Category: Property

Is Malaysia Property Still Worth To Invest In?
Malaysia property might not be as hot as previous years, but the interest is still there. With the recent hike in interest rates and more hikes expected later this year, the instalment for properties will go up.

This then begs the question as to whether Malaysia property is still a good investment?

First of all, let’s look at some stats.

Malaysian House Price Index

Source: National Property Information Centre (NAPIC)

House prices in Malaysia went up by almost 100% from 2010 to 2022 with the average price went up from RM220,154 to RM433,430.

But there has been a steady decline in recent years caused by the pandemic where demand went down and supply going up. The concept of supply and demand has influenced Malaysia property price to a certain extent.

Source: National Property Information Centre (NAPIC)

The number of transactions were seen climbing up towards the end of last year before falling off a little bit.

OPR (Overnight Policy Rate) Is On The Rise

Source: Bank Negara Malaysia

Malaysia have been enjoying a very low interest rate since the pandemic begin. But with the recent OPR hike by Bank Negara Malaysia, this would have caused interest rate to rise, and subsequently the monthly instalment for houses to increase as well.

Analysts are predicting a few more rounds of OPR increase to curb the rising inflation by end of this year, which could cause house purchases to cool off.

The Rise Of Inflation

Source: Department Of Statistics Malaysia

Malaysia’s inflation increased 3.4%to 127.4 in June 2022 as against 123.2 in the same month of the preceding year. The Food index increased 6.1% and remained as the main contributor to the rise in the inflation during the month of June 2022.

When faced with high inflation, there will be lesser disposable income as everyone will be tightening their budget. Only those who have made the necessary preparation and is prioritizing in buying a house over other needs, will buy it.

The others will then have to rent, so more renters are expected to be on the market.

Ultimately only you can answer whether Malaysia property is worth investing in. Do you have the holding power? Are you able to find below market value and irresistible deals from the property market?

As the saying goes, it is about ‘buying low and selling high’. Do your homework and remember the mantra, ‘location, location, location’.

For more tips and tricks:
Do you know how much is your Home Loan eligibility? Not sure how much you can borrow from the bank?

Get your TechRevo credit report + Home Loan Eligibility which includes:
- Credit history up to the past 12 months [CCRIS]
- Bankruptcy, Legal Suits, Legal action from banks, SAA, and Trade Bureau (Section E)
- Max home loan eligibility calculation up to 12 mortgage favorable banks in Malaysia
- CCRIS + Credit report + Calculator
It only takes 5 minutes. Click here now to get 50% off -> https://www.smartinvestor.com.my/techrevo
August 3, 2022
Clear Signs You Need To Refinance Your Home Mortgage Loan

Home loans and home loan applications may be complicated, with changing interest rates, bank policies, and government regulations. These and other factors lead to constant movement in what a lender can and can’t accept. As a result, countless Australians reach a point where they must shift lenders to take advantage of a better mortgage available elsewhere.

“Refinancing is tricky and time-consuming. Thus, it’s important to determine whether or not this choice is viable for you. Refinancing your mortgage is a big financial choice you’ll have to make. If done correctly, it can save you a fortune in the long haul.” says Shane Perry of Max funding—Australia’s leading second mortgage loan provider.

If you’re trapped in the same situation, take a closer look at these five tell-tale indicators that you need to refinance your home mortgage loan:

1. Low Rates On Offer

People refinance their mortgages for various factors, one of which is the availability of low-interest rates. Interest rates fluctuate a lot, so don’t pay too much attention to everyday fluctuations. When considering refinancing, it’s a good idea to keep an eye on the trends. Similarly, it’s critical to compare your current mortgage interest rate to the rates offered by mortgage lenders.

2. Your House Is Now Worth More Money

Secondly, you may choose to refinance if you’ve made significant renovations or improvements or the value of the homes in your neighbourhood has increased. Also, you may consider refinancing, particularly when you have a massive personal debt such as credit card, personal loans, etc., that you’d want to combine to payout or consolidate.

However, note that if your house’s assessed value improves, your home equity will likely rise, giving you greater borrowing capacity.

3. Your Income Or Credit Has Improved

Your income and credit score mainly determine the interest rate on your mortgage. Refinancing can help you get a better rate if you’ve earned additional income or your credit score increased after closing your mortgage.

