iExpert: 17 questions on property investment answered by Khalil Adis

 

You have asked the questions, now here are the answers by our iExpert of the month, Khalil Adis. We’ve chosen 17 questions about property investment as asked by you! Read on to find out the what and how of it all, if you’re a first-time investor or if you’re thinking of diversifying your investment portfolio.

1. Is it a good time to make an investment now that we have a new government?

Buying a property is dependent on many factors such as the economy, supply and demand in the market, affordability and whether you are able to get a loan. When buying a property, you need to look at the most affordable property with the greatest room for capital appreciation. I would suggest you look at the following:

 

  1. Check the masterplan
    A masterplan would typically define a township’s development in the next one to two decades. It would also showcase the different designated land use and transportation plans within that particular township. An area deemed highly desirable will attract businesses and residents. With this in mind, you should find out as much as possible about your new neighbourhood.
  2. Check the transport masterplan
    Generally, properties close to transportation hubs such as MRT or LRT stations can command a premium of between five and 10 per cent over the long term. This is because people generally want to live close to transportation hubs. This demand translates to appreciation of a property’s price. Are there MRT or LRT stations that are being planned in an area? What about expressways?
  3. Check budget allocation from the government
    Government policies do have an indirect impact on property. For example, a budget allocation for improvements in public infrastructure and new economic drivers will have an impact on new and existing homes in and around the vicinity of an area. So check where the government is building new hospitals or schools.
  4. Check for economic drivers
    You should study an area before buying your property. The best strategy is to buy in an area that is not yet developed but where there are plans for various economic drivers. A government-mooted economic corridor or a reputable developer that has experience in building townships are great indicators if the area will ‘succeed’ or not.
  5. Check for job creation
    This is like feeling someone’s pulse. You need to check if the township you are eyeing is going to be a ghost town or a happening place. If it is the former, perhaps you should stay away. If it is the latter, more and more workers will be drawn there, becoming a magnet for people and a hive of activity. People are the lifeblood of a neighbourhood. As the area becomes highly desirable, people will naturally want to live and work in and around the vicinity. As there is an increase in demand, property prices in that area will also rise. That is how property prices appreciate.

 

2. What are the best townships with high-yield (whether new or pre-owned) properties to invest in, within the Klang Valley and Kinta valley locales to focus on in the next 12 months?

 Assuming that we are talking about the Klang Valley and Greater KL, you should look into the following areas:

#1: Bandar Malaysia

Bandar Malaysia is an iconic mixed-use development with a gross development value (GDV) of RM150 billion. It will house the High-Speed Rail station and two MRT stations – Bandar Malaysia North and Bandar Malaysia South. Bandar Malaysia North MRT station will serve this huge mixed-use development. The site area is around 196 hectares and will comprise 27,000 quality and affordable homes. There will also be a dedicated commercial district to support new start-ups as well as small and medium-sized enterprises (SMEs).

Meanwhile, Bandar Malaysia South MRT Station will be the interchange station connecting the MRT Circle Line to the High-Speed Rail station Line. At the 2016 Property Report Congress, Datuk Haji Sahrom Ujang who is in charge of DBKL Transport planning said that, 30, 000 units of homes will be delivered housing some 120, 000 residents within Bandar Malaysia. Bandar Malaysia has been designated for the Digital Free Trade Zone (DFTZ) initiative, where the Satellite Services Hub is located. According to DFTZ, this is expected to create some 60,000 direct and indirect jobs.

#2: Sungai Besi

Sungai Besi is located in a growth area in between Bandar Malaysia and Cyberjaya City Centre. Looking at iProperty.com agent’s listings, there are still condos and aparments in the secondary market priced below RM500,000 here. In addition, the upcoming Sungai Besi MRT station will be an interchange station to the Sungei Besi LRT station. It will serve as an interchange to the upcoming High-Speed Rail station located in Bandar Malaysia, also in Sungai Besi.

#3: Cyberjaya City Centre

The MRT Station will be the very first TOD project in Cyberjaya that will be built by a reputable developer backed by an experience in building Malaysia’s first TOD – KL Sentral. The area is also close to the vibrant start-up industry and close to the DFTZ logistics hub at KLIA Aeropolis. In addition, the job creation arising from Cyberjaya City Centre and DFTZ will fuel demand for both owner-occupied and rental homes. MRCB will be developing a new city that will be integrated with the MRT station. Phase one is expected to generate a gross development value (GDV) of RM5.35 billion. It will feature a 200,000 sq ft convention centre, a 300- to a 400-room business hotel, low and high-rise office buildings and a retail podium. Cyberjaya City Centre will have a development plan spanning 20 years. As the MRT station is located just opposite Lim Kok Wing University of Creative Technology, this also presents a good opportunity for investors who want to do student accommodation as education is a recession-proof industry.

