Real estate investment tips & strategies from Hong Kong property investment - Understanding macro-economics messages can bring you tremendous return in property investment

Real estate investment or property investment is not as easy as one perceives. There are a lot of real estate investment tips and strategies learnt from Hong Kong property investment history:

• It is easy to make money from a bull market on real estate investment. The question is how to determine if this is a bull market. Learning from Hong Kong property investment, the key on property investment is still the money flow. Of course, political situation, government policies and economic conditions also play an important role.
• For the years 2003 to 2007, the worldwide property appreciation was triggered by expansionary monetary policy of global economies. Too much money is looking for assets to invest... In 2008, the deleveraging of commercial and investment banks quickly dried up the money and credit market.
• Timing is of course important in real estate investment. If you buy properties in Hong Kong any time between 1982 and 1993, you will make a fortune selling before July 1997. The most important thing is when to sell. Therefore it does not really matter if you can buy a short term bottom. In fact no one knows the bottom.
• Contrarian theory applies perfectly in the real estate market. You sell when everybody is optimistic. You buy when everyone sells. Dare you or dare you not...
• Leverage is a two-edged sword. You can make a fortune if it is a bull market and properties appreciate. You can go broke if you own highly leveraged properties that depreciate and are illiquid having no rental yield.
• Liquidity of a property is of utmost importance. Location and quality plays a key part enabling liquidity. Please remember that buying a property is easy and find a buyer to sell at a higher price is relatively much more difficult.
• The liquidity can be determined by the number of transactions per year divided by total properties in a particular area. In Hong Kong, 5% - 10% turnover is already high for most residential real estates in strong years. The commercial properties can be even much lower...
• Property market is a macro-market, that is, last transactions affect the valuation of the property market. When a market trying to reverse, the first thing to note is that the transaction volume dies down quickly. The price will still stand when sellers do not stop loss (or take profit). As there are holding costs for properties, such as, mortgage interest, management fee, repair and maintenance... Speculators (particular vacated properties) will be the one to stop loss first and prices spiral down. Transactions become thinner when buyers scare away further. Remember property price will not fall until people stop loss or take profit. If people is confident about the futures, so long as people continue to pay mortgage, there will be no margin call even though property valuation is lower than market price!
• Be careful, when you see that the vacancy rate in your area is high. There may be quite a lot of speculators (not real demand) in your area. They are the first to compete for buyers and your property is relatively illiquid. Do shy away from those locations that you may see massive redundancy, say Silicon Valley in year 2001, areas next to car factories now...
• Interest rate is not a determining factor for property price. For example, the interest rate in Hong Kong during 1995 to 1997 could be as high as 8% to 10% and the price still climbed up. Whereas the rate could be as low as 2.5% in 2003 but the price continued to drop.
• The consumer sentiment can mean a lot. The demand can die down quickly should people lose confidence or bearish on job security.
• You should maintain adequate cash or secured income to prepare for the worse. The Hong Kong experience taught us that the winter can be as long as 7 years!

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