How Liquid are you?
By Ikhram Merican
COLUMNIST
Many years ago, my father built his
dream house in Petaling Jaya. It was a
masterpiece in its time. He hired a wellestablished
architect from Canada,
and together with my mum raised a
beautiful structure.
Not so many years later, my father’s
company was forced to restructure. Top
management was laid-off, including my
father. Keeping the house became a
burden. Eventually, my parents decided
that they would have to sell it.
Everyone buys property with the
expectation that the value of that
property will increase. Most of the time
it does.
But does an increase in your property
value translate to real wealth?
I know of a person who wants to sell
his apartment. The market value for the
property is RM3.35 million. He bought
it at RM2.2 million. The gain looks great
on paper. However, he has been trying
to sell it for over a year now.
The property value means nothing to
him in the present. Until he can sell the
apartment, even a value of RM5 million
would mean very little to him.
If his circumstances were to become
difficult and the bank forecloses his
apartment, he may not have a property
and still be in debt.
If his circumstances were to become
difficult and the bank forecloses his
apartment, he may not have a property
and still be in debt.
Properties Are Not Very Liquid
Amongst the many investment vehicles
out in the market, properties remain
one of the best. It is relatively safe, and
through leverage can yield fantastic
returns. However, properties are not
liquid.
You can convert shares into cash
almost immediately. You could make
a withdrawal on your fixed deposit as
soon as the bank opens if you urgently
need funds. But you cannot convert a
property into cash overnight.
Even if you found a buyer for your
property today, it would take anywhere
from 3-6 months to complete the
transaction.
Avoiding Liquidity Pitfalls
You may be tempted to think that only
high-end properties have liquidity
problems. You would be wrong.
Apart from the fact it takes 3 months
or more to complete a sale transaction,
there are other factors that can prolong
the sale of any property.
A RM300,000 house in the Klang Valley
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