4. Your Arm (Adjustable Rate Mortgage) And Mortgage Interest Rates Are Increasing

The combination of an ARM with rising mortgage interest rates is not a desirable match since it may substantially raise the total cost of your house when rates increase. If you find yourself in this situation, you should consider refinancing and switching to a fixed-rate mortgage.

5. You Want To Remodel Your Home

People who consider refinancing and get cash out often do so for various reasons. Home equity loans let homeowners borrow money against the value of their houses. You can spend the money to remodel your property and make changes to enhance its long-term worth.

Is Home Mortgage Refinancing Right For You?

Mortgage refinancing, along with many other financial transactions, is complicated and needs careful analysis by homeowners seriously considering it. Consider the signs listed above and connect with a trustworthy lender to get immediate answers to your questions. This will assist you in deciding whether or not refinancing is suitable for you.

July 29, 2022
Rich Debt, Poor Debt
Debt seems to give a negative impression. Sometimes it even gives people the chills just by hearing the word. But what is debt? Both layman and business dictionaries define debt as something that someone has given permission to borrow but with conditions to repay.

Now when it comes to organisations around the world, debt is used as an engine that creates financial leverage and multiplies yield on investment; provided returns generated by debt exceed its cost because the interest paid on debt can be written off as expenses.

Looking at this, is debt a good thing? Does debt put you in a better position or worse? Does debt make you RICHER or POORER? The answer is: “It depends!”

Poor Debt

We have seen tremendous growth in lifestyle expenditure. The unfortunate part of this culture is the increase of debts which makes people poorer. Let’s take the credit card as an example; 40% of credit card holders’ debt revolve around their credit, which means they only pay the minimum or part of the due amount after spending in full every month.

This trend has been rising for some time now. When you spend beyond your means and revolve unnecessarily, especially on lifestyle lavishness, you are paying a high price for your indulgences as the payback for your expenditure is compounded by a whopping 18% per annum.

To make matters worse, most of these lifestyle extravagances depreciate in value.

Responding to this trend, the personal loan product emerged as another form of new age credit. It gives easy cash access as it requires no asset pledged or charged as security. Many people are attracted to this sudden access to large volumes of cash that can be used for anything desired.

What’s more, its fixed low monthly payback instalment makes borrowers believe they have more control of their finances this way. The personal loan is another lending facility that gives the after effect of one week of pure enjoyment and five to seven years of dreadful commitment.

Running a debt on a credit card and personal loan is EXPENSIVE. It will cost you three to four times MORE than a home loan / mortgage.

In a nutshell, a poor debt is basically spending your future money for current or past expenditure and it does not generate anything for your future.

Rich Debt

Please see the situation below on how a debt that can make you richer.

John buys the same asset worth RM1M, and after three years, he also sold it at RM1.2M and made a handsome profit of 20%. He paid the entire asset of RM1M in cash. This was his capital outlay.

Amanda buys an asset worth RM1M, and after three years, she sells it for RM1.2M, making a handsome profit of 20%. She had the cash to buy the asset but she took a loan to finance 90% of the asset. Her capital outlay was only RM100,000.

Who is a smarter investor? Who made more money? Who is financially more resilient?
1. Amanda only used RM100,000 to make RM200,000 in three years.
2. While on the other hand John used RM1,000,000 to make RM200,000 over three years.
Amanda applied the power of SMART Leveraging. Amanda leveraged using debt, which she intentionally created, and a debt that is clearly controllable both in paying down and its desired outcome to increase her ROI (return of investment) percentage from 20% to 200%.

On top of that, she had funds for emergencies and additional money to invest on other opportunities that give better ROI than a savings plan. Doesn’t that make more financial sense? Amanda successfully leveraged her way for higher gains.

So, What is the Power of SMART Leveraging?

To simplify it, let’s say you have an objective to achieve, you know how to achieve it but all you need is something to leverage on to make it happen. A mortgage is a cost-effective way of borrowing. Interest rates on mortgage is no doubt the cheapest form of borrowing available in the market because it is secured with property.

What this is creating is that you are now boosting your wealth with effective returns. Just like the example of Amanda and John − Amanda has successfully increased her wealth by using only 10% of the asset value to give her a return of 200% after three years.

