The funny thing is, no matter how ridiculously priced these properties are, they still get sold. A semi-d house with an awkward design (toilet next to the car porch), located in Shah Alam and priced at 800-900k….sold out. This shows how desperate the home buyers are…. or rather, how aggressive the property investors are.

I think it’s pretty obvious that our property market is seeing a stiff competition between the desperate local home buyers and the cash-rich property investors (especially foreign investors). The situation is fast becoming a “get a house while you still can afford” thing as local home buyers (or first time home owners) rush to get their hands on ANY affordable properties.

As a result of this, the price shoots up even more, to a state where other local home buyers can no longer afford to get their own houses and yeah….people have to rent a place or risk getting a big big debt on their shoulders.

But seriously, will this situation continue? I’m afraid so. What bout the price of the properties? If the properties are overpriced as they are now…will there ever be a bubble burst for our local property market? I’m afraid not due to the large number of rich foreign property investors coming in, and also due to the smart marketing move by the local property developers.

And on the question of whether the government’s decision to lure foreign property investors is a positive/negative move…. i will leave that to you.

p/s…. property consultant Chris Boyd recently said that now is a good time to buy property due to the affordable interest rate and that the property price has not peaked *shudders*. Check out his article in The Star here – A good time to buy.

Normally people would invest in residential units because they tend to be cheaper (generally speaking) and there are also more options for them to choose if compared with business premises (shop lots, office units, etc). However, they may change their mind once they realized that the profit margin tends to be higher for business premises.

Yes, you CAN earn more by investing in business premises, sometimes significantly more than investing in residential units. But, as with everything in this world, there are pros and cons to each of them.

Business premises

+ A good tenant can easily helps you to pay off your loan and at the same time, helps look after your unit for a long period of time. For example, banks, and franchised outlets.

+ If you happen to buy the unit in a very good location, you can expect to earn more than 40%. For example, those who bought a shop lot in Kota Damansara when it was first launched could easily earn a 200-300% profit now.

- Most anchor tenants like banks are pretty hard to get. Most of the time, it is the property developers themselves who are able to engage them as tenants.

- Business premises tend to be priced higher than residential units.

- Maintenance fees and the utility charges are also priced higher for business premises.

- A lot of speculations are involved when investing in business premises. You invest in one place at a cheap price, and hoping that the location will become popular in the near future.

Residential units

+ Priced lower than business premises.

+ Maintenance fees and utility charges are sometimes lower (certain properties fall under the commercial rates though).

+ Easier to find tenants as the demands are higher for residential units, as long as you don’t ask for ridiculous rental price.

- Your tenants are easier to run away especially for those renting out their apartment or condominium units. I’ve seen tenants moving out in the middle of the night (just spent 2 or 3 hours) without their landlords knowing it.

- Although demand is high, the supply for residential units is also very high especially when most of the units are controlled by property investors.

I’m not sure if this gives you a clearer picture of which type of property investment you should go into. I sure hope it does. Anyway, there could be more pros and cons to each of them. But in general, all I can say is that investing in residential units is for the beginners and perhaps those more reserved type of investors. If you have the financial backing and are okay with high risk, then go for business premises. High risk, high yield. Just be aware that if the location you’re investing in failed up pick up momentum, then your investment is as good as gone.

As for me, I’m not that big a risk taker. I prefer to have a slow and steady growth, with minimum speculation. That’s why I personally feel that investing in residential units is more suitable for me.

Hope it helps.

The Malaysia government has recently announced Budget 2010. To be honest, there are not much good news for this time’s budget. But whether there’s bad news or not, it is really up to you to decide.

Anyway, for this post, I will talk about one of the most talked about changes – the reintroduction of the Real Property Gains Tax or RPGT.

From BERNAMA:

The real property gains tax (RPGT) will be fixed at five percent on the gains from the disposal of real property effective 1 January 2010.

Reiterating this on Sunday, Second Finance Minister Datuk Husni Hanadzlah said that the rate imposed is irrespective of the holding period and the category of the owner.

