Monday, February 6, 2012

Why I Consider REITS Risky

Someone in a comment asked why i consider reits risky. Thought i'll have a blogpost on this.

REITS investors have been making $$ from the frickin killer rent that's killing businesses. Evidence have been around for people to see. Is only recently in past couple of days it 'finally' surface in print media - which means is very serious already.

There is a limit how much rental increases a business can absorb in the manipulated property market here. Situation here has become like a house of cards that's gonna collapse soon. Subprime crisis that started in America is still fresh among most people's minds. When people lost their jobs they can't make mortgage payments. A chain reaction ensues that erupted into the worst financial crisis since depression.

When people lose jobs when businesses are killed by killer rents, the same scenario will happen in S'pore. Thus i consider REITS & business with major exposure to property risky. Killer rent is making businesses uncompetitive. More & more people are buying stuff online to avoid killer rent & gst. Some online retailers that pack a wallop are:
  • gmarket
  • dealextreme
  • alibaba express (i didn't try before)
  • chainreactioncycles (mass order with other buyers)
  • ebay
How are businesses going to survive & sustain rent payment when people are flocking online for cheaper alternatives & don't mind a few days wait?

In addition to the above mentioned online retailers other bleak signs are:

- stagnating salaries among many people
- Even Starbucks is feeling the heat from the killer rent
- Pawnshops growing like weeds (financial distress)
- More in revolving credit card debt
- Closing down of bridal shops
- Closing down of bookstores (Harris, Popular, PageOne, Clementi bkstores etc)

CapitaMalls Asia went public at $2.12 in late 2009. After a short burst of initial euphoria is like a man diving without a chute. Since there's more & more people buying & consuming stuff at malls + killer rents, how come the stock price is collapsing? Perhaps the IPO price is for suckers to buy who are fooled by the nice 'story' in the prospectus.

The 1st ominous sign of killer rent i notice was 50% shops(half a regular shop) in the heartlands many years ago. With 80-85% of people living in flats the evidence is already staring at us in the face. Right now the house of cards are supported by cheap foreign labor. All this led me to conclude the REITs party will not go on for long.


  1. Hi Xianlong,

    Just curious, are you planning to be around when the house of cards collapse?

    Cheers, WD.

    1. Hi Winking Doll,
      Yes still around- got parents. My exposure won't be big since i've no intention to flush cpf $ down the toilet buying property here.