There are several reasons for getting a second property – a vacation home, a rental income generator, for your children, or even a future retirement home. So, how does one choose the location for a second property? Let’s get some insights from the founder of MCentury Properties Sdn Bhd., Marcus Mak.
Before delving into the specifics of choosing the right location for your second property, let’s take a look at the current state of the subsale property market, also known as secondary property market, in Malaysia.
According to the PropertyGuru Malaysia Property Market Report Q1 2024, the Malaysian residential market is entering a phase of stability. With the nation’s inflation projected to hover between 2% and 3.5% throughout 2024 and interest rates remaining consistent, the fundamental indicators of the residential market—overall home demand, the volume of listings, and asking prices—have exhibited moderated fluctuations.
The decline in demand in Q1 2024 is primarily attributable to seasonal trends, particularly during the Chinese New Year period. For instance, the Sale Demand Index also declined by 5.5% in Q1 2023 and 2.3% in Q1 2022.
Additionally, Bank Negara Malaysia has maintained the overnight policy rate (OPR) at 3% since the last increase in May 2023. This is positive for businesses and supportive of economic growth and will be beneficial for the property market.
The Appeal of a Second Property
There are several motivations behind a second property purchase. Here are the most common reasons:
- Lifestyle investment: A second property allows you to escape the daily grind, offering a refreshing change of pace when you need to unwind.
- Rental revenue: Investing in a property with high rental demand can mean a steady stream of passive income. This can offset ownership costs and offer a long-term financial benefit.
- Future planning: A second property can serve as a future retirement home, allowing you to downsize from your primary residence later in life.
- Springboard investment: This refers to investing in a second property for your children, to assist them towards owning a property. That property could also be a family legacy where your children and grandchildren can gather.
How To Navigate the Subsale Market in Malaysia
- Know your “whys”: Be clear on your goals for the second property. Are you prioritising relaxation, rental income, capital appreciation, or long-term investment? This will guide your location search. For example, if you’re targeting students, then a property near public transportation and/or education institutions will be the main priority for getting higher rental yields.
- Research: Don’t be a tourist in the property market. Investigate areas, understand crime rates, and assess upcoming infrastructure development plans.
- Accessibility: Consider travel time and ease of access. If the property is intended for frequent getaways, proximity to airports or major highways is essential.
- Future-proof your decision: Look beyond immediate gratification. Will the chosen location hold its value over time? Consider factors like economic growth and job creation in the area.
What to look out for when buying a subsale property, according to experienced homebuyers.
According to Marcus Mak, founder of MCentury Properties Sdn Bhd., a second property can be a valuable asset. The key to maximising its potential lies in choosing a location that aligns with your investment objectives and lifestyle preferences.
“It’s crucial to understand that many people may not be well-informed about the market and often follow others’ opinions blindly, especially when investing in a second home.
“You have more time to make this decision. So, it is essential to be patient, conduct thorough research, and make educated predictions about locations that can yield maximum returns. Remember, investing in real estate is a long-term game, and the right location can significantly influence the outcome of your investment,” Marcus explained.
Current Trends For Second Property Investment
Marcus highlighted that the market is currently favouring properties in well-connected areas with access to amenities and infrastructure. There is also a rising demand for properties with adaptable spaces to accommodate remote work.
“Additionally, more of the younger generation are stepping up as purchasers, showing a strong preference for homes that offer multiple amenities. This shift in buyer preference is why many developers are now focusing on creating entire townships rather than standalone projects,” Marcus shared.
An example of this is Sunway Velocity, where the developer has recently invigorated the area with its comprehensive development approach, attracting interest from young homebuyers.
Recommended Locations For A Second Property
Based on the percentage of property-for-sale organic searches on iProperty.com.my, the top three most searched areas for 2023 are Petaling Jaya, Mont Kiara, and Johor Bahru.
Marcus opined that if you’re looking for capital growth, you could focus on regions that are witnessing significant infrastructural developments, such as Kuala Lumpur, Penang, and Johor Bahru. Specifically, Johor Bahru has seen increased interest due to the recent completion of the Rapid Transit System (RTS) link.
“This major infrastructure enhancement not only improves connectivity between Malaysia and Singapore, but also boosts the property market’s potential in the area. Such developments are pivotal in driving up property values, making these regions prime targets for substantial capital appreciation,” Marcus elaborated.
Is the RTS Link Project Affecting Property Demand in Johor Bahru?
For rental returns, Marcus suggested considering proximity to educational institutions or commercial centres. Properties in these areas are likely to attract a steady stream of tenants and yield higher rental incomes.
“Emerging locations such as Shah Alam and Seremban are displaying promising growth prospects. These areas are becoming increasingly popular due to their development of infrastructure and amenities, making them attractive locations for investors looking for long-term capital appreciation and rental demand,” Marcus shared.