However, exemptions to the individuals are given as follow;

* The level of exemption is increased from RM5,000 to RM10,000 or 10 per cent of the chargeable gains, which ever is the higher;

* Gifts betwen parent and child, husband and wife, grandparent and grandchild; and

* disposal of a residential property once in a lifetime.

To be honest, there are pros and cons here.

Pros:

• This will deter property investors from acquiring too much properties. Most often than not, the property price fluctuates because of flipping and holding activities. If a place is too crowded with property investors, the price will go up and down pretty fast. This is quite bad for people who are looking for a place to stay, and not investors. So by having this, it will limit the property investors’ activities, thus keeping the property price under control.
• Lesser property investors also mean the number of mortgage loans defaulters will decrease.
• More people would be able to purchase properties for their own stay since they don’t need to fight with so many property investors anymore.
• There could be a number of good bargains on the secondary property market from now until end of 2009. Existing property owners might want to offload their properties without incurring the 5% tax, and due to the competition, it could end up as a buyer market where the sellers are more willing to bargain.
• The fluctuation in prices for properties in prime areas will be minimized. This is because the demand will drop due to the big property gain often associated with properties in prime locations. Remember the more profit you gain, the more tax it’ll incur, and the more tax it incurs, the more property investors would avoid it.

Cons:

• Unfortunately, despite what the government wants, I believe the property price will still increase. The secondary market will have to include the 5% RPGT. As a result, a property which is selling for 500k now as compared to 300k when it was first bought, would cost additional 10k in 2010. As for primary market, the price will also go up because home buyers would turn to new properties instead of the expensive secondary market.
• Luxury property developers would take a hit. A 1,000,000 condo in Mont Kiara (bought 3 years ago at 700k) would cost an additional 15k in RPGT if the owner decided to offload it in 2010. That is quite a huge amount. That’s why I believe the luxury property projects would take a hit due to this RPGT especially when most of the buyers are property investors who would want to maximize profit.
• Some property investors are foreign investors who are investing their money in our country. By implementing this, the foreign investors might stop to pour in more money into our property sector.
• The banks are likely to increase their interest rate as the economy recovers, and this will be worse for those home buyers who have to pay for the extra 5% and then pay the higher interest rate.

Many people say that the reintroduction of the RPGT is not really helpful but I believe there are pros and cons to everything. The main question here is whether the cons far outweigh the pros and whether this RPGT is really able to achieve what the government is trying to do – to make homes more affordable to the middle and lower income groups.

Feel free to post up your opinions on this. Again, this is based purely on my opinions and views.

And for some people, such prices have gone overboard and they could no longer afford these properties especially those in the Klang valley and also few popular spots in Penang.

Then the question of “when should I really get a property?” comes out. Is it better to get it now since the property price is just going to go up anyway? Or should I look at what can I afford irregardless of the demand-supply in the property market?

It’s a tough question to answer because ….well, I do believe our property market will not slow down. More and more people form other states are coming into the Klang Valley and some towards Penang. So the demand will still be there especially at the popular spots like Petaling Jaya, USJ and Shah Alam areas. Waiting it out could mean that the gap between what you can afford and what it takes to afford a property, might end up getting wider and wider.

But don’t panic. In my humble opinion, you need to consider a few things before you dive into the property market.

• Do you have emergency fund? – you need to have at least 6 months to 2 years of emergency fund, depending on your monthly expenses. Yes, this should be the priority before you get a property. If you don’t have this, then save up for this before thinking about property.
• Is your job or career path stable? Can your skills and attitude help you to get a job where many have failed? - this is to ensure that when shit happens and you get retrenched, you will not remain jobless for too long. Because if you’re jobless, you still need to pay the bank for the property loan and that is going to make your life very very stressful.
• Do you have other investment? – stocks, mutual funds, fixed deposit accounts, EPF, these things can help you to move some of the money into property investing.
• How desperate are you in looking for a property? – are you getting married, or the current landlord is chasing you out? This will determine how desperate you are and also determine if you can actually wait a little longer before getting a property. Remember that desperation is not good when you cannot even afford it in the first place.
• and why are you looking to get a property in the first place? – is it for investment and you plan to sell it out after few years, or is it for your own stay? This question will determine the location and the type of property you should invest in…and of course, these 2 conditions will determine how much you actually need and if you can afford.

