The Most Important Theory In Real Estate
[Full Disclosure: I’m a licensed real estate salesperson with PropNex. Updating and maintaining this blog helps me condense and express my thoughts about the real estate scene in Singapore. Hope you enjoy the read! Feel free to ask me any question here, or drop me a DM on Facebook.]
Some of the most respected individuals of all time were theorists. Aristotle? Plato? The Enlightenment thinkers? Freud? Marx? They were all theorists in their respective fields. What we take for granted as ‘manifestos’ or ‘rules’ or even ‘manuscripts’ are, in fact, the dumping grounds for their brilliant thoughts. Their theories were formulated after lengthy observation and reflection of their own experiences. And we look up to them even long after their passing, because in their words, we find authority and truth.
Theories: The Truth, or Someone’s Truth?
Today, there are theories floating around just about anything. And by anything, I mean everything. There are natural rules and clearly defined patterns to describe anything from schoolwork to the temperature of our earth, to dating, to hair care, to our bank accounts. Eat this and your skin will turn that. Touch this and never see that again. If you text him this, I guarantee you, you’ll get a response and an invitation to a dinner date in exactly 5 hours. Buy this precious metal and forget about the rest; this year is all about (said precious metal).
But theories are not foolproof. Take the insane dip in oil price that occurred earlier this year for an example. Katherine Dunn reports on fortune.com that on April 20th, 2020, crude oil prices dropped to below negative for the first time ever in history. Major oil titans were actually losing money, as they were producing oil that no one needed or wanted. So, in theory, the monumental drop in fuel prices as documented in the charts must have caused a substantial tank in prices around the world, right? But no. In Singapore, fuel prices remained roughly the same — a stark contrast from the grim conditions on the other side of the world. This is because main market players Esso, Shell, and SPC monopolise the market and set the eventual price of the fuel without regards to the real-time conditions in other countries. In this example, we already see fissures in what seems to be airtight theories based on trends and truths.
Theories in Real Estate: Are They Relevant?
It is highly probable that there are more theories about the real estate market than there are real estate properties themselves. Like other investment products, many self-proclaimed gurus and coaches emerge from the woods to teach people how to invest in properties, flip properties, or even enter the business as a realtor. One example of a popular theory in real estate is the importance of the property’s proximity to amenities, the local transportation network, and good schools. This seems like a no-brainer: with everything at your fingertips, the property is, without a doubt, highly coveted and a deal to be sealed.
However, having helped clients from all walks of life with their real estate needs for more than a decade, I beg to differ. There is an abundance of such properties, but their prices remain stagnant from the first day they were put on the market. On the other hand, some properties enter the market at an unremarkable price and slowly appreciate as years go by. How is this possible?
These phenomena defy theory, but this is, in fact, the rule and not the exception. My honest opinion is that while there are truths to certain property-buying tips and tricks, it is more important to conduct due diligence and understand every property within its individual context. Real estate is closely tied to the local socio-economic-political environment. There are too many factors in flux to consider when buying a property. No theory can be the be-all-end-all for your real estate investment journey. Properties that look good on paper do not necessarily equate to high demand in the future.
Marketing is half the job of a real estate developer or realtor. They (myself included) want you to buy/rent the property. And to do so, we have to make the house as attractive as it can be. Therefore, it is all the more important to resist the temptation to buy whatever property that checks your boxes, particularly if you wish to resell your property in the future. This is commonly found in the Singaporean real estate market: because the culture places home ownership on a pedestal, many buyers neglect important aspects pertaining to the environment and local development that their property is located in. As a result, they miss out on substantial profit when they eventually resell the property. Your standards need to be much higher than simply being close to a MRT station!
If You Only Follow One Theory, It’s This One
It’s probably ironic, but I do support a theory that supports all theories when it comes to real estate investing: the value of a property is determined by the demand of the local market, its affordability for future buyers, and whether or not there are provisions for a quantum leap. In brief, a quantum leap occurs when the value of the property rises significantly above its selling price. To learn about this in greater depth, visit this article, where I talk about how you should choose your next investment property.
Final Thoughts
In summary, be wary of any grand theories that reduce the real estate investing process into one or two simple criteria. The real estate market is rich, dynamic, and constantly in evolution. If you want to be a winner in the game, be inquisitive and cautious. Ask the right questions and make sure that you are as informed as possible.
Want to debunk a popular real estate myth, or simply interested in a slice of the real estate market in Singapore? I welcome any enquiries and interesting conversation; please feel free to reach out to me at +65 84845484 or thomastongs@gmail.com. You can also receive real estate advice from me via Facebook and Instagram.