How To Identify Areas with Strong Rental Yields
The PropertyGuru Malaysia Property Market Report Q1 2024 indicated that the Rental Demand Index for Malaysian residential properties saw an 11% quarter-over-quarter decrease, which could be partly attributed to seasonal festivities.
It was also reported that supply was 31.3% higher than last year’s period, albeit experiencing a slight 1.8% reduction from the preceding quarter. Meanwhile, asking rents in Q1 2024 witnessed a 2.2% quarter-over-quarter increase, marking a significant 12.4% rise from Q1 2023’s rental levels.
The balance between supply and demand is evolving, and Marcus pointed out two aspects that generally affect rental yields – demographic and economic analysis.
Marcus said, “Trends like population growth and economic stability helps pinpoint where the demand for rental properties might be on the rise. For instance, properties near universities, hospitals, and business districts in Malaysia often see higher demand due to their proximity to essential services and employment opportunities. Additionally, infrastructure developments such as new MRT lines or shopping complexes can boost property values and attract tenants.
“Analysing historical rental yields and property value trends also provides an indicator of potential future performance. It’s also crucial to evaluate the long-term sustainability of the area, including any plans for future developments and economic diversification. A holistic approach ensures that your investments are not only lucrative in terms of immediate rental yields, but also poised for capital appreciation over time.”
Upcoming Developments That Can Impact Property Values
Various developments can significantly influence property values and market dynamic. Here’s a list shared by Marcus.
- Transportation upgrades like the MRT3 Circle Line in Kuala Lumpur enhance area accessibility and appeal, boosting property values.
- Commercial expansions, such as new shopping centres and office buildings in areas like The Exchange TRX, Damansara and Bangsar, create job opportunities and increase foot traffic, which drives up demand for both residential and commercial properties.
- Large-scale residential projects that introduce unique amenities or architectural innovations can also elevate local real estate standards.
- Educational developments, including new or expanded university campuses, increase local housing demand as students and faculty seek nearby accommodations.
- Tourism and recreational projects, like the development of Desaru Coast in Johor, transform regions into attractive tourist destinations, enhancing property values.
- Government initiatives, such as the Iskandar Malaysia project, rejuvenate areas and attract investment.
- New healthcare facilities meet essential service needs, and also boost local property values by attracting residents who desire proximity to medical care.
“Investors should monitor these types of developments closely, as they can offer significant opportunities for capital appreciation and rental income growth,” Marcus suggested.
Ways To Stay Updated On Local Property Market Trends
There are various ways to stay abreast of Malaysia’s property market. For starters, you should regularly visit real estate portals such as PropertyGuru, and iProperty. In these portals, you can collectively review up-to-date listings, transacted data, price trends, and market analysis.
Marcus also said, “Subscribing to market reports and publications from major realty firms and financial institutions can offer in-depth analysis and forecasts. It’s also beneficial to follow news media covering real estate and economic developments for a broader context.
“Engaging on social media platforms and online forums is another effective way to gather real-time opinions and experiences from other stakeholders in the market. Attending seminars and webinars hosted by real estate professionals and economic experts can provide current market insights and valuable networking opportunities.”
Marcus also encourages property seekers to monitor releases from Jabatan Penilaian Dan Perkhidmatan Harta (JPPH) and other relevant bodies for data on housing trends, and to establish relationships with industry professionals like real estate agents and property managers.
Must-Avoid Common Mistakes in Choosing a Location for Second Property
It’s crucial for property buyers to approach the purchase of a second property with a comprehensive strategy, considering the factors listed by Marcus to make an informed decision.
- Lack of thorough research: Buyers sometimes make decisions based on limited information or personal impressions without a deep dive into the market dynamics or future developments for the area.
- Underestimating total costs: This includes maintenance, taxes, and other fees, which can significantly affect the investment’s sustainability.
- Overestimating rental demand: Just because a property is near attractions or business hubs doesn’t automatically mean it will always attract tenants, especially if there are fluctuations in local supply or demand. Buyers also frequently choose properties based on low prices alone, not considering factors that might have led to the lower prices, such as poor location or limited growth potential.
- Overlooking accessibility and connectivity: These lead to challenges, especially if the property isn’t easily reachable from major cities or well-connected by public transport.
- Swayed by market hype: If property investors do not verify the actual potential of a location, it can lead to disappointing outcomes.
Thorough Research and Consultation
While these tips provide a strong foundation, remember that knowledge is power. Before making any property investment, always conduct thorough legal and financial due diligence. Investors should assess the financial viability of the second property, including costs, potential returns, current debts, taxes, market value, and financing options.
Consulting with experienced property professionals such as Marcus, could make a big difference. A good real estate agent can navigate the intricacies of the subsale market, identify hidden gems, and ensure you secure the perfect location for your second property, while real estate lawyers can ensure a smooth and legally sound transaction.
Happy house hunting!