3. What’s the minimum pay for me to invest in property and what amount should I be looking at spending? Also, what should I take into consideration when getting into this?

You need to work backwards on this based on your gross monthly income. As a guide, you should not be spending more than 30 per cent of this on your home mortgage. So assuming your gross income is RM3,000, you should not be paying more than (RM3,000 x 30/100) RM900 on your monthly mortgage. You can use an online calculator to compute this amount. I usually use www.calculator.com.my.

Say you decide to buy an RM200,000 property with RM20,000 downpayment (10%) with a loan period of 30 years and interest rate of 4.25%, your monthly mortgage would amount to RM885.49. Thus, this property will be something within your affordability range. You should take into consideration the above point that I had mentioned such as the developer’s masterplan, the surrounding transport masterplan, budget allocation from the government, economic driver and job creation in the area as this will influence greatly the capital appreciation of your property.

 

4. Could you possibly come up with a side-to-side comparison on both high-rise developments and landed properties and which is the more feasible option for entry-level home buyers in today’s society?

Here’s the comparison:

TABLE OF COMPARISON
NON-LANDED HOMES LANDED HOMES
FEATURES ADVANTAGES DISADVANTAGES ADVANTAGES DISADVANTAGES
BUYERS PROFILE Preferred home type for those living in the city area. Preferred home type among Malaysians. Easier to resell in future.
FACILITIES Most come with full facilities Deteriorating upkeep overtime if it falls under a non-strata title as some owners may refuse to bay maintenance fee. This affects your overall investment value Good facilities for gated and guarded developments Most landed homes types are stand-alone building with no facilities
SECURITY Generally comes with security guards. Safer compared to landed properties. Good security for gated and guarded developments Most landed homes types are stand-alone building with no security
PAYMENT TERMS Longer payment schedule. This gives you time to save and stretch your finances Shorter payment schedule. You need to have sufficient cash on hand.
MAINTENANCE Good upkeep if it is under strata titled as the management committee will ensure everyone must pay. This ensures price appreciation Deteriorating property overtime if it falls under a non-strata title as some owners may refuse to bay maintenance fee. This affects your overall investment value
DENSITY High-density Low-density
OTHERS Your outdoor area is only constrained to your balcony if this is provided for. This will not bode well if you like gardening or like plenty of outdoor space (if you have a pet in particular). Most landed homes have ample outdoor space for you to do your gardening and lawn for your family and pets to enjoy the great outdoors.

 

 As for the most feasible option, it depends on the cash that you have on hand, areas that you are targeting and your preference. Obviously, if you are buying in KL, landed homes are expensive which makes condominiums a better option.

If you are going for condominiums, be sure they are located near to train stations. Transit Oriented Developments (TODs) are the way to go within KL due to daily traffic congestions which you will need to factor in. If you are buying landed, then you need to look in outside KL, particular in the growth area of Southern Kuala Lumpur spanning from Puchong all the way to Nilai. This is because of various economic drivers that are being planned such as the Malaysian Vision Valley, KLIA (DFTZ) and Cyberjaya City Centre.

There are various schemes offered by developers such as rent-to-own scheme for both condominiums and landed homes. Do your own research to see which projects are suited to your needs.

 

5. What is cheap to buy in Malaysia?

Nothing is cheap at the moment. The only exception is if you buy a property that is below market value (BMV). A BMV property typically refers to a distressed property that has been auctioned off (rumah lelong) by banks, usually from a seller who is unable to service his mortgage.

When buying a BMV, you will need to attend an auction in court and prepare a bank draft in advance a show of interest. This will cost you around 10 per cent of the reserve price. For example, if the property is being auctioned off at RM50,000, you will need to prepare RM5,000 in bank draft. If you have successfully bid for the property, you will need to settle the balance of the payment within 120 days. If you urgently need a home, you do not have to wait three years, as in the case of buying from a developer.

From an investment point of view, buying such properties makes sense as you can buy multiple of distressed assets equivalent to buying one from the primary or resale market. Due to the lower acquisition costs, your rental yield is higher which ensures you can cover your mortgage (if you are taking a loan) or positive cash flow if you are buying it in cash.

