Extracted from NST article interview with Faizul Ridzuan.
Quantity has a quality of its own” – Joseph Stalin
In the last 12 months, there has been a growing trend of individuals and groups organising bulk purchases of properties from developers. Bulk buying is basically an activity that allows few or many property investors to invest in a single development as a group. More often than not, buyers participating in bulk purchases are often promised many additional benefits that won’t be available should they choose to invest individually.
Sounds good, right? It’s actually not as simple as it looks or sound. In this article, I wish to share my thoughts on bulk-buying, and perhaps offer a slightly different take.
The good: Let’s imagine you are a fish seller today. There’s a strong possibility that you could be standing from morning to noon selling 100 fish to about 100 customers. But what if one guy approaches you early in the morning and offers to buy all 100 fish? Even if he wants a good discount you’ll most likely consider it since he is helping you to clear your stock much faster than usual. So instead of spending up to six hours trying to sell 100 fish, you can sell all your stock in less than 10 minutes. You’ll end up with lower profit but plenty of time and you’ll hold zero risk.
Now, imagine the fish seller above is the developer. In business, how fast you can clear your inventory matters. This can make or break a business. The faster they can clear their existing stock, the faster they can move on to the next project and make more money. Therefore it’s no surprise why a lot of developers love group purchasers as they can transfer their risk to the new buyers fast and then move on to the next project.
This is basic common sense where the more you buy, the more discounts you’ll get. They are normally more inclined to discuss flexible terms with these bulk purchasers. Among some benefits participating group purchasers can potentially enjoy are:
1. Discounts — Additional discounts since there are many buyers buying from the same group. Typical discounts can range from one per cent all the way to 10 per cent discount, subject to the number of units confirmed.
2. Easy ownership — Zero or low down-payment schemes, to help the purchasers buy this property using minimal cash.
3. Early preview — Normally there will be previews held by the group for their members, to discuss the property and its prospects, sometimes before the soft launch of the actual project.
4. Networking — Networking with would-be buyers of the said development. This allows one to collaborate with other investors of similar profiles.
The not-so-good: While bulk-purchases can sometimes offer tremendous benefits and advantages to investors, it could also aid investors to make serious mistakes. The biggest problem when you are going as a group is when other members’ false optimism can sometimes overshadow any small doubt that you might have. It’s human nature to be uncomfortable to go against the masses and the following are reasons why I don’t like to be part of bulk purchases:
1. The 3 ‘H’s — Hype, Haste, Herd
Hype: Sometimes in order to sell a unit, these groups will be told by the group leader (bulk purchase organisers) that they can expect to gain hefty profits after a few years. Some common pitches normally thrown are:
“We expect investors of this project to make xxx per cent returns in three years”.
In today’s boom, people tend to get very excited especially when they themselves or the people they know have made good money out of properties. They think that PAST = FUTURE, and combined that with a few more ecstatic members, logic and common sense will fly out of the window and everyone will start taking their cheque books out.
Haste : When people get excited, good practices like research are normally thrown out of the window. “Buy first, think later” becomes the mantra of the day. To get people to commit, some will make special offers only for the day like DIBS (no interest during construction period), IPAD/ IPhone etc, to give people little time to think.
Herd : We are all humans and we never like to be different. Assuming you can remain calm and logical, emotions can still swing things over. Even if you think that the development is a crappy one, you’ll start doubting yourself when you see everyone else buying the development like there’s no tomorrow. Our “kiasu”-ness takes over and before you know it, you’re standing at the counter putting down a booking fee on a property you were never 100 per cent convinced it would be a good buy.
Dan Rather once said, “Once the herd starts moving in one direction, it‘s very hard to turn it, even slightly”. I couldn’t agree more.
2. The discounts offered weren’t real Based on my limited observation, most of the discounts offered weren’t real. To illustrate this, let’s use Condominium X as an example. Condominium X has 3 blocks, 1,2 and 3:
a. The 1st block was sold at RM500 psf, and it’s fully sold.
b. The 2nd block was sold at RM550 psf, and it’s also fully sold.
c. The 3rd block is now being offered at RM650 psf to the group purchasers. It still has many unsold units because the RM650 psf price is considered by many seasoned investors to be over-valued.
In order to move the 3rd block, some groups will come and negotiate with the developer to give them, say 10 per cent discount. But even at 10 per cent discount, the group members still pay RM585 per sq ft, much more than what the buyers of Blocks 1 and 2 have paid for their units. Therefore, they will later be in an inferior position to compete with the earlier buyers.
3. Hefty initial cost involved to join the group
Most of these groups and individuals organising bulk purchases normally charge their members good money before they can participate in such event. The lowest I was told was over RM2,000 and the highest goes up to above RM8,000 for a few days’ seminar and opportunity to join future group purchases. I’m a cheapskate so I personally think that’s a lot of money especially when there are some free/no-fee groups out there that do the same albeit informally over the internet.
4. Potential vested interest of bulk purchase organisers to push for sales
Normally, either the buyer or developer will need to reward the efforts of the organiser for spending their effort and time to organise these bulk purchases. There’s nothing wrong with such commercial arrangements, but one needs to be mindful that the organisers are only paid if you actually bought a unit.
So, what are the chances that you’ll get straight and honest advice from the organisers? It’s like asking a fish seller whether you should buy fish or chicken for dinner! Sometimes, even the organiser themselves are not buying the project they are promoting. Caveat emptor (Latin for “buyer beware”), my friends.
Conclusion: Now, does this means that all bulk purchase groups are bad and should be avoided completely? That’s certainly not what I’m suggesting. Bulk purchases and joining investors clubs certainly has its benefits. It can shorten one’s learning curve, and the discounts can be an advantage. But one shouldn’t neglect one’s own research and gut feeling just because someone out there tells you that the project is a good buy. Whether buying individually or in a group, you still need to conduct your own research and due diligence. Don’t let the hype, haste, and herd influence you. You must be your own man/woman, and be cool as ice when it comes to making decisions.
In my book, I have mentioned the importance of networking and how I have tremendously benefited by being in the right network. The key here is to be in the right network that dishes out neutral advice. I need to stress here that if you are in the wrong network that organises bulk buying, you could be part of the herd that is heading towards the slaughter barn. So choose your network and group carefully, as they can really make or break you.
Lastly, there are many free platforms out there that can help you do your own due diligence, especially online. Internet property forums such as forum.lowyat.net and propertyWTF.com.my are very useful research platforms. With a few thousand members in these sites, you can expect decent, impartial input given by some of these members. This should aid significantly in your decision-making process prior to joining any bulk buying sessions.
Take care, and please invest safely.
