The difference between price and value

Do you know the difference between price and value?

Well you should… because the two principals are quite different and can make a big difference to your chances of achieving financial independence.

Warren Buffett is an American investor, industrialist, and philanthropist and is widely regarded as one of the most successful investors in the world. He is also referred to as the “Oracle of Omaha” because of his astounding investment success.

One of his most famous quotes (and he has quite a few!) is:

“Price is what you pay, value, is what you get”.

But do you understand what he means by that and how you can use it within a property investment context?

Price vs value

As a matter of fact, whether it is shares or property, is that there is a significant difference between price and value.

However if we look at property specifically, you can clearly see how value differs from the price of a property when one property grows in value at a far greater rate than another.

For instance, you can choose a lot of apartments to buy for, say, RM350,000, but the value comes into the equation when measure its performance as an investment and in particular, its capital growth over time.

Consider this: the majority of these properties will be average capital growth performers; some will be subpar performers; and a small percentage will actually outperform the market.

To put it into context, one apartment may be worth RM400,000 in five years, while another may be worth RM550,000.

But why?

Quite simply, that’s where the difference between price and value truly lies.

We should only ever invest in investment grade real estate, because it’s worth paying a premium for a property that’s more likely to outperform the market averages in the future.

Unfortunately, far too many people get bogged down on the purchase price and forget the bigger picture, which is how that property will perform in the years ahead.

Of course, this is where a “bargain” mentality can be dangerous because a cheap or inferior property will likely always remain that way.

In other words, it’s not so much about the price you pay today (although you don’t want to overpay) but what price you can achieve in the future because that property has increased in value.

Its value has outperformed the averages because it’s in the right location, its branding, its quality finishing and workmanship, it’s the right type of dwelling, and it appeals to the right type of people (usually owner occupiers) who are willing to pay the most for the opportunity of owning it.

That’s why value beats price any day of the week, month, or year.

The brand of Hap Seng

Hap Seng Land (property division of Hap Seng Consolidated Berhad, a progressive and well established public listed company) is a customer-focused developer driven by commitment to deliver innovative and high quality real estate on time, every time.

With more than 40 years of proven track record, as a responsible developer, Hap Seng Land has built a solid reputation of providing long term value to its customers, partners and associates – just like its brand slogan: Creating Value Together.