Ask Melanie | Ask Melanie: When money isn't safe in houses
Melanie Nutbeam, a certified financial planner based in Hong Kong, addresses common personal finance queries. Send your questions to [email protected]
Happiness is surely the prospect of preserving capital, making good short-term returns and swooping on ravaged assets. Luckily, most of us learn we can't have our cake and eat it. If we want a good return, we have to risk our capital, which may not be available, intact, for the next punt.
Preservation of capital and liquidity should be a priority. You are confident the property market is too hot. If that's so, do not park your money, even short term, in a real estate investment trust (reit).
The illiquid nature of reit's assets makes them only a good long-term investment. The drivers of a cooling in the housing market won't spare reit prices - increased reit borrowing costs, downturns in business sentiment, leases renegotiated at lower rentals and falls in dividend payments will all show up in the share price. Even the most defensive reits are not immune - Link Reit fell 19 per cent in three months in 2008.
Dividends of 5 per cent to 6 per cent per annum (commonly seen among Hong Kong's listed reits) could add HK$100,000 to HK$133,000, minus investment costs, to your HK$4 million in the next six to eight months. But I caution you to think how unhappy you'll be if you're scalded.
So what's a good alternative?