Worth a read : 3 Important Steps For Your Mortgage Application

Borrowing is Not New

We borrow to buy our homes. We borrow to buy cars, which is a depreciating asset but at times, a necessity. We also borrow to buy lifestyle indulgence goods.

Most of the time we borrow to do things that are not financially productive. SMART Leveraging can be incredibly productive when it is understood and used properly.

Therefore, equip yourself with the right financial knowledge and start using mortgages as a wealth creation tool. It can be used as arbitrage to leverage what you don’t have and yet benefit based on the total current value of the property when it appreciates over time.

The key here is;

A mortgage allows us to leverage and leverage allows us to do more with less.

About the Author

Gary Chua is the Chief Executive Officer of Smart Financing Co.
July 27, 2022
Double-Up Your Property Investment With These Rules!

Property investment is a lucrative business even when market sentiments are not exactly encouraging. Many investors will tell you that they still make money and this is the best time to find the ‘hidden gems’ of properties, especially those below market price by understanding the market trend.

For those with a deep pocket, investing in property might be easy for them initially, but the challenge later on will be on how efficient they can strike a balance between monitoring their investment profitability at the same time invest in more properties.

Here are some rules that have helped property investors achieve their property investment objectives and may help you in your property investing journey as well.

Rule of 72

Dubbed as the eighth wonders of the world by renowned math genius Albert Einstein, who formulated the famous formula E=MC², the rule of 72 is really worth understanding, especially in doing property investment as real estate is a business where you practically “double-up” your money invested.

The rule of 72 indicates how fast the money you invested can grow by 100%. It shows you the number of years to double up the original money invested into your property. For instance, if you have invested RM50,000 into a property promising an 8% return annually, you would double-up the money in just 9 years.

Say you get lucky and purchase a similar property at RM50,000 but with a 15% return annually, you would have doubled-up the money invested in less than 5 years.

The rule of 72 works because of inflation. Can you still remember how much a pack of nasi lemak costs 20 years ago and compare it to now? Moreover, your home mortgage should decrease over time, but at the same time, your rent increases.

Take the same example and you will know the amount of money according to your age. For instance, if you invested in a property with RM50,000 with an 8% return at age 31, the value will increase to RM800,000 by the time you reach 67 years old.

The rule of 72 essentially summarises one of the most powerful forces in the history of human’s economy – the power of compound interest.

If you know how to apply the rule of 72 in your property investment journey based on the annual rate of return, you can then plan your retirement almost more accurately; therefore the notion that people can retire before the retirement age of 60 by investing in the right property is one that is practical and possible to achieve.

Rule of 78

Did you know that making payments before they are due does not necessarily reduce the total interest owed to the lender? This is a misconception that sometimes makes investors confused.

The Rule of 78 is also known as the sum of digit. This rule will guide you to understand how the annual interest is calculated, as well as help in differentiating how much of your monthly instalment is actually going into paying the capital and interest respectively.

This rule is applicable based on an assumption that investors are looking to take a fixed interest rate with a fixed period loan.

Apply this rule when it comes to investing in property. Take the balance of your mortgage loan and multiply the balance of your annual interest rate. Then divide by 365. From the total amount multiply number of days per month. Quite a tricky calculation this is!

These days, a number of mortgage consultants are offering services where they can help you save on interest by splitting your repayments and paying them at different times.

Rule of 1%

This is the fastest method an experienced property investor will use before deciding to invest in a property.

Basically the rule of 1% states that any property you invest should be able to be rented out at 1% of the purchase price of the property.

So for a RM600,000 home, the rental at 1% will be RM6,000. Some investors will increase this percentage from 1% to 1.5% and even 2% for greater cash flow.

The rule actually helps investors do a quick estimation if the monthly rent recovered will be sufficient enough to cover or exceed the monthly mortgage payment.

Let’s say you put 20% down payment for a property worth RM600,000, you would have a mortgage of RM480,000; so according to the rule, the monthly rental cannot be less than 4,800.

Rule of 50%

Besides the rule of 1%, investors will also consider the rule of 50%. This rule basically states that 50% of your rental income will be used or allocated for the expenses incurred on your property.