Do note, however, there are risks involved. While the property is legally yours, you may find it hard to evict the tenants or owners. You may have to apply for a court order, through a lawyer, to evict the occupants. This process can take you up to four weeks and costs you between RM1,500 to RM2,000. Even so, there are no guarantees they can be evicted as Malaysian laws favour occupiers.

When buying a BMV property, it is best to find out if the property is occupied by tenants or owners.  In the case of tenants, they are generally easy to deal with by offering an extended lease.  However, this is not the case for disgruntled owners who may be forced to sell off their property and are reluctant to move.  Therefore, to mitigate your risks due diligence is important by hiring a good solicitor and agent to help you buy BMV properties.

 

6. How to tell the difference between a buyers’ and a sellers’ market now that we have a new government?

To tell the difference between a buyers’ and a sellers’ market is to look at the demand and supply of properties in the market, irrespective of whichever government is in power.

When the supply of properties exceeds demand (a glut), this is when it becomes a buyers’ market as buyers are spoilt for choice. When demand exceeds supply, this is when it becomes a sellers’ market as buyers far exceed sellers. In Malaysia currently, we are seeing a demand-supply mismatch whereby there is an oversupply of medium to high-end homes but where the demand is lacking. On the other end of the spectrum, there is a lot of pent-up demand for affordable homes but where supply is lacking. Hopefully, with a new government in place, they will look into this issue by ensuring enough supply of affordable homes in the market and ensuring the property market remains sustainable.

 

7. Is it a good time to buy properties in Pavilion now seeing that former PM had property there which the new government might auction off?

When buying a property, you should look into the potential capital appreciation of the property. Therefore, you should try to look at a property that is relatively affordable with enough room for capital appreciation.

Please click on this link for Pavilion Residences data.

If you are able to purchase it at below market value, say at 10 to 20 per cent off, that will give you some room for your property to appreciate in value. Having said that, as Bukit Bintang is a well-developed area, the capital appreciation will not be as much. In addition, there is too much supply of high-end homes in the area which affects its capital appreciation. The only property booster at the moment is the Bukit Bintang MRT Station on the Sungai Buloh-Kajang Line. If you are thinking of investing here, do consider turning it into AirBnB type of investment as the rental yield is much more attractive compared to renting it on a monthly basis.

 

8. What kind of properties would you recommend for investment if I am a first time home buyer?

 You might want to consider buying a residential property and turning it into a student accommodation. For this to happen, you must target an area where there are plenty of educational institutions nearby. Education is a recession-proof economy and student accommodation offers the perfect platform. To note that some student tenants can be problematic to manage so ensure you screen them carefully.

 

9. What sort of properties are a good investment right now and what price point are they at?

Look for properties that are scarce within a development. For instance, if the development has very few one-bedroom units, go for it as it will mean your unit is unique within a crowded marketplace. You may also consider investing in properties that are AirBnB compliant or falls under commercial development as the rental yield is very attractive. You may also consider investing in a unit that is close to educational institutions and then turn it into student accommodation. As for the price points, it really depends on the location. You can go to www.brickz.my to check for the recently transacted prices of secondary properties as a base for comparison.

 

10. How much is a Binjai on the Park condo with 3 rooms and 2 baths worth today?

 Please view this link for further information.

 

11. Will property prices continue to rise in the next 3 years in Malaysia?

If we look at the data from the National Property and Information Centre (NAPIC), the property price index across Malaysia has been on an uptrend since it started tracking the data in the first quarter of 2000 and first quarter of 2013. The only time there was a downtrend was during the 2008 Lehman Brothers’ financial crisis. As Malaysia moves ahead towards becoming a developed country status, we are unfortunately going to see this uptrend. Hence, it will be wise to get your first leg into the property market before price becomes more unaffordable.

 

12. Should I buy my first home before investing in property?

Definitely! There is no better investment than a sense of security and a roof over your head. Once you have your basic needs established, you can then start to save up and look into buying your second property. When doing this, ensure that the rental income from either home will be sufficient to cover your mortgage and your monthly expenses. This is one way to protect you and ensure you still have some sort of passive income in case you were to lose job or fall sick.

 

13. Which areas to look for to purchase 1) landed 2) condo 3) shoplot 4) industrial building?

It depends on the budget that you have in mind. As a general guide, you should look into growth areas as this is where property prices still have room for capital appreciation.

