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Originally Posted by anoldanalyst
Dear Whizzard, it very much seems like you and I are in the same boat.... and facing the same challenges.
On physical property versus REITS: They are similar in that they provide both capital appreciation and high yield. They are different in that the industrial/office/commercial property cycle is different from the residential property cycle and REITS through have generally higher yield than most property except HDB. I find that the physical property cycle can be just as volatile as property stocks (including REITs although REITS moved in a single direction for a long time). However, there are two differences: Property stocks can have several cycles within a single property cycle because they are affected by external events, while physical property can go into a plateau for a long time and are less senstive to external events. The other factor is that the bank is happy to lend you 80% against physical property but not REITS. Investing in both asset classes provides diversification even though both are property.
I find the Office REIT sector (say CCT, Suntec etc) near bottom in that office rentals (which drive capital values) are at a bottom. By 2013+ rentals should have recovered, capital values as well, leverage for these office REITS will be very low and they will be acquiring. Debt driven acquisitions and higher rentals will significantly boost DPU. Currently office REITS already give you 7% yield.
On the other side, residential property is IMHO in a bubble, while yields are around 3%, which is the same before the big 1997 property crash. Singapore's "global city" changes may sustain these prices, which are approaching or have exceeded the major cities in the world. IMHO the only reason to go in now is the 80% leverage you can get from the bank, but leverage is risk and leveraging to buy assets which are in a bubble can be disaster. Will address some of your other comments later. |
Would you be looking at REITs then? I have added some to my portfolio last year and they have appreciated nicely. Am very, very tempted to take profit (50% capital appreciation equates to 6.25 years of 8% annualised yield which is really tempting for me to take upfront) but looking at the yields (vs what I paid for them), seems a bit of a waste to unload these good positions now and it would be difficult to get them back at those levels again. Then again, I told myself not to get sentimental over stocks. Take the profits, hold cash and wait for a correction to get back in. It's a lot of hard work though and means staying on my toes all the time and reading the markets, which I may not have the luxury to do so.
Hmmm ... money off the table is absolutely safe whilst those in the game can be lost - that's something I learnt when I found myself in the casino in Resorts World Sentosa (courtesy of my friends from overseas) for the 1st time earlier this month. Had a good run and made some money in baccarat (which requires luck and bet management rather than skills - my type of game since I am not the gambling sort), decided not to be greedy about making more and cashed my chips. There were 5 of us; 2 donated a few thousand each, 1 broke even, I was up and 1 was down but went back in the next day and according to him, managed to walk away with some money. That weekend, I took my wife to Les Amis for a nice dinner with a nice bottle of bordeaux, courtesy of the casino and it felt good! But, I am not visiting the casino again anytime soon! It was all pure luck and I was a lucky dude that night.
And with that in mind, I just unloaded my Keppel Land today and it closed even higher but, no regrets ... I have more than doubled my money on it! I am tempted to do likewise for the rest which are in the money (still mulling over what to do with those in the red) and just take my profits and cash up but money is still chasing stocks though - the retracements have been muted thus far. Morgan Stanley noted that the Asian markets saw an inflow of USD83 bil last year although they also noted that the rate of out performance vs earnings estimates has dropped for the 1st time in 1Q10 vs the previous few quarters in 2009.
On physical residential properties, I am also a bit concerned and agree with you that the upside is probably looking limited. Since what I have are all already funded by capital, I guess I am more prepared to ride out the cycles but to add another to it, likely not at this stage, though I may be tempted to do some switching. My own basis for investing in real properties is my own cash position and my reading of the stage of the property cycle, so that even if my read of the property cycle is wrong, I don't get shaken out that easily. I know its conservative and if I was a fund manager, I would be severely under-performing due to sub-optimal utilisation of leverage, but safety is my paramount concern. My life would probably not change much if I were to make a million or two from a few trades but I will seriously need to downgrade my lifestyle if I were to get it wrong and lose a few million.
Good exchange of ideas and experience. Stay cool!