Once you have the answers for the questions above, you should know whether you can afford to buy a property now, or is it still better to rent a room for now and wait it out?

In the end, I believe that investing in a property is a good thing to do but you really need to know why do you want to get a property…and also if you can afford one with your current financial condition. Never ever dive head-first into property market if you are unsure of what you are doing. It can be disastrous, just like what happened to many newbie property investors in 2007-2009. They bought properties they could not afford, and were forced to sell them off cheaply.

Property market can be rewarding, but it can also be pretty damaging. So thread carefully. Do your research, do some soul-searching and think carefully before you invest.

All the best.

• To make it your personal home – for your own stay.
• Flip it when the price is right and when you found a buyer.
• Leave it vacant until a suitable buyer or the price increases.
• Rent it out.

If you happen to choose the last option which is to rent it out, you have to be careful. From my observation, there are a lot of tenants who move out without paying the rent. I’ve myself have witnessed 2 or 3 such cases in my condo. The landlords came over and complained about it. Apparently, these tenants did not pay a single cent for the past few months. They kept on delaying the payment and moved out within 24 hours.

Just imagine if you are renting your condo unit out for RM 2000 per month. And 3 months without rental, it’s a huge RM 6000 ! Not to say you have to repair and refurbish the whole unit once they’ve moved out.

Some of you might say that you will have legal documents and stuff. But the thing in our country is, how are you going to find those people? It’s near impossible.

So my advice to you, don’t rent it out if you can. If you still insist on renting the unit out, make sure you collect the rental every month and always ensure you select the right tenants. I know sometimes it’s hard to even find a tenant, but leaving your unit empty is still better than finding a tenant who doesn’t pay.

This actually confused most of them because the overall property market is SUPPOSED to drop by 10-20% this year.

Well, there are properties which drop around 10-20% this year, but those are located in selected areas only. Anyway, let’s take a look at some of the reasons why our property market is not going to see a decrease in price this year or next (if there is any, it won’t be much).

Marketing move

Most of our local property developers are pretty good in marketing especially the big ones like Sime and SP Setia. They’ve came out with plans like the 5/95 plan, the Sime Darby Property Parade of Homes, etc. All these smart marketing moves actually give the buyers more confidence, lower entry point (low downpayment) and an opportunity for first time home owner to buy a home during times like this. Imagine if everyone is required to pay 10% upfront for a 350k property. The demand will go down, and the price of the property will also go down due to lack of demand.

No new launch

If you notice, most property developers are only working on previous project launches. There are not many new launch nowadays. This is because most developers prefer to delay some of their important project launches due to the recession. They prefer to wait till the storm is over. On the other hand, there are also developers which go for the built-and-sell model. This actually gives them time to build the property while waiting for the economy to stabilize, and built-and-sell model normally demands a higher price tag for its units.

Rich developers

Okay, let’s face it. We have a lot of rich developers in Malaysia. They are willing to postpone the launching of their projects. That is why you can still see some empty lands in prime areas. By postponing the launch, the supply will decrease and this will actually prevent the price from dropping too much.

Demand is there

The demand for properties is still there even during recession. A lot of people are moving in to the big cities from the small ones and there are also some foreign investors, and foreigners who are making Malaysia their second home. On the other hand, I also notice that there are a lot of people getting married this year. Some did that last year. So it’s not really a big surprise for the newly-weds to hunt for their first home. Oh, and the low interest rate certain helps! All these generate a strong demand for properties. And when demand is still strong but the supply is lesser, the price will go up.

