Real Estate: Consider Selling If Profit = 100% or More
Zeppelin Real Estate Analysis Limited
on published data and media reports, the Hong Kong real estate market in
particular the residential market has entered into a sort of tug of war
phase, with prices going up for some sectors and properties, while a few
have even seen a bit of downward adjustments. Industry people and
professionals also hold different views with some expecting prices to
continue upwards, while others forecasting prices to be more or less
flat in the near future. Overall, the residential market has picked up
around 40% since last year from the trough, though the distribution is
not even, and certain luxury residential properties have reportedly seen
price appreciation of around100%.
author has several friends and clients who had shrewdly invested in
properties last year during the trough and thus are now faced with the
dilemma of whether to continue holding or to sell cashing in. This relates
not only to market dynamics but also one”¦s investment parameters /
preferences including such items as return expectation and risk tolerance.
What suits investor A may not suit investor B. Nonetheless, given all things
being equal, perhaps investors who have already made great gains (such as
100% profit or more within a year) may contemplate selling, if not in whole
at least in part. Here is the rationale:
Not easy to
make or to have 100% profit or more within 1 year
= even if one has access to many global investment opportunities, and even
the well-known investment gurus do not make 100% return or more year after
year. This is NOT saying that we expect prices to go down yet for those who
have already made such tremendous gains, and in particular if the portfolio
is highly leveraged, it seems sensible to consider selling portions if not
all of the portfolio.
twice as much resources to produce (induce) the 2nd 100% profit
as it has done for the 1st 100%
= let”¦s say a residential unit has already doubled from an original price of
HK$10M to HK$20M, and for this unit to double a 2nd time from
HK$20M to HK$40M, the resources required would be HK$20M (HK$40M-20M) versus
the 1st round of HK$10M (HK$20M-10M). In short, one needs to
double the effort to achieve the same result.
= assume a property will eventually quadruple in prices from HK$10M to
HK$40M and all things being equal, the risks involved with the first HK$10M
gain (from HK$10M to 20M) are generally lower than that related to the last
HK$10M gain (from HK$30M to 40M). This is to say from a ”„return to risk”¦
ratio perspective, the last HK$10M brings the least attractive ratio.
transactions take time
= while stocks can be traded instantly as market news arise, real estate
transactions are seldom as instant, and the lag may be in terms of months or
weeks, or at the very least days. This is also why most real estate sellers
apparently seem to lag behind the market (especially when it is going down),
and in turn this implies vendors need to have sufficient guts to ask for a
lower than generally expected price in order to sell quickly in a down
market = yet not everyone can do that observably.
investors who had already made great gains may consider selling portions of
their real estate portfolios, in particular those portions with lack luster
/ below market rental yields, after careful deliberation with related /
their investment counsels.
The article and/or content contained herein are for general reference only
and are not meant to substitute for proper professional advice and/or due
diligence. The author(s) and Zeppelin, including its staff, associates,
consultants, executives and the like do not accept any responsibility or
liability for losses, damages, claims and the like arising out of the use or
reference to the content contained herein.
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