For instance, let’s assume you have a property renting at RM1200. Thus, you should plan to pay RM600 (0.5 x RM1,200 =RM600) on your expenses not including the mortgage. Essentially, this indicates that you have RM600 left to pay mortgage before getting the profit.

The Cap Rate

Capitalisation rate or Cap Rate is a good method to calculate the rate of return if you buy or invest in a property because it measures the property’s value relative to your cash flow.

This is done by having the total amount of net income divided by the cost of the property or asset.

For instance, let’s say you buy a home at RM300,000 and your expenses such as property taxes, repairs, maintenance and insurance averages out to RM500 per month. If your rental is fetching you RM1,500 per month, then your net operating income is RM1,000 per month or RM12,000 per year.

So using the formula provided, you will get a return of 4%. But is 4% a good rate of return? It depends on many other factors such as location, security, opportunities for growth and so on.

There are many more rules that experienced investors will use other than those stated above. Share your thoughts and feedbacks by sending me an email at aicheng@skbrothers.com

About the Author

Chan Ai Cheng is the General Manager of S.K Brothers Realty (M) Sdn. Bhd.

July 21, 2022
Property Investment: Make Money via Capital Gain & Rental Yield

Property investment can be classified as a high risk investment category. High risk, high return. Indeed, that statement is true but do not forget the other side of it which the possibility of higher losses also increases.

Knowledge and strategy are matter the most in investment. It is applicable to all types of investment including property. They are important so that investor can manage their investment properly; control their losses.

It’s not whether you’re right or wrong but how much money you make when you’re right and how much you lose when you’re wrong.
George Soros

Property Investment

Property investment involved a huge amount of capital as compared to the others. Remember, it is not easy to liquidate your property especially when you are in the lost.

It involved quite a long process before the deal is done. You will need an agent to market your property, then will have to wait for a buyer. Then, if your property is leasehold, you will have to wait for consent from the land office. Normally it will take 3-6 months for a deal to be completed after you have a buyer.

Anyway, that is not our discussion in this article. There are whole lot of things can be done to get the best property investment as your investment portfolio.

How can investors make money via property investment?

Capital Gain of a Property

Capital gain also known as capital appreciation can be defined as the increase of the property value from time to time. It can be measured by the difference from original value with current market value.

You can easily calculate it using this simple calculation,

Capital gain = ((Current market value – Original value) / Original value) x 100

For example, you bought an investment property in Setia Alam for RM600,000 in July 2015. As of July 2022, the current market value is RM800,000.

Your property value has increased as much as RM200,000 in just 7 years. The capital gain from formula given is 33% over the 7 years of ownership. Easily calculated, your property value increased around 4% to 5% a year.

Your property value appreciation can not be reflected literally by 4% to 5% per year as the appreciation value is pretty volatile over the years. It could have appreciated by 15% in the first year and stagnated until the fifth year and appreciated again.

So, what can be considered as good capital gain for our investment?

Average capital gain of residential properties in Malaysia reached 13.9% in 2012 when the economy was great according to National Property Information Center (NAPIC).

Capital gain of 5% to 7% can be considered ideal during typical market situations. It is good to remember that mostly, the capital gain is impacted by the economy.

After all, the capital gain can be seen as decent when it is above the inflation rate. Most investors who aim for capital gain will flip or sell their property unit after they reach their goals at certain times.

Property Rental Yield

Rental yield can be described as the amount of rental income for a property as compared to the total investment value. This can help property investor to evaluate potential income of the said property.

Rental Yield = ((total rental income – total maintenance cost)/(property purchase price))x 100

For example, you purchased a property at RM600,000 while the maintenance cost per year amounting RM5,000 and the rental income per month is RM3,000.

Then, your rental yield is around 5.2%. What does it mean?

Rental yield also impacted from the economy. When the demand for rental market is good, the rental yield would likely be good too.

During the pandemic outbreak, many people lost their job. The demand for the properties especially surrounding business area depleted.

Normally, the average rental yield for residential properties is about 3.7%. A good rental rate should be at least 7%. As an investor, there are things that need to consider; property furnishing, property repairs, maintenance fees and any other cost involved.

You have to consider taxes that actually may reduce your rental income.

Location and type of the property play big role in determining the rental yields. For instance, a high rise property with limited units that located near to the access of public transport and offices are usually get a higher rental yields.

