Crypto is a form of unregulated asset which can help you profit if you make the right bets. Here is how you can relate it to your property portfolio.
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Unless you been living under a rock, you would have heard of cryptocurrency and its rising popularity especially amongst the younger generation. In 2021, it has seemed to gain a lot of worldwide acceptance.
This new form of asset has apparently minted a lot of millionaires and looks set to grow further.
On a personal level, I have been involved in this since 2016. I do have some portfolio that I built over the years in some of the stable coins. For me, it is a form of diversification.
I also have shared some of my knowledge on this topic with a few friends and I am happy to see some of them who took my advice has benefited.
I do not claim to be an expert on this – I am merely sharing my thoughts.
But as someone who has been in the financial industry my entire adult life, I do have some observations on this form of investment.
Crypto is a form of unregulated asset which can help you profit if you make the right bets.
Here is how you can relate it to your property portfolio.
#1: Both require some research, knowledge and understanding of how it works
There are a lot of cryptocurrency courses available online. Some are legit, some not so. It comes with the territory of being part of an unregulated industry.
But those who are willing to spend some time learning and understanding things like blockchain, DEFI and smart contracts will be able to benefit and reap the rewards.
Similarly for the property market:
Understanding what goes on on the ground by communicating regularly with buyers and sellers
Observing what the developers are doing
Analyzing the policymakers directions
are essential in order to capture the best opportunities available.
#2: Both have risk of losses. 1 is very volatile, the other one less so.
Cryptocurrency is volatile. It is not just about the roller coaster prices that changes according to the whim and feelings of the bag holders.
Exchanges can be hacked and your coins are stolen – leaving you with nothing.
A property is a physical asset that remains standing as long as you service your monthly mortgage. You can touch it and you can sell it away. It is as real as physical gold.
It is not liquid but it works as form of asset where you can safely park your monies with no worries. Losses happen if you pick the wrong property choice but it will never go to zero.
In Singapore, the system is designed to keep property prices stable.
#3: Both can make you better returns and help you hedge against inflation.
One of the main reasons I delved into cryptocurrency was it seemed like a better choice than keeping cash in the bank.
One of the effects of this pandemic is the rising inflation that has crept into our everyday lives.
To see the value of your money being eroded and being able to buy less and less – it is painful.
And the best way to hedge against this is to park our monies in investments that can provide returns that are higher than the inflation rate.
With the right property choice, you can make returns that are better than the CPF OA interest rate of 2.5%. I’ve seen properties that has provided an annualized returns of 5% to 7%..
High Park Residences Transactions – Annualized Returns of between 7% to 9%
High Park Residences is a 99-year leasehold development. Here you can see annualized returns hovering from 7% to as high as 13%.
Martin Place Residences Transactions – FH Development of 302 units
The right freehold unit can also bring in similar annualized returns despite the higher premium that owners bought at. Again, it depends on the final development choice you make.
Rivergate Transactions – FH Development of 545 units
With the right cryptocurrency choice and the ability to stomach the ups and downs of the roller-coaster prices, you can make good returns as well.
Again, it boils down to your risk appetite and what you can handle.
#4: Both requires a correct entry price and a willingness to exit in order to capture gains.
When purchasing new launch units, one of the factors I look closely at is the breakeven price of the developer.
This gives me some idea on how much margin the developer can make. If the margin is too big, this means the developer have room to actually lower prices in the future – especially if they intend to generate sales fast.
This implies there is a danger of your entry price being too high. Similarly, is buying bitcoin at $50K a good idea right now? Entry price is too high – we are not sure is there room for the prices to grow further.
Another observation I am seeing right now is the HODL culture – which means Hold On for Dear Life. HODL culture is similar to the property owners who become emotionally attached to their properties despite 2021 record prices. There is a strong resistance to let go and just extract the gains already made. If you own a HDB, right now is the best time to sell especially if you have been thinking about it.
Back in 2019, your HDB might had to be sold at negative cash sales especially if it was an old flat.
Enquiries were hard to get and buyers often questioned the remaining lease value.
But right now, thanks to the tight supply in the market – there is a very good chance that your old HDB can be sold at breakeven prices or even at slight profit. Demand is outstripping supply.
All this is possible – by letting go of a potentially hard-to-sell HDB flat in exchange for something that can hold its value better.
But you have to do it when the market is hungry for it.
This weird times will pass and the hunger and desire will disappear eventually. And so will your opportunity to profit.
#5: Both are of limited supply in their own way.
The supply of property is limited by:
physical space constraints
labor constraints
materials constraints
The labor and material required is what is causing the tight supply situation in Singapore right now.
For Bitcoin, it is programmed to hit a limit. There is supposed to be up to only 21 million Bitcoins available. So far about 19 million Bitcoins have been mined.
Real Demand versus Transient Demand
Will Bitcoin smart contracts erase the need for Ethereum altogether? Or will using Bitcoin on the Ethereum network be the way forward in DeFi?
Though no one can know the definite answer, I believe using a lens of network effects gives us an idea of the most likely scenario. Currently, most of the DeFi ecosystem exists on the Ethereum network. So does this mean holding Ethereum is better than Bitcoin?
The truth is we are not sure. The way I see it is that crypto returns are made by making a bet on upcoming risky technology.
It can go either way.
Demand in this form of digital asset is being generated by market sentiment and maybe a little bit of hype. There is an element of transience as we are not fully sure yet where this goes.
The vision is there and it might happen – but essentially what it is – it is another bet.
But if we go and observe the Singapore property market, we know the demand is real. This is when I see reputable and established developers recently put in competing bids where their prices are very similar and close to one another. The difference in their bids is only between $50-$100 psf ppr.
These are not small boutique developers trying to gain market share and are overbidding.
To me, this is a reflection of how bullish they feel the Singapore property market is and about how much they feel the consumer demand is REAL.
Conclusion
Am I an expert on crypto? Not really.
But I do consider myself very knowledgeable on property investments. I have done it for myself and my clients.
Learning a little bit about crypto is just me making sure I am up-to-date with the times and remain relevant in the market.
With money being devalued at historic rates, a scarce store of value matters.
I can see the attraction of a perfectly liquid and perfectly scarce store of value being more preferable than an illiquid store of value.
Sometimes, I feel the term cryptocurrency is a misnomer.
Currencies have historically had three functions: that of a medium of exchange, store of value, and unit of account. Most digital assets were not created with these functions in mind.
Each digital asset serves a unique purpose, hence why the more broader term of digital asset fits better than cryptocurrency.
Collateralized tokens have more in common with securities than currencies.
Utility tokens may be the native currency of their respective networks, but exist within niche markets such as file storage and online advertising.
Smart contracts, exchange governance tokens, and oracle protocols all share the use case of powering DeFi – they have nothing to do with daily purchases that one would equate with a currency.
At the end of the day, investments are bets.
The investor soaks in all available information, calculates the probabilities of future outcomes, and allocates capital accordingly.
Crypto is a new digital asset class. But living in the physical world, we try to invest in things we understand.
Like the properties and the home we live in.
The capital that we have and we have access to are limited. This is a game of incomplete information – more akin to poker than chess.
Unlike chess where all information is available on the chessboard, with poker, there is a lot of valuable information that remains hidden.
Park what you can afford to lose in crypto – that is the best advice I can give you. Even with record prices of ETH and BTC – there is always a chance of significant losses.
But with property, I can safely say that significant returns are also possible if you know where to look. I understand what are the winning hands or rather the winning factors that can lead to a desirable outcome.
Have questions? I invite you to drop me a whatsapp with your questions or complete the form here.
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