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What Property Investors Can Learn From Stocks

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Mark Laudi, journalist and broadcaster of CNBC Asia, shares five succinct points that property investors can take from the stock market where pertinent questions rarely get asked. Just as how important the management is in stocks, so is the developer in any property development. Knowledge of the developer and its reputation is important, before and not after you’ve bought the property.

An irony where even stock brokers have made their money in the property market but not widely propagated!

Mark Laudi, journalist and broadcaster of CNBC Asia, shares five succinct points that property investors can take from the stock market where pertinent questions rarely get asked.

Management

Just as how important the management is in stocks, so is the developer in any property development. Knowledge of the developer and its reputation is important, before and not after you’ve bought the property. While things like leaking ceilings or poor structural works sometimes do happen even to good developers, finding out its reputation would at least reveal the nature of the developer whether he is building a good quality property. The internet, annual reports are good sources to find out if there are ongoing litigations. “Are they being sued, by whom and over what issue? These are revealed in the annual reports.”

Cash Flow

“In the words of the accountants themselves, profit is opinion. Cash is fact.” With cash you can do many things with it. You can spend, invest and buy other companies, land, high quality fittings in the property development or hire better engineers. It is also interesting to note the fine print of how figures are immediately booked, especially profit. For example, the increased profit is derived out of a revaluation of the building owned yet in reality, not a single extra cent of cash is deposited in the bank.

“You’ll be surprised too just how many companies reported profit but are burning cash. “So whenever you hear people rave on the TV about profit, ignore it.” Apart from the cash flow for the property investment, while location does not concern the stock market, it is critical where the developments are concerned and that artist impressions of highways, lakes and etc may often not be accurate. Take a drive out there and see for yourself.

“Highways may not exactly be located right next to the development as many would claim to be.”

Book Value

Just as in the stock market, you don’t just want to know what the price is in the property market, as “the value is really the important part. Price is what you pay, value is what you get.” So in buying a property, find out who did the valuation, the process, what the valuation is, and whether the price that is being asked for is fair, relative to that valuation. “If you are a seller of properties, you also want to know what the valuation is, is your asking price too high or too low?”

“See yield in the property market exactly as it is in the stock market – an ongoing valuation of the property, above and beyond the book value.”

Yield

“See yield in the property market exactly as it is in the stock market – an ongoing valuation of the property, above and beyond the book value.” Rental income is in a sense a form of ongoing valuation and if you know what the rental yield is, you can also work out very easily what the valuation should be. The yield would be a good indicator as to whether rents should be increased to be in line with the current yield or if the property is overvalued.

The Outlook

“Remember, every purchasing decision and investment position you make, is about investing into the future.” Better a company that tells you the truth albeit a negative one rather than a sugar coated statement, and more importantly, the statement has to be specific, not another vague statement that doesn’t tell people anything.

Presented during the Property and Investors Alliance Exhibition Conference 2010.