This rental yield strategy is suitable for those who have a property in a high demand rental area where you can rent it out easily with higher price.

So, which one is best suits you?

June 28, 2022
What Will Happen if You Don’t Pay Your Maintenance Bills?

With prices of landed properties being way beyond what an average home buyer can afford in city areas like Kuala Lumpur and Penang, living in apartments or strata homes will be the norm for the future generation of urban homeowners.

‘Pay thy maintenance bills’. This is mentioned in one of the ‘sacred text’ better known as “Strata Management Act”, where it decrees that all strata home owners have to pay their maintenance fee.

So, what’s a maintenance fee, you ask? It is the fee that would be collected from the owners within the strata development to be used for repair, maintenances, security and upkeep work of the common property.

Consider this scenario: You have not paid your maintenance fees for the past six months and the management has been calling you day and night but they have not taken any action against you. You would think that you are invincible since all they can do is to annoy you with phone calls or email reminders.

You thought that the Joint Management Body (JMB) or Management Corporation (MC) (collectively known as the Management) is toothless and unable to do anything to you or your property.

Think again! Let me shed some lights on what can happen to you if you continue to ignore the payment of your maintenance bills.

1. Block Your Access to Shared Facilities

The Management is legally able to restrict your rights to using the shared facilities such as gyms, swimming pools and clubhouses. Not only that, they are also allowed to evict you from said facilities if you’re ever caught using them.

But for some, this may not be a problem as you don’t use these facilities anyway. So what else can they do to you?

2. Send You Legal Letter of Demand

There is no minimum amount of outstanding fees needed to send a lawyer’s letter of demand. As long as the legal notice remains unpaid after 14 days, the Management can proceed to bring the matter to court which may cost you even more money or may even land you in jail.

3. Disable Your Access Pass Card

While they may not be able to chase you out of your dwelling in the interim of any court order, they do however have the right to disable your access pass. This may compel you to enter the compound as a visitor and the inconvenience of registering as a visitor each time you come home.

4. Blacklist Your Name on the CCRIS and CTOS

Although you can bear some of the inconveniences, it may hurt you financially when your name appeared as a defaulter in your CCRIS and CTOS credit reports.

Both CCRIS and CTOS show your credit payment ability and all of your financial commitments, which are used by financial institutions to determine your credit worthiness. This would affect your opportunity of getting better financial deals in terms of the quantum and interest rates when applying for a loan or a credit card.

5. Having Guards Following You to Your Doorstep

Still not convinced? If you still have not paid for your maintenance fee, the Management has the right to have a security guard follow you around, that is, to your doorstep when you arrive and to your designated car park when you leave the place. This is to prevent you from using any of the shared facilities when you are in the compound.

6. Auction Your Personal Belongings

I bet you weren’t expecting this. You haven’t paid your maintenance fee in the past 10 months, and they cannot force you out of your house, and despite making matters difficult for you, you were able to live with the hassle.

Now what if I tell you that by law, they are able to get a warrant to go into your house to take your personal belongings such as your laptop, computer, furniture and even clothes to be auctioned off to pay off your maintenance debt!

In a bid to get defaulters to pay their maintenance fees, the Management can get a warrant to raid and seize the moveable items from their properties with the help from the Commissioner of Building (COB) and the government.

The message is clear – pay your maintenance bills. While some JMB/MC may be quite forgiving and take a more passive approach on delinquent tenants, there are the more aggressive ones who would not hesitate to take such actions.

Living in a community requires each one to play their role to ensure that the whole community benefits. Remember, maintenance fee will always be part of the deal when buying into a stratified development to take care of the development’s common property and services.

Delays in paying your maintenance bills in timely manner will cost you more with interest charges and late payment fee. Therefore, as part of your financial plan, take into consideration this monthly obligation once you have committed to purchasing a strata title home.

About the Author

Chan Ai Cheng is the General Manager of S.K Brothers Realty (M) Sdn. Bhd.

June 22, 2022
3 Important Steps For Your Mortgage Application

Food for thought: If one day your friend wants to borrow RM1mil to replace mortgage from you to purchase a house and promises to pay you back via monthly instalments for the next 35 years, how would you react? Personally, my top priority would be to take stringent steps to ensure that I would be able to get my money back.