For landed and condominium, apply the 5Cs:

  1. Check the masterplan
    A masterplan would typically define a township’s development in the next one to two decades. It would also showcase the different designated land use and transportation plans within that particular township. An area deemed highly desirable will attract businesses and residents. With this in mind, you should find out as much as possible about your new neighbourhood.
  2. Check the transport masterplan
    Generally, properties close to transportation hubs such as MRT or LRT stations can command a premium of between five and 10 per cent over the long term. This is because people generally want to live close to transportation hubs. This demand translates to appreciation of a property’s price. Are there MRT or LRT stations that are being planned in an area? What about expressways?
  3. Check budget allocation from the government
    Government policies do have an indirect impact on property. For example, a budget allocation for improvements in public infrastructure and new economic drivers will have an impact on new and existing homes in and around the vicinity of an area. So check where the government is building new hospitals or schools.
  4. Check for economic drivers
    You should study an area before buying your property. The best strategy is to buy in an area that is not yet developed but where there are plans for various economic drivers. A government-mooted economic corridor or a reputable developer that has experience in building townships are great indicators if the area will ‘succeed’ or not.
  5. Check for job creation
    This is like feeling someone’s pulse. You need to check if the township you are eyeing is going to be a ghost town or a happening place. If it is the former, perhaps you should stay away. If it is the latter, more and more workers will be drawn there, becoming a magnet for people and a hive of activity. People are the lifeblood of a neighbourhood. As the area becomes highly desirable, people will naturally want to live and work in and around the vicinity. As there is an increase in demand, property prices in that area will also rise. That is how property prices appreciate.

Shop lots are common across Malaysia. What I like about this property type is that you can lease it out on a floor-by-floor basis. In addition, you can find supply data on this property which makes your job much easier.

In my opinion, Kuala Lumpur, Selangor and Johor offer the best opportunities for commercial properties. Kuala Lumpur is without a doubt a centre for commerce making it suitable for business activities of all types. Meanwhile, Selangor is located outside of Kuala Lumpur, where many locals call home with many train stations there. Therefore, it enjoys some economic spillover impact from Kuala Lumpur, Putrajaya and Cyberjaya as well as demand from the local population. Johor is also a hot spot due to Iskandar Malaysia and its close proximity to Singapore.

I assume you have limitations on your budget. As such, your cost of acquiring your shop lot must be low but with the greatest room for rental income and capital appreciation. As such, you should:

Buy in up and coming areas where MRT/LRT lines are planned

If you are based in Kuala Lumpur and Selangor, I want you to study the MRT lines and LRT Extension Lines. Look for shop lots near the MRT and LRT lines. You should aim to purchase a unit BEFORE the train stations are completed as once they are completed, the price will be significantly higher. If you are based in Johor, study the BRT Lines and look for properties along the three lines. Connectivity and your property equals human traffic which all businesses need.

Buy in an area where there are plans for new townships

New townships are less developed and therefore translates to lower cost of buying a shop lot. Study the areas carefully and highlight the areas as the ones that has the most potential. You can then zoom in to the area to see if there are shop lots within the vicinity.

 

14. Any hotel room or resort room recommended to worth to take a look for investment?

You should look at the hot spots where locals are going. Chances are foreigners will flock to the place as well. Location is of paramount importance when it comes to investing in hotel suites. Is the hotel suite located near to shopping centers or places of interest? Is there a season when tourists would flock in droves like on long weekends? Are hotels usually fully booked during this period? If the answers to all that are yes, then you’ve hit the hot spot. The following are good markets:

Melaka

There are many historic buildings and heritage sites that dot the city, making it a hub for tourism and history buffs among Malaysians and foreigners alike. However, there are still not enough hotel rooms to cater to the increasing number of tourists coming as far away from China and Korea.

Iskandar Malaysia

Iskandar Malaysia is a relative new player to the tourism market with key landmarks like Legoland Theme Park and Puteri Harbour Family Theme Park and Angry Birds Theme Park now open. Nusajaya is a brand new area which has seen tremendous number of visitors from Singapore and overseas.

Johor Bahru is a market to watch out for due to the cleaning up of Sungei Segget and the rejuvenation programme currently taking place and the many historic buildings that dot the area. Angry Birds Theme Park, at KOMTAR JBCC, is now one of the most visible tourism attractions that the Johor Bahru has to offer.

Aside from places of interest, Johor Bahru is a foodie haunt. Over at Jalan Dhoby, the area has transformed into a hip, bohemian vibe that has drawn the young and artsy Johorean crowd. There are many alfresco-style cafes that dot this heritage area over the weekend. For a little bit of culture, you can explore Little India nearby with stores selling colourful sarees and visit the Sri Mariamman Hindu temple.

