I happen to come across this rather interesting opinion piece from Bloomberg. In this article, the author describes that the typical buyer for Treasure at Tampines is no different from a gambler. The author cannot understand the optimism that these buyers have in acquiring a home during this crisis. He equates this behaviour to that of people buying and driving up Hertz shares. After all, what is the logic behind purchasing shares of a bankrupt company? Isn’t ownership of a debt-laden company pointless? You are spending money to buy over ownership of a company that has absolutely no value.
The Story About the Bullet Holes
After reading this article, the image of the world war two warplane that is riddled with bullet holes came into my mind. If you have not seen this photo by now, here it is. Meanwhile, if you want to understand the logic of why units at Treasure at Tampines are continuing to sell, do read my article on “Why aren’t the condo I am looking at dropping in prices?”.
Back in World War 2, the US military was trying to do a study. Whenever their bombers come back from a mission, there are usually damage to the plane by enemy fire. To increase the survivability of these bombers, they decided to look at the data of the location of these bullet holes. After figuring out where these holes are, it was a simple job of reinforcing armour plating to these areas—thereby increasing the survivability of these bombers in the battlefield.
However, the statistician Abraham Wald from Columbia University has a different perspective. In his calculations, he took survivorship bias into the interpretation of the data. In addition to understanding the data where the planes come back, you must also take into consideration the aircraft that did not. As a result of Abraham’s study, it became clear that the reinforced armour should go on areas where there are no holes. Because if these places get hit, the entire plane will not return.
Dangers Of Not Looking At The Complete Picture
As a result of insufficient data and a biased view of the information given, the same can be said about the real estate market in Singapore. I am sure you have heard of these biases before, and I will just list some of them.
-Prices of new launches are too high and not worth it.
-Paying $1000 psf to purchase an EC is crazy. How can you make money buying this EC? (2020 Edition)
-And the list goes on.
Be Careful Of Which Data You Interpret
The problem with the survivorship bias largely depends on the data you are given and how you interpret them. Although we live in an information age, and data can be found everywhere, consumers may not have access to specific data and analytical tools real estate professionals have. Or they may not think that a piece of information is useful in the analysis. By missing out a part of the puzzle, or based on your experience, there is an extremely high probability you are looking at facts from survivorship bias.
Without understanding the bigger picture, you will end up with a conclusion that is no different than what the military did in World War 2. To give you a complete picture, I will be coming up with an in-depth analysis of why these buyers went ahead and made their decision. And you will understand if these are buyers are simply gamblers or people who have done their homework. Until then, stay safe, do more research, and always look at the big picture!
Article contributed by Jerry Wong
Jerry Wong is a realtor with Propnex Realty. He loves coffee, cookies and condos and has been in real estate for ten years. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home. Or making well-informed decisions that see their assets grow. Book a video call appointment and Jerry will share with you the following.
- How certain factors affect real estate prices. Why some condos can make a million dollars while others can lose that same million.
- Why timing is not the most important thing. Because some people can buy the same condo at the same time, but one end up making $100k to $200k while the other suffers losses of the same amount!
- Understanding your requirements and craft a solution for your real estate needs. Be it in the form of asset progression, tax planning, financial calculations, rentals, sales, etc.
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