Based on the 2nd half 2016 property report, it can be seen that the 18-year property cycle is in tandem with current market trend. The latest real estate data indicates that things may no longer be as rosy as some want us to believe. The boom times are changing. I do worry for those who don’t see it coming — but there are still ways to invest sustainably and profitably.
Don’t wait until the correction comes to your area or niche to try and restructure your portfolio on the fly. Those who stay ahead of the wave should be more than fine. Subscribers of my Property Millionaires Secret Clock book know when they should be aware and to stay ahead of the cycle. Click here to get a free chapter of the book!
Lessons to be learn from the Last Market Crash
Hopefully, many savvy property investors and homeowners have been buying smarter after the last market crash in 1997. They are less leveraged, they have affordable payments, and they have great financial cushions. However, this is certainly not true of everyone. In Malaysia, where household debt now exceeds 80% of GDP as at Q1, 2016 reveals the household debts are still high and is of great concerned. Many have been tempted with easy credit offers over the last couple of years especially in the 2009 till 2014 period and the numerous incentives such as the DIBS scheme and freebies given by the developers. Some have either forgotten the lessons of the last correction — or have been oblivious to them.
When major financial institutions starts credit tightening on the lending of loans for fear of rising consumer debt and to preserve their existing loan portfolio. And like with the last crunch, when interest rates finally go up and when market demand falls and new supply of properties completing coming into the market, with rental rates declining, is when many find they can no longer keep up.
Structure Your Portfolio for Sustainability NOW
It saddens me to think of how tragic this could be for those who have invested poorly. This is especially true for those homeowners and investors who have taken out high LTV loans and the latter with the intention of flipping upon completion for quick money.
Of course, some savvy investors have proven that they cannot only survive tighter times, but that they can consistently thrive in them. They have accomplished this by acquiring smarter long-term rentals, consistently investing in good properties at the right price, and ensuring the numbers will still work in all market phases at the point of purchase. This can mean not buying and betting on appreciation alone or anticipating short flip times in an attempt to beat the market. If you do this, real estate is still the best investment in town. It is reliable and can deliver great returns. After all, we’ll always need housing, and if consumers are not buying, they are renting.
There is still time to shift portfolios for safety and performance away from over-leveraged positions in heated markets to those with more value and sustainability by reviewing your portfolios.