Perceptions that lead to losses vis-à-vis supply and demand

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The practice of following one’s perceptions that lead to losses instead of subscribing to the law of supply and demand seems to be muddled somewhat. This may be attributed to one’s personal determination to abide by his/her beliefs rather than adhering to the basic concept of supply and demand. This creates problems because—don’t be fooled—the academic theory is correct.

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It is perplexing how many businessmen peddle their wares in ways unacceptable to the market.

Statistics, for one, can be elusive while perceptions can be conjured. Statistics are based on fact (hopefully) and strategic management should stay objective. However, perceptions can challenge facts based on personal assessments, which, I fear, can sometimes be more reliable. This is called gut feel.

In my street alone (where there are only 26 houses) there are at least six houses that are either for sale or for rent (considering it’s been over a year). This translates to at least 30-percent vacancy. What I find amazing is how these landlords don’t seem to realize that for every month without a tenant they stand to sustain opportunity losses of about eight percent per month. And should a year lapse without a lease or a sale, they become burdened by taxes, creeping maintenance and upgrade costs, as well as association dues. Worse, they stand to lose from inflation.

Obviously, the dilemma may be attributed to sensitivities on pricing. But who dictates prices? It seems realtors dictate pricing based on the last known sale. But is this a true measurement? After all, there is only one Manny Pacquiao who can afford purchases that are insensitive to market values. In some gated enclaves the increases in prices are disproportionate to developments yet many are fooled (especially those who have already purchased properties) that the new price indicators peddled are indicative of actual property values. In fact, however, realtors cannot make a sale without having to suffer losses for years.

A worse scenario could be seen in the case of condominium units whose owners have to bear atrocious association dues. If the owner lives in his unit, who cares, right? However, this set-up becomes burdensome when one considers these units as investments. In this case, dues are accounted purely as expenses in the absence of a lease or a sale. It makes you wonder which is worse—owning a boat or a condominium. In case you are in this rut, conduct a fire sale. However the sale turns out, it is way better than being held hostage by a terminal expense such as periodically accruing association dues.

This brings us now to a more sensitive issue: inflation. As of this writing, inflation is pegged at 4 percent. This means that unless you generate profits over 4 percent per annum—whatever business you are in—you are losing annually.

If I remember correctly, most corporations that have single digit growth are assessed for profitability. This is not necessarily true nowadays.

Theoretically, land prices appreciate every ten years at 10 percent and not at the astronomical 50 to 200 percent many dream off, especially owners of properties in various celebritized gated-villages. This is an example of following perceptions instead of subscribing to the law of supply and demand.

Unless you can unload property immediately the costs attached to maintaining that property translates it into a burdensome running expense. Condominium association dues regardless of occupancy are assessed and the landlord is obliged to pay. Non-payment would lead to the cutting off of utilities which are needed once you are able to sell the unit or get a tenant. I can’t fathom this practice of maintaining realty as investments when one is held hostage by running expenses. Wouldn’t it be safer to lose to inflation? Is this an investment or an expense?

Is there an option to invest our money to some other endeavor other than purchasing condominiums peddled on the streets as investments? Are there options beyond savings accounts, time deposits and commercial papers peddled by banks that do not even address security and inflation?

Interestingly enough, the answer is a resounding yes. But you need to call us to find out!

We can secure profits at 8 percent per annum paid off quarterly. Mortgage finance is the key, but not necessarily in this country where vacancies run high. Our financial institutions are weak and offer little to no option for profits earned. Call Superbrands and learn of these options.

harry.tambuatco@superbrands.com
harrytambuatco@gmail.com

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