By Property Soul (guest contributor)
23 June 2016 marks the independence of Britain which has voted to leave the European Union (EU). Other European countries are pledging to stand behind the EU. But deep down they are probably guessing which country will be next.
Brexit may start a chain reaction that leads to Frexit, Grexit, Luxexit, Spexit and Swexit. Sorry about my spellings but don’t forget we also have Byegium, Czechout, Finish, Goatia, Italeave, Latervia, Oustria, Portugo and Slovakout.
Perhaps only Remania and Iremand will stay.
A dysfunctional EU versus an unprofitable property investment
Nobody said it better than Cambridge University Professor Christopher Hill who called the previous European Community back in 1993 a ‘capability-expectations gap’ – a gap between what they say they can do and what they can actually deliver.
Jan Zielonka in his book Is the EU Doomed called the EU an ‘embarrassment’ when the promise of prosperity becomes austerity; when an agreement of integration becomes dysfunction; and when the opportunity to overcome a crisis becomes a wasted crisis.
EU members continue to suffer worsening economies, uncontrolled immigration, loss of national identity and an increased threat of terrorism.
Properties bought at the peak of the market in the last few years are similar to the situation of the EU now.There exists a ‘performance-expectations gap’ – a gap between the future prices industry stakeholders predicted and how the actual prices turned out to be; and a gap between the rental return agents said owners can get and the actual rent owners are fetching now.
It is a disappointment when an income source becomes a monthly deficit; and when an asset becomes a burden. Owners continue to suffer in a worsening market, with uncontrolled market supply, financing restrictions and an interest hike threat.
Should I hold or sell?
Back in 2011 to 2013, readers of my blog often asked me questions like:“Is this a good time to buy?”; “Should I go for HDB, Built-to-Order or EC?”; “What do you think about this new launch?”; or “Project A, B and C, which one is a better investment?”
These days my mailbox is flooded with messages from people asking very different questions:
“I bought project xxxxx when it’s launched in 2012. The developer is now offering 15 percent discount. Should I sell now or wait for TOP?”
“The rental return of my unit is lower than expected. With the risks of falling prices and rising interest rates, should I let go if there is a good offer?”
“The currency has depreciated 25 percent since I bought my property in this foreign market. There are talks about market oversupply and further currency depreciation. Should I hold on or cut loss now?”
I am sure that people asking me these questions are not loyal followers of my blog; otherwise, they wouldn’t have ended up in such a dilemma.If only they had read my blog posts written in the last few years and taken the advice from a fellow property investor. And if they have already made up their mind, why do they come back and ask for advice to exit or remain?
Propexit or Propremain?
Whether you choose to hold your properties and remain in the market, or decide to sell your properties and exit the market, it depends on your financial situation, property portfolio and investment strategy.
If you are overcommitted and do not have much holding power, you fit into the profile of a typical ‘Propexiter’. Since you have to deal with your loss making investment sooner or later, before the market goes further south, cut your loss and move on.
If you have bought your properties at good prices and intend to hold them for a long time, keep the faith and optimism to continue as a ‘Propremainer’. It takes courage to embrace uncertainty over certainty. Nonetheless, if you have the holding power, you shouldn’t be afraid of being exposed to the unknown future.
If you are still undecided whether to remain or exit, or to enter or wait and see, the four points below may give you some hints:
- Before you make any investment, always have an exit strategy in place.
- The key to an elegant exit is advance planning.
- In times of uncertainty, there is no safe haven. Cash is king provided that you are holding the right currencies.
- The EU may be doomed, but Europe is not. Properties bought at the last peak may be doomed, but the property market is not.
Have you decided to vote Propremain or Propexit?