With prevailing low interest rates and plenty of options available, this is a good time to consider investing in real estate. But, before you make any moves, recognise that investment in property – being a high-value, non-liquid asset – carries significant risks.
Without ample research and due diligence, investors could get ensnared by negative cash flow and unexpected expenses, leading them to sell at a potential loss if the property has depreciated. Indeed, selling might not even be an option if there is a significant outstanding loan amount.
When done right, however, real estate can be a wealth-generating asset rather than a debt trap. Here are some tips for successful property investment in Malaysia.
1. Understand the market
The property market is cyclical in nature, meaning there will be highs and lows every 10 years on average. And while the pandemic has prolonged the downward trend in recent years, prices are expected to rise as recovery begins.
Investors who purchase properties just before a crash stand to lose the most, while those who take advantage of good deals during a recession have the most to gain.
It is also vital to understand the three market types – primary, secondary, and auction markets – and the pros and cons of each. The secondary (subsale) market is arguably the safest to invest in, as current rental rates are available on property portals.
Asking prices are influenced by market forces, so buyers can hunt for below-market deals to increase the likelihood of capital appreciation or, at the very least, minimise losses if the property depreciates.
That said, buying a subsale property typically requires higher upfront costs to cover legal fees, stamping and down payment, and could incur miscellaneous costs such as repairs.
For investors in the primary market, rebates, discounts and incentives help minimise these costs, and buyers get to enjoy a defect liability period of 24 months upon vacant possession, as required by law.
One disadvantage is that rental rates and capital appreciation for new properties are more speculative than tangible. Prices are determined by developers rather than market forces, which could leave some of these properties to depreciate in the subsale market upon completion.
On the flipside, investors gain immensely if new properties appreciate once they have been completed.
As for the auction market, it is a high-risk, high-reward option that is best left to seasoned investors.
2. Carry out research and leverage on data
As mentioned above, research and due diligence are important. Most of the work involves studying listings on property portals to identify those worth investing in, and calculating monthly repayments and potential rental yields before physical viewings even take place.
Research should not only be carried out on the specific building but the surrounding properties as well. Take note of upcoming value-boosters such as public infrastructure, commercial zones, shopping malls, and educational institutions.
The availability of real-estate data is a crucial asset. Certain property portals release quarterly or yearly reports that identify price, search and listing trends, as well as hotspots and rental demand. Others offer transaction data that help investors identify realistic prices based on actual transactions in the event that listings on marketplaces are inflated.
Transaction records are the most accurate source for investors to determine purchase demand of a particular development or area.
3. Take advantage of current incentives
Experienced investors make the most of government incentives. For instance, first home buyers who earn below RM5,000 are entitled to a full loan for residential properties below RM500,000. A first property would enable newcomers to invest in real estate with minimal liability and homeownership risks.
Note, however, that buying a property for ownstay means the liability of monthly mortgage repayments hampers chances of purchasing another property, due to the owner’s lack of disposable income and loan eligibility.
On the other hand, rental income derived from an investment property increases the likelihood of banks providing loans for subsequent properties.
Since the middle of 2020, investors have also been eligible for up to 90% financing on their third property, as long as it is valued at more than RM600,000.
Bank Negara has further maintained Overnight Policy Rates at 1.75%, which is a 30-year low, making it an ideal time to purchase property on a fixed-rate mortgage.
This article was written by Vigneswar Rajasurian of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.