Learning From Ancient Wisdom For Property Investment

In our search for guiding principles to help our clients profit from the real estate market, we discovered an ancient proverb – the wisdom of which we are still uncovering until today. It has survived since the Warring State Period, about 2300 years and therefore, there must be gems of truth in it.

The proverb in Chinese is 天时地利人和.

Purportedly crafted by Mencius, the great sage, it was initially applied as a military strategy in the battlefield and subsequently as an operational principle for the agrarian economy. Both applications bear some similar bearings for property investments. 

Let me share my interpretation of this proverb and how it may be used to enhance your returns on property investment.

天 (Tien). To me Tien represents the mandate of our Creator. He has given us more than enough opportunities at any point in time and He wants us to be successful by capitalizing on it.

Why is this principle the starting point of property investment? The logic is simple.

If you do not believe there are opportunities in property investment or if you somehow believe you cannot profit from it, how can you be successful in your investment?

Property investment begins with the right investment mindset and not the investment model. How you see the future of your investment will oftentimes determine what the future of your investment will be to you.

æ—¶ (Shi). This does not refer to time but to timing. While you cannot control time, you can certainly manage the timing of your investment.

For example, you can arbitrage on the cycles of two property segments. The downward trend of one segment can be the upward trend of another.

Take the case of high-end condominiums. In recent times, their prices have appreciated comparatively lower than many other residential segments.

If our foreign-talent pool is projected to increase, the two trends may be converging to support an uptrend in capital and rental returns. The question you need to then pose yourself is, When should you time your investment in the near future?

地 (Di). This principle is different from the off-quoted, ‘Location, Location, Location’. It is simplistic to believe location alone can justify an investment.

If you buy a property in the best location for a high price, you may not be able to enjoy a profit in the short to medium term. However, if you buy a property in a less sought after location but at a low price, you may be able to reap a better profit, especially in Singapore where there are hardly any slums or deserted areas.

 To use a phrase that is familiar to investors with a western mindset, Di refers to being at the right place at the right time.

The fundamentals underpinning an increase in property prices are reasonably predictable. There is a strong correlation between proximity of properties to desirable facilities such as MRT stations, business hubs, and ‘branded’ schools and higher capital gains.

However, as a result of the imperfect market, even after plans for such facilities are publicly announced, there is generally a lag time in the increase of the prices. First-mover investors can enjoy better picks and ride on uptrend of the property prices.

利 (Li). Li refers to values and not prices. One of the keys to remember in property investment is not to fall in love with the property but with the number.

In other words, diligently work through the numbers for evaluating profitability of the investment. Do not be led astray by your emotional attachment to the property. The head must rule the heart.

There are essentially four ways to profit from a property. You can look for underpriced properties, undervalued properties, or lower the costs in property investments. These three ways are usually within the radar screen of mainstream investors.

The fourth way is a less beaten track and that is to value-add on a targeted property, There are virtually unlimited ways to do so, including improving the property in terms of its use and usages, feel and features, furniture and fixtures, tenants and tenancy agreements, and additions and alterations.

The focus is to minimize today’s purchase price and maximize tomorrow’s selling price through creative value-additions. To do so, you need to look at the property not for what it is but what it can become.

人 (Ren). Property investment is a team sport. The nett worth of your investment is determined by your network of property advisors.

Merely having a team is not good enough. T.E.A.M. to me does not stand for Together, Everybody Achieves More. It should stand for Teams that are Effective Achieve More.

Do not follow the crowd, including those who claim to be experienced property investors. After you have done your sums, you need to rise above the noise and be brave enough to zig when other investors zag.

Metaphorically speaking, you need to enroll the right advisors in your dragon boat and remove the wrong people from it. You need to develop systems to synergise with and leverage on each other to outperform your competitors and win the race.

和 (He). He refers to the need to integrate the above principles and ensure a balanced and harmonious approach in property investment.

To investors with a western mindset, they may ‘see a world in a grain of sand’ (William Blake). The Oriental approach is inclined to explore the world and see how the grain of sand fits into it.

In other words, every principle cannot be applied on a stand-alone basis. It must be applied in conjunction with the other principles and within the context of the investment universe.

Case in point, just because you believe the timing for investing in a property is right does not mean that you do not need inputs from your property advisors.

Without ruffling the feathers of purists in Chinese literature, if I may be allowed to change this proverb, I would like to add two words to it, 行动 (Xing Dong) which means action.

The difference between successful property investors and unsuccessful or less successful ones very often boils down to one word – action. After they have justified their investment, successful investors take massive action to invest and profit from their property portfolio.

The forces of the property market are converging to a beautiful season for planting your seeds in property investment. It’s time to take action.