Wednesday, January 22, 2014
I've heard about these investor clubs but this is the 1st time I've learnt about how they actually work. I mean, I know they are a group of people going in to negotiate block purchases and all that but I must be naive to think that the club owners don't pocket a profit from the deal. It is an acceptable norm when you introduce buyers, the developer pays you a finders fee. However this is a small amount, like 0.5% or up to 2%. But this report today 22nd January 2014 in the Sun's front page suggests that investor clubs negotiate up to 25% discounts, with the club owners pocketing 10% of it.
The report suggests that buyers are typically unaware that only 15% of the 25% discount is passed on to them. I don't understand how this can be done unless the purchase is done en bloc under the investor club's name. Or, the developer pays the club the 10% as a finders fee. I think I really should attend their talk one day and find out.
To get a 15% or 25% discount is really a very big deal. For a RM600k condo, that's a whopping RM150,000!! This sounds hugely unreasonable and I wonder why developers will be able to offer that type of amount in the 1st place. Why give such huge discounts when they can sell to individual buyers off the plan with lower discount? Unless the property is struggling to sell? But why would investor clubs lead their purchasers to buy these type of properties in the 1st place?
Anyway, it is an acceptable norm in business transactions for buyers to gang up to improve their negotiation power. This has happened in centuries. However, in this case, most of the buyers indulge in speculations and end up flipping their purchases with a quick profit.
There are really, in my opinion, 2 kinds of properties...
1. For investments - these are usually high end properties, in CBD areas offered to expats or can also be student dormitories. In my opinion, investing in these type of properties is akin to providing a service because typically expats and students stay in the area or city for just a short 2-3 year period. Therefore, they need to rent instead of buying. I think it is healthy to have a steady increase in prices of such properties in line with demand. This signifies a good investment...
2. For own stay - people who know me knows that I am very against speculating in properties meant for people to live in to raise their families. I have highlighted one such case before where investors or speculators move in to grab as many units of an apartment in PJ only to rent it at high prices or flip it to genuine people who want to make it their home. This is highly unethical. It does not matter whether they are low cost homes in Seri Setia or high end houses at Desa Park City. These are homes, they are not meant to be investment items. Don't play with people's life essentials!
So, in short, it's OK if investor clubs wanna go in and drive up prices of "Investment Properties". It's perfectly good and fine. But to speculate and cause prices of "Family Homes" to escalate... this is not acceptable.