Malaysia is not as badly hit

Malaysia is not as badly hit as the likes of US and UK. Our Central Bank has been doing a very good job in keeping everything under control. True, there are still jobless people out there but again, I must say it is not as bad as we first feared it would be. Also, those who are looking for properties are actually not the typical property investors (most of them anyway). They are looking for properties for their own stay. Property investors can always postpone their purchase to a later date, but for this group of people (looking for own stay), buying now is the same with buying later.

Government

There have been moves by our government to help the property market. For example, the stamp duty exemption. This move actually helps to promote the purchase of low to medium cost properties for the first time buyer. A good move by the government for the low and middle income group to own their first home, but not so useful for the property investors. Still, it doesn’t take away the fact that this move DOES generate some demand.

Again, I must stress that I am not an expert. All the above points are based on the research which I’ve done for my friends.

Anyway, if you are a first time home buyer, this is actually a good time to look for one because I doubt there will be any decrease in price anytime soon. Just remember to choose your housing loan properly. Also, pay attention to some of the auctions organized by banks, and also on the secondary market (there could be some bargains there).

And I do feel that our property price will go up and not down. Unless you’re talking about areas where the supply far outnumbers the demand – Mont Kiara and KLCC area.

Before I continue, let me explain briefly what does it mean by 5/95 plan. Normally when you purchase a property, you need to pay at least 10% of downpayment in order to “buy”. Then after a certain period of time, you will start paying the bank for the housing loan and the interest charges. The problem here is that, you will need to ensure you have the enough fund to pay the 10% and also the progressive payments after that. The bank will penalize you if you’re not able to pay them back on time.

And 10% is not a small amount during times like this. A 300k property means you have to fork out 30k before you can start talking.

So some developers think of another way to attract more buyers during recession period and came out with the 5/95 plan. You pay 5% as downpayment, and nothing else UNTIL your property is completed. For a landed property, it normally takes 24 months and for highrise like condominiums, it’ll take 36 months but everything will be stated in your S & P. So, this does sound like a good deal right? You only pay 5%, which is as low as 15k for a 300k property, and then nothing else until the property is completed. This also means that if you don’t have money now, you can still buy a property. You don’t need to pay until 2 or 3 years later!

If it’s so good, why do I dislike it so much? I’m never a big fan of the 5/95 plan actually and this is due to 2 simple reasons.

• More expensive – if you calculate properly, the total price of the property is more expensive using the 5/95 plan due to the hidden charges and accumulated interest rates. I did not do a proper calculation and the examples I’ve seen before this are rough figures. I’ve read it somewhere in the papers actually. Do correct me if I’m wrong. But yeah, if you compare 5/95 plan to the old progressive payment plan, 5/95 will make you pay more for the same property.
• Speculation – in 5/95 plan, you don’t need to pay anything between your 5% downpayment and your property completion date, which is maybe 2 years or 3 years later. So if you are saying you opt for 5/95 because you don’t have the money to pay now (due to recession), then what makes you think you will have a stable income or enough money to pay for an even bigger amount 3 years down the road? You are actually speculating things here. What if the economy gets worse 3 years later? In my opinion, if you really want to buy a house, you need to be able to afford it NOW and in the future. So progressive payment vs 5/95 are still the same. If you can’t afford paying the progressive payments now, don’t assume you can afford it 3 years later.

That’s all. These 2 reasons are enough to make me stay away from 5/95 plan. I’m sure there are still a lot of other affordable housing plans out there and different people will have different opinions. But for me, I would prefer to go the traditional progressive payment way.

Feel free to comment or even correct me if you find my information here is not correct.

Here are some of the tips given by CNN Money.

• Consider paying cash – time might not be enough for you to get a house loan.
• Perform due diligence - always check out the property before you buy. You will need to ensure the property is in an OKAY state.
• Hire a licensed appraiser - no point buying a foreclosed property at a lower price, if the property actually worth nothing much. Get a professional to tell you the value of the property before you buy.
• Buy short – it is still better to settle this out of the official way, as in before the property is foreclosed. You will have more time to arrange your things (money, loans, etc) and maybe can get a better discount.

