levels is often trickier. One of the first places I go to when I want to estimate buyer interest is to go to PropWall.com. You can do a search of the property of choice and check the number of views that the ads have gotten over time.
The good thing about PropWall is that the listings are seldom (never?) deleted, which means that you can do a nice historical plot of the demand levels over time. For your information only, a search for Setia Walk returned some 1,821 listings with the oldest dated back to October 2012.
Now there’s something a little more sophisticated (and accurate) when it comes to estimating demand, which is to put up a paid campaign on Google Adwords. The idea is pretty simple – if you’re familar with Adwords, of course. Set up a campaign, bid on a couple of keywords and you’ll be able to know the number of searches done on Google for that particular property.
Here’s the campaign that I set up to check the demand levels for Mont Kiara condominiums (look at the impressions column for estimation of search volume) –
The trick here is, of course, to bid high enough so that your ads get shown. (For perspective, Mont Kiara keywords typically needed minimum bids of RM2 per click to get shown, but you’ll usually pay less if you know what you’re doing.) If you’re interested to use this method to estimate buyer demand and all this sounds gibberish to you, just get in touch and I’ll be happy to explain further.
Alternative Sources Of Data
Additionally, look out for supply data in newspapers like The Edge – sometimes they have got really nice research published by the boutique agencies which often have kickass research departments (I’m lookin’ at ya, Zerin Properties). Be sure to watch out for The Edge’s quarterly property market watch (by area) which has got useful numbers on prices and supply levels.
Of course, I cannot over-emphasize the need to get a good agent (from a branded agency) to be in your team – much of the “work” in this guide can be made simple if you’ve got a good agent working to bring you deals and help fill up your data sheets. Read this guide to learn how to find an agent which fits your bill.
STEP 3: Make A Guess
Once you have collected a good sample, then plot the whole shebang using your favourite spreadsheet program. If you’ve not missed out anything, then you should see a familiar curve like what you see here in this chart below (thanks Ari!) –
I understand that most home buyers would probably not have access to the level of data that me or Ari has, but as any data geek (i.e. me) will tell you, always take enough samples or the patterns won’t be immediately recognizable. If you’ve collected enough data points then the “buy” and “sell” signals should be clear as day to you like the teeth marks of an Uruguayan on an Italian’s shoulder. 😉
So there you go – a no-nonsense, comprehensive and practical guide on how to time the property market which you don’t have to pay a dime for. And I’ll dare to wager that it’s better than any Guru crap that you’ll need to pay RM997 for.
But if you’ve read everything I wrote above you’ll realize that there’s shit-ton of work involved also, which is a GOOD thing, because it keeps the lazy turds and investor wannabes out of the game. Remember – the less people know (and do something) about this stuff then the better it is for the rest of us. 😉
Of course, an “easier” way would probably be to get in touch with me through the DealMatcher and get me to do the legwork for you. But look, while I’m always happy to help home buyers, there’s only one of me right now, and the best way for me to help more home buyers is to publish more of these guides here on this blog so that people can do this stuff for themselves. Unless, of course, I close a RM20,000,000 Series A round which then means that I can hire a bunch of Mini-Me’s to run the show while I go yachting with Paris Hilton in the Aegean Sea. Hint. Hint.