What do Chanel Bags and Property have in common

[Full Disclosure: I’m a licensed real estate salesperson with PropNex. Updating and maintaining this blog helps me condense and express my thoughts about the real estate scene in Singapore. Hope you enjoy the read! Feel free to ask me any question here, or drop me a DM on Facebook.]

How many of you have ever wanted a Chanel Bag, or maybe had your girlfriend / wife bug you to buy one for her? If you had said no to temptation or was immune to her feminine wiles, the good news is you saved yourself a tidy sum of money. The bad news is, you’ve actually missed out on an amazing investment opportunity. Seems counter-intuitive right? Let me share with you why.

Here’s what could have happened if you had bought a Chanel Bag:

In 2010, the Chanel Medium Classic Flap was valued at $2,850. By the end of 2015, the exact same bag was valued at $4,900. In 2018, Chanel announced price increases and the same bag would have cost you $5600. In other words the same Chanel bag is worth almost 200% as much in 2018 than in 2010! The infographic below explains it best:

Imagine if you had bought this Chanel Bag in 2010, used it for the past decade and decided to sell it in 2020. This screenshot from Carousell estimates how much you would be able to sell it for today.

This means that if you had kept the bag all these years and used it whenever you wanted (keeping it pristine of cos), and decided to sell it to fund your kid’s Learning Lab fees, or that trip to the Galapagos Island that you’ve always wanted to go for, you would have not only used the bag for free, but in fact gained at least $3000 in profit!

So why is it that Chanel bags can command such a high price while plenty of other bags out there that can basically do the same thing (and probably more) cost a fraction of a Chanel Boy handbag?

Understanding where value lies:

It all boils down to one thing: Value. Value is the worth that we attach to any item. Let’s dive deeper into three concepts of Value: Use Value, Perceived Value and Exchange Value.

• Use Value is based on the utility of the product/service. Think of water and fuel. They may be ranked high in utility and importance to our daily lives, but are low in perceived and exchange value. This is akin to buying a non-branded leather bag instead of the Chanel. The utility of both bags are almost identical — to store your barang, but the Perceived and Exchange values are starkly different. I’ll explain more below

• Perceived Value, as the name suggests, is the value to which people think/feel an item is worth. This is based on market sentiment. While the Chanel bag might have low Use Value, it has high Perceived Value due to intangible reasons such as the level of prestige associated with owning one. This is why the Chanel has become the dream bag of almost every woman.

• Lastly, Exchange Value refers to the price that people are willing to pay to acquire the desired product/service. This is somewhat influenced by the Perceived Value, which explains why people are willing to QUEUE to pay $6k for a Chanel bag.

But wait, you might be asking. The price of a Chanel handbag can’t be increasing indefinitely over time right?

The answer to that is both yes and no. Yes because as long as the Perceived and Exchange values remain high and the demand exceeds supply, the price will definitely go higher. And no, because there will always be a limit to how much the market is willing to pay for a product, no matter how desirable it is.

Understanding where the value of your property lies

To put it in the perspective of property investing, it’s all about being able to identify the Chanels of the market in a sea of Charles & Keiths.

At this point, you might ask, “why are you telling me all these?” Also to my male readers out there, it doesn’t only apply to Chanel Bags, your Rolex watches are not immune to the magic of market forces.

In the same thread, the game plan to win in the property investing game is to ride on Perceived Value to get high Exchange Value, while keeping your Use Value at the lowest cost. Is there a way to achieve this? Of course there is when you can truly understand these concepts.

The whole idea is to understand that there is no rush in purchasing a property that has already plateaued into a price stagnant stage, due to a lack of marketing, leading to the low probability of Perceived and Exchange Value going up.

This means to buy a property low, sell high. But it is easier said than done.

Going back to the Chanel Bag example, how likely is it to continue its bull run in the next decade, into retail at $12k at least in 2030? Highly unlikely.

Why is that so?

That is because it is probably at a price stagnant stage right now. While its price will still increase in the long term, it might not increase as much. Similarly in real estate, it just doesn’t make sense to shoulder the cost of property ownership just for the use-value and in turn losing out on exchange value, when you are able to get use-value things at a much cheaper price. You need to know where you are in terms of the market.

Understand the risk involved when you buy the wrong property

Lastly, let’s say that you decided to jump onto the bandwagon and bought a Chanel bag that you could not afford on a monthly instalment plan for 3 years. At the end of the 3 years, even if you had regretted that hasty decision, you would have fully paid for your purchase, with no recurring interest paid.

However, investing in property (assuming 600K for a studio apartment) is 100x more capital and risk involved. Not to mention, INTEREST-included loans. In that case, should you not put more time, effort and thought into making this decision?

Value lies in Perceived Value & Exchange Value

Let me leave you with one last nugget.

Do you know that the resale value of a small Chanel Boy is more than a medium Chanel Boy? It might sound strange, but it boils down to simple demand and supply concepts. While a bigger bag would command a higher price at retail, in the resale market there is in fact more demand for the smaller bag due to consumer preferences. If you were privy to this, a smart move would have been to buy a small bag at retail price, sell it at a higher price at the resale market, and THEN buy a medium bag. Remember you do not always have to lock your equity on things need for utility.

How then can you position yourself and how do you identify the ‘Chanels’ of the property world? If you’re interested after reading this, All you’ve got to do is to fill in this form, and my team will be in contact with you shortly to follow up.