These are very important tips to remember before you actually go for a foreclosed property. We’ve heard ugly stories about foreclosures but there are also a lot of successful stories. Just be sure to check everything properly before you commit your money. Good luck and hope it helps.

If you’re interested to read the full article from CNN Money, please proceed to “4 tips for buying foreclosed properties“.

If you’re in the same situation as I am, fear not. There’s another option you can consider – Real Estate Investment Trust or REIT. It is just like investing in real estate but without owning the actual real estate properties. You own part of it and the properties are handled by a group of professional real estate investors. That’s the simple way to explain.

From Wikinvest

A real estate investment trust (REIT) is a corporation or trust that pools the capital of many investors to purchase income property (equity REITs) and/or mortgage loans (mortgage REITs). An equity REIT owns and manages property, as opposed to a mortgage REIT which purchases mortgages and may also borrow money from banks to lend again at higher interest rates.

REIT is traded publicly in our Kuala Lumpur Stock Exchange. You can find them in REIT under KLSE’s Main Board. Each REIT actually focuses on few types of real estate properties such as offices or shopping malls, etc. For more information, you can visit this link here which I find is quite helpful – Malaysia REITs: December 2008.

So if you’re a real estate investor wannabe but don’t have the money, you can start by investing in REIT. Hope it helps.

Rent it out?

There are just too many high-end real estates in the city of Kuala Lumpur and Mont Kiara areas. With so many real estates, it will not be easy to rent them out. Furthermore, it’s pretty difficult to find people who can actually afford such expensive rentals. Most investors look for expatriates since they are more willing to pay the expensive rents. There are basically 2 categories of expats – those who are already here, and those who are going to come here. For those who are already here, they most likely already have a place to stay. As for the other category, I doubt there will be many new expats coming in (not anytime soon) thanks to the recession. Thus, the market is actually quite stagnant. Try to ask around and you will see a lot of investors failed to rent their units out due to low demand for such high-end real estates.

Flip?

When they cannot rent the units out, investors who do not have the holding power will attempt to sell – for profit. The real estate market’s boom period is just over and most investors are still trying to gain some profit from their investments. The problem is, there are too many investors who want to flip because it’s one of the best ways to earn quick profit. In the end, you will face fierce competition from fellow investors who are trying to flip the real estates and might end up in an unwanted price war. And with the current economy situation, it will be very difficult for you to find buyers. The number of sellers far surpass the number of buyers.

Holding power

When the first 2 failed, you will have no choice but to hold. How long are you willing to hold? True, the economy will sooner or later recover and your real estate price will inevitably goes up – no doubt about that because at the end of the day, there are only limited amount of space left in such strategic locations. The main question will be – how long can you hold? These real estates are not cheap, and repaying the loan might kill some people off. And without any way to leverage the loan, you really need to have a lot of money in order to hold it. Also, remember that such high-end real estates have pretty expensive maintenance cost. If you are okay with all that, then yes, you can hold it and wait for the storm to clear.

Too many projects

In the past 2-4 years, we have seen so many high-end real estate projects in the city and other strategic locations. There are more to come including the luxurious Four Season which is located next to Maxis Tower. The newer the real estate, the better it is. The real estate which was built many years ago, might not sell as good as the latest one. And since the prices are quite stagnant now, why not wait for the newer and better projects? After all, it might be easier for you to flip or rent by the time these new projects have been completed – easier than if you go and acquire one real estate NOW.

That’s why if you are looking to invest in such high-end real estates now, maybe it’s better for you to wait for a few more months. Apparently, there are a lot of investors who are facing serious problems trying to pay off the loans. And if they cannot pay, the banks will have to sell those real estates at very cheap price.

To me, that will be a good time to buy.

Good luck.

NOTE: I’m not a professional real estate investor. The above are based on my opinions and findings.