Wednesday 19 February 2014

Can Property Group Purchase Lower Property Price?

There are a  few articles in Sin Chew daily today regarding government's intention to curb property speculation by tackling the so-called property group purchase clubs.

This group purchase club is formed by a few investors usually under a company name. It accumulates its members' money to buy and sell properties to make profit.

Personally I opine that these group purchase activities, which emerge like mushrooms after rain due to many property investment seminars, are one of the main culprit that has resulted in the escalating property price recently.

However, in the newspapers, one famous property "guru" holds the opposite view.

He thinks that property group purchase can actually help to suppress the property price.

The reason given is, in "true" group purchase which can enjoy lower property price, the intention is good, as it is a long term investment that takes care of everybody. It helps its members to own a house at lower price. Whereas some irresponsible people use speculating method to do group purchase, in which they flip the property to make quick profit. This is not the purpose of "true" group purchase.

Do you agree?

It seems like "true" group purchase is to buy property in a group at lower price for own stay and the group will be "dismissed" after every members got their dream homes. Does the team of this famous "guru" just buy for own stay?

I hope I interpret the newspaper report correctly though.

First of all, can group purchase really suppress property price?

It is for sure that group purchasers will get discounted price from the developers, because they buy in bulk, lets say 20 units at one shot. Developers will still launch the project to the public at their own price. So, group purchasers get lower property price does not mean that the property price is lowered!

After launch, property price will increase with time. When a true house buyer or individual investor want to buy the property from group purchaser (as they usually hold the best unit), do you think the group purchaser will sell to them at discounted price? For sure they want to maximize their profit by selling at or above market price. They have to cover various fees & tax in property transaction as well. So, this also does not lower property price as well.

If the developers want to launch another project, they know that they are backed by several group purchaser clubs who can take up lets say 50% of their units for sure. If you are the developers, won't you want to raise the selling price to maximize profit? Does this help to lower property price?

Lastly, what is the definition of a "true" group purchase club? No flipping at all? Buy cheap and sell or rent cheap to you as charity? Or hold long term for capital appreciation? Forget about the group purchase "for own stay" joke.

Even if you hold long term and do not flip at all, you still cause the exaggerated rise in property price as explained above, not the other way.

Anyway, seriously, can you find one group purchaser club that does not want to do property flipping?

Group purchases unconsciously support developers to increase property price and create huge false demand that raise the property price. This is my view.

Another group purchaser interviewed says that they do it with "good heart" or intention, as they only buy land and commercial properties, which will not cause social issues compared to speculating in affordable residential property.

When you "fry" the land price to high level, it will surely increase property price that will be constructed on it. If the commercial property price is high, this means the cost of doing business (rental) is also higher. Is this not a burden to small businesses and their workers?

Actually I'm not against the property group purchase clubs in general. As long as they are not against the law, they are entitled to do what they want. If you are smarter, act quicker, take more risk and do what most people do not dare to do, you are deserved to get your reward.

This is similar to the rich get richer. They got the money to generate more money while having more privileges, discounts & benefits compared to the not-so-rich or poor. Can we stop the rich from getting richer if they are investing their own money wisely?

What I want to show is that when your livelihood is affected or going to be affected, surely you will find all sorts of reasons to support yourself.

It's like when Penang government wanted to ban plastic bags, the head of "plastic bag association" jumped out to protest, clarify and explain.

I think it is unwise & not practical to totally ban group purchaser club, or limit the number of property one can buy or own.

However, there must be a way to reduce the influence of these clubs to the property price. This is the government's job to think about it.

Anyway, group purchasing activities have helped to increase some property stocks' share price!

The full article in Sin Chew here.

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