The tourism industry is gearing up big time for the opening up of RTS Cross Border rail link service between Singapore and Johor Bahru which is expected to commence operation by 2024. New hotels that are currently making inroads in Johor Bahru include Double Tree Hilton and Suasana Iskandar Malaysia.

Kuala Lumpur

Kuala Lumpur is without doubt the most cosmopolitan of all the four markets. Home to major shopping centers such as Pavilion and Suria KLCC, Kuala Lumpur is also rich in cultural attractions in Central Market, Little India and Chinatown.

The peak season for tourism in Kuala Lumpur occurs during June to August. The hospitality industry calls it the ‘Arab season’ whereby hotels are fully booked across the city and will cost 20 to 30 per cent more than off-peak season.

Some of the popular landmarks in Kuala Lumpur include the Petronas Twin Towers, KL Tower, Petaling Street, Batu Caves, Bangunan Sultan Abdul Samad and Aquaria KLCC. You should study areas that are popular among tourists and see if there are hotel suites being offered in the vicinity.

Penang

Penang will continue to be popular among locals and foreigners as it is a major tourism destination with plenty of good food and old world charms unique only to the island. In January 2015, Penang scored a major feat when Britain’s respected newspaper, The Guardian listed the island as number 8 in the Top 40 global destinations.

This, in addition to Georgetown listed as an important UNESCO World Heritage Site, has resulted in increasing tourist arrivals and a popular destination for retirement. According to media reports, citing Chief Minister Lim Guan Eng (at that time), Penang saw international and domestic arrivals increasing by 8 and 33 per cent respectively in 2014.

Good areas to focus in Penang include Georgetown and Batu Feringghi. Georgetown, in particular is popular among backpackers and adventurous tourists who are drawn by street art, local food and rich cultural district.

 

15. How to own many house with just little or no money down.

You can previously do this but the government has clamped down this practice. The no money down strategy entails the developer declaring a higher Sales and Purchase Agreement (SPA) price then what you had originally bought for. This will mean you will have extra cash on hand when the banks disburse the loan resulting in little or no money down and in some cases, even cash backs. This is not sustainable in the long-run. I would rather you focus on buying your property in a prudent manner so as not to stretch your finances and stress yourself out unnecessarily. I do know of a few investors who are in dire straits now as they have multiple properties which are untenanted or which they cannot sell.

 

16.With so many condo/apartments out there, what are my chances of renting out my unit?

You should focus on doing simple renovations to ensure everything works. This means ensuring all your lights and power points are working, no leakage in your plumbing system, a fresh coat of paint on your wall and so on. All these, will immediately attract the attention of potential tenants. When giving a fresh coat of paint, stick to neutral colours like black, white, beige and a hint of wood as they speak of luxury and sophistication. Neutral colours are also easy on the eyes and are generally easier to capture the attention of a prospective tenants should you have the intention of renting out your property. To sweeten the deal, you might also want to include water heater, washing machines, oven, microwave and so on. Prospective tenants will compare your properties to others and will appreciate all these small gestures, putting you on top of their list. 

 

17.  I have purchased a unit in KL condo suite residence for investment. I am boggled by the amount of disbursements that I had to incur. Please educate me what are all these disbursements such as from the bank, developer and government?

The disbursements occur at various stages. Here is a step-by-step guide:

Stamp duty for memorandum of transfer (MOT) (this refers to the developer handing you over the title deed confirming you are indeed the owner):

1% for the first RM150,000

2% for the next RM400,000

3% for subsequent amount

This usually happens once the property is completed.

Sales & Purchase Agreement (SPA) legal fees:

1% for first RM150,000

0.7% for the remaining value within RM1 million

Stamping for SPA:

A few hundred Ringgit

SPA legal disbursement fee:

A few hundred Ringgit

Loan facility agreement legal fees:

1% for first RM150,000

0.7% for the remaining value within RM1 million

Stamp duty for loan:

0.5% of loan amoun

Loan facility agreement legal disbursement fees:

A few hundred Ringgit

Fee for transfer of ownership title:

A few hundred Ringgit

Bank processing fee for loan:

RM200

 

 

DISCLAIMER: The opinion stated in the article is solely of Khalil Adis of Khalil Adis Consultancy Pte Ltd and is not in any form an endorsement or recommendation by iProperty.com. Readers are encouraged to seek independent advice prior to making any investments.

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