● 潘树盛  By Roy Phua



　　Asia's all enduring preoccupation with real estate is 

undergoing a reality check as a conse-quence of the economic

crisis. Private residen-tial property prices in Singapore, 

have collapsed by over 45% from its peak in for example, 

1996. The shock and dismay of die-hard real estate believers

is not surprising. For many, however, the rationale that 

underpinned that real estate investment is showing 

surprising flaws. Arguments such as "land is finite" 

persuade in boom years, but are now denounced by some as 

intellectual garbage. The long-term prospects of real estate

investment, while not entirely mis-placed, are subject to 

investment cycles, interest rates and changes in government 

policies, like all other forms of investments. Putting all 

of one's investment eggs in the property basket, as many 

Asians have been inclined to do in recent years, is 

unlikely to hatch a balanced invest-ment strategy. This 

article examines the possi-bilities.



　　Real estate investments are very long term in nature and

possess two important characte-ristics that are often less 

than understood: leverage and illiquidity. These factors 

accen-tuate the capital gains on real estate in boom times 

and magnify the loss on the downturn. If one were to invest 

$200,000 (borrowing $500,000) to purchase a $700,000 

property for example, a simple 10% rise in property price a 

year would translate into about a 21% return on the original

investment, net of interest expense assumed at 5.5% p.a.. 

With that same interest assumption, a 10% fall in property 

price how-ever would translate into a loss of about 48% on 

that same $200,000 investment, the tragic con-sequence of 

leverage working in reverse. The illiquidity of real estate 

is another important factor for consideration. Exiting a 

real estate in-vestment often requires time and patience, 

par-ticularly so in a less favourable environment. The 

average investor needs to consider the sheer amount of the 

financial investment and the uni-queness of each property 

asset. The illiquidity limits the flexibility investors have

when they need to realign their investments in accordance 

with changing market conditions or changes in investment 

needs.



　　The long-term nature of real estate in-vesting requires 

it to be matched with stable, long-term cash flows. 

As
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