Is a house a good investment?

Not according to Nobel prize winner Robert Shiller, who thinks it is more ‘sensible’ to rent than to own property.

The other day I had a think-outside-the-box kind of moment when I flipped through my Samsung Galaxy tablet.

On Flipboard (a magazine-format app), I read this headline: “Robert Shiller’s Devastating Takedown Of Housing As An Investment Will Have You Renting For The Rest Of Your Life” in

Shiller, according to the US business and technology news website, “had correctly predicted the US housing bubble when no one else would”.

He is a Yale professor who just won the Nobel Economics prize.

On Monday, he and two other American economists won the award for research on the prices of stocks, bonds and other assets.

I take note when a Nobel prize winner talks unless it is the European Union.

It won the Nobel Peace Prize 2012 for “over six decades contributed to the advancement of peace and reconciliation, democracy and human rights in Europe”.

Some former laureates were not impressed; they claimed that the EU is “clearly not a champion of peace”.

The Business Insider report continued: “With prices still off of their all-time highs, many can’t help but ask the brilliant Professor if now’s the time to invest in housing.

“And for years, he has responded with more or less the same answer: housing is not a great investment. This was an idea that he pushed in his must-read book, Irrational Exuberance,” it reported.

The report included a link to a Bloomberg TV interview with Schiller on the US housing market in February.

In the interview, Shiller, who describes himself as having a contrarian spirit, comes across as the type of professor you would not fall asleep listening to during Economics 101.

Bloomberg’s Trish Regan asked: “Then why buy a home? People trap their savings in a home. They’re running an opportunity cost of not having that money liquid to earn a better return in the market. Why do it?”

Shiller said: “Absolutely! Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better.

“So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000s. And I don’t expect it to come back. Not with the same force.

“So, people might just decide: ‘Yeah, I’ll diversify my portfolio. I’ll live in a rental.’ That is a very sensible thing for many people to do,” he continued.

“If you think investing in housing is such a great idea, why not invest in cars? Buy a car, mothball it, and sell it in 20 years.

“Obviously not a good idea because people won’t want our cars. It’s the same with our houses. So, they’re not really an investment vehicle,” said Shiller.

“Homeowners understand that you can’t sell a home with 30-year-old roofing, carpet and kitchen appliances. Sure, the home price might go up, but investors must adjust prices for years of maintenance and renovations.”

Shiller’s take was a bit revolutionary for me whose retirement nest egg includes Amanah Saham Bumiputra (ASB) investment, a few hectares of land, EPF savings, two houses and 2411 (numbers I hope will strike the 4D jackpot).

Getting worried that my USJ house might not be able to pay off my dream retirement (round-the-world cruise) holiday, I called M.L. Ho, a real estate agent with 17 years’ experience in the business.

“Perhaps Shiller has a point, that by the time you have paid off your house, the purchase price has doubled up because of interest payments,” he said.

“But for most Malaysians, they see buying a house as a good investment. They see the monthly payment that they pay the bank as a rental and at the end of the loan term, they get to own the house. They feel that is better than renting a house as the rental money would be ‘burnt’.”

Shiller also cautioned that there were property bubbles in many parts of the world. I asked Ho whether property prices in Malaysia were heading south.

“Malaysian and US markets are different. If you talk about the hot market in Klang Valley, Penang or Iskandar City, it (property bubble) does not apply,” he said, adding that the property market was even picking up in cities in Sabah and Sarawak.

Ho noted that in the history of property in Malaysia (depending on the location), prices of most houses had appreciated.

“Take a house in USJ 6, Subang Jaya. You buy it for RM90,000 in 1988, it is worth RM230,000 in 1995 and during the economic crisis in 1997/1998 perhaps, its price went down by 10% but now that house is priced above RM400,000,” he said.

“Property is still the thing. For Malaysians in the long term, property is a winner. It will always be on the uptrend unless there is World War 3.”

Perhaps the Nobel prize winner will agree with Ho.

“But (property bubbles) are not everywhere, because human beings have different opinions in different places,” he said.

Looks like my USJ 13 house will pay for my retirement holiday and my two kids’ university education. I pray Shiller is wrong.

> The views expressed are entirely the writer’s own. - By Philip Golingai (The Star)

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