The Secondary Option : Buying Sub-Sale Properties Instead of New

The Secondary Option : Buying Sub-Sale Properties Instead of New

It is undeniable that due to the many factors at play right now such as the Goods and Services Tax (GST) and stagnating income levels, many aspiring homebuyers are presently finding it more than difficult to fulfil their dream of purchasing their own property. However, it should be noted that a large part of this problem stems from an excessive focus on newly built properties as opposed to other options such as the secondary market and auction properties.

iProperty.com sat down with Superior Wealth Mastery’s Founder and Chief Trainer Alan Poon who is the leading authority on the local auction property market to gain his insight on the situation with the property market and his advice to aspiring homebuyers.

What is your opinion on the current state of the property market?

I am generally optimistic that the demand in our property market is steadily growing relative to Malaysia’s progress towards becoming a developed nation. This is almost a guarantee in tandem with the country’s population growth and urbanisation needs as recorded by the annual census despite the usual presence of short- to medium-term confusion caused by naysayers and speculation activities supposedly felt by many in today’s market.

Interestingly, the market has somehow managed to survive amidst the cooling measures launched to counter speculative real estate investment by regulatory bodies and the tightening of loan approvals from financial institutions in recent years. In fact, several areas have grown by a manageable degree at the least while other parts were spurred on only to have the question of sustainability in the near future pop up.

This mixed reception is indeed a good sign that there are educated homebuyers and investors out there who know where and what to buy as well as developers who are doing their best to conduct responsible practices by supplying quality products that meet market needs whilst balancing their social responsibility to create sustainable communities.

These commendable developers are preferred over those who succumbed to short-term pressure due to bottom-line profits by marketing through bulk selling to investor groups although this practice is still rampant in the market. A healthy balance is required to ensure that upon a project launch, first-time homebuyers have a fair chance before exclusive discounts are offered to loyal bulk-buying groups.

More importantly, the public needs to know that all is not lost in the race to purchase their dream home or even a few more assets. There is still the secondary property market or sub-sales market which is always strong in demand and creates a pool of choices for discerning buyers. In fact, statistics from the National Property Information Centre (NAPIC) have shown that the secondary market commands the majority of transactions happening in the market.

 

This is a healthy situation because while waiting for a development which takes years to complete, the sub-sales property market can cater to the immediate needs of current aspiring homeowners.

Aside from these properties which change hands based on the willing buyer-seller concept, there is also the auction property market which presents an altogether different terrain and set of rules. This industry has been given a bad name over the years and I believe it is seldom given widespread coverage as it is perceived as the least favoured option among homebuyers or investors alike. However, the truth is that one can discover plenty of hidden gems here.

Buyers who have defaulted in their loan financing form the major source of properties being auctioned off. In this context, the auction property market is the tertiary sector in the real estate industry. Unlike the prime and secondary markets, auction properties require one to curate the few hundred choices among the listings which have been foreclosed by banks.

Something many in the industry are unware of is the fact that the auction property sector plays a role in the property market’s overall growth as winning bids in an auction process are considered the final transacted prices which subsequently contribute to the secondary market’s volume figure, explaining why secondary market statistics show frequent increases over the years.

This market offers homebuyers an alternative in the hunt for the perfect property in the other crowded markets. Meanwhile, investors can take advantage of the higher yields from auction units which usually are way below market value by knowing the strategies involved.

It would be a dream come true to be able to influence not just homebuyers and investors but also other stakeholders especially lawyers and governing bodies to ensure the auction market is much more regulated. In contrast to Malaysia, foreclosed and auction properties in countries such as the UK and Australia are more favoured and proceedings are conducted much more professionally but that is a story for another day.

Do you feel that the secondary property market has been affected by recent events such as the implementation of the GST? Why?

Yes. This is an interesting year as the property market’s overall growth was highly dependent on homebuyers’ purchases or investors’ decisions at least for the first quarter of 2015. Many were taking into consideration the effects of the much-hyped GST’s implementation at least from a financial viewpoint.

Unfortunately, people are still somewhat confused on the matter even though residential properties are exempted. For example, there are sellers in the secondary market who insist on an additional 6% charge whereas the buyer could argue that the seller is not a GST-registered person or entity and as such should not be allowed to do so. Meanwhile, some sellers claim their properties have commercial titles or even that the quantum of profits will exceed the RM500,000 threshold once the disposal is completed.

This affected transactional speeds as more negotiations, clarifications and discussions were required before a deal was sealed. The silver lining is that things will be back to normal once the dust settles for at least 12 months after its implementation. Until then, the market is split between those who adopt the wait-and-see attitude while the daring ones will be looking for creative means of taking advantage of the situation and profiting unconventionally.

I personally feel that the secondary property market has always been supported by the fundamental aspects of urbanisation such as the need to upgrade in relation to a higher disposable income or a change of dwelling type as the family expands among other reasons.

How feasible is the secondary market as an option for aspiring homebuyers?

Aside from outright sub-sale transactions, the majority of owners act as landlords who sublet their property. In recent times, there has been a variety of transactions which happen before the final sale of a property takes place. Lease options, rent-to-buy tenancy or even intentional foreclosed properties for auction are some alternative methods used to get a fair value of the priced asset.

Since statistics have shown that there are more transactions happening in the secondary market compared to the primary market, aspiring homebuyers need to be educated now more than ever to ensure that they are able to capitalise on the opportunity at hand. Properties in the secondary market can be viewed pre-purchase, are located in established neighbourhoods complete with amenities and can be moved into shortly after the purchase is completed.

Meanwhile, auction properties sport fair or even way below market value prices, have shorter negotiation times as most winning bids require less than a few minutes to transact during the auction process and are frequently available in a variety of options as auctions happen almost every day and there are many listings, most of which go unnoticed

What advice do you have for homebuyers who are considering the secondary market as an option?

Be patient and do your legwork on top of the headwork since buying a property usually requires a substantial amount of resources to result in a smart investment decision. This is especially true if you are investing in your first home as you will be staying in that property for a certain period of time.

A crucial pointer is to never settle for anything less when it comes to being fussy about things that matter. For me, continuous education is a top priority when it comes to buying properties. We must keep ourselves informed on the latest regulatory changes and the ever-evolving landscape of the property market in order to make good decisions.

Having said that, it is advisable to not rely on hearsay as most people have a tendency of asking less than reliable sources of information all in the name of convenience. Never follow the herd mentality and feel pushed to make an uninformed decision.

Lastly, I would like to highlight the three factors many take for granted due to the sheer amount of work needed to understand the intricacy of their implication in property buying which are taxes, depreciation and interest. These factors in fact play very important roles when you consider buying a property especially where the secondary market is concerned.

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