This applies to the banks too when one applies for a loan especially your mortgage. Here’s a quick summary of the process in three simple, sure-fire steps:

Step 1: Your Profile Matters

Ever wonder why the application forms have so many fields to fill, none of which are related to the property you want financing for? This is because each and every field in the forms give a score towards your eligibility. This scoring is called an “application score”.

The place you live, your marriage status, your occupation and so on will give you points. The higher the points, the better your score and the higher your chance of getting your loan approved. So, remember: do not ask someone to fill your forms for you or leave them blank because this will affect your score.

Step 2: Get your Income Recognized for Credit Rating

How much you earn matters to the bank. You need to make sure all your income can be recognised by the bank with proper documentation. On top of that, how much you earn and your income sources are important too.

Some banks will only recognise a certain percentage of your income especially when that income source is not fixed like commissions and incentives. For example, some banks will recognise only 80% of a commission and some banks will recognise only 50%. You will need to ask the banker how much will be recognised because each and every bank will have a different method of recognising income.

This income will be used to compute your debt service ratio (DSR). This is to check whether or not you can afford the loan. DSR is your existing commitment plus new commitment over your net income after deductions from EPF, PCB, SOSCO and EIS. Most banks will reject your loan if your DSR percentage is more than 70% of your net income and every bank will have a different cut-off for DSR. Do ask the banks what their cut-off rates are to ensure they approve your loan.

Read : Housing Loan In Malaysia: What Is Debt Service Ratio (DSR) And How To Calculate DSR?

We need to be disciplined in keeping good records with the banks. When you borrow, you need to pay your loans on time. Bad records will be recorded in CCRIS and CTOS which banks will review. Once it has been deemed that you have a bad record, your application will be rejected.

Step 3: The Right One Will Get the Job Done

Bankers, lawyers, agents and sales representative are all key players in your property purchase journey. It is advisable that you engage the person who is committed and can guide you. A simple rule is that if they can explain to you all the terms and conditions about your property purchase agreements, then he is experienced and can help you make better decisions.

That being said, it is very important for you to equip yourself with the right knowledge by asking all the crucial questions about the loan.

About the Author

Gary Chua is the Chief Executive Officer of Smart Financing Co.

June 21, 2022
Should I Take Out My EPF To Settle My Housing Loan?

I saw a news today regarding housing loan, and there are many netizens comment that they took their Employees Provident Fund (EPF) money to settle their housing loan earlier.

Is it a wise decision to take out EPF money to settle housing loan earlier?

Here is an example:

Housing loan amount: RM199,000
Interest rate: 3.15%p.a.
Loan tenure: 25 years
Outstanding balance at the end of 15^th year: RM98,635.60

Based on the information above, if I would like to do early settlement, I have to take out RM98,635.60 from EPF to settle off my housing loan at the end of 15^th year (180^th month).

According to the calculation shown below, I can save a total of RM16,477.72 interest for early settlement.

However, I could have made a potential of RM62,031.40 dividend if I leave the RM98,635.60 at EPF with expected 5% annual return (expected return based on past performance) for 10 years.

I might be earning additional RM45,553.68 (RM62,031.40 – RM16,477.72) dividend if I do not take out my EPF to settle off my housing loan earlier.

Hope that this simple calculation can solve the doubt of everyone who is planning to take out the EPF to do early settlement.

Yet, I received some queries regarding the high housing loan interest rate of about 4%-5% in 20 to 35 years back, is it worth to take out the EPF to settle their housing loan when the rate increases back to 5%?

Based on EPF historical performance, the time where the housing loan interest rate is at about 5%, the EPF dividend is about 7%-8%. Despite the historical performance does not guarantee future performance, but it can always serve as a guide for us before making our financial decision.

About the Author

Angel Chan is a Licensed Financial Planner attached to UOB Kay Hian Wealth Advisors Sdn Bhd. Besides providing comprehensive financial advisory to her clients, she is also committed to educate the public about the correct financial management mindset and methodology through article, YouTube video and Financial Management Workshop conducted by her and the team. Do reach out to her for more information.

FB page: https://www.facebook.com/angelchan.financialplanner

FB page: https://www.facebook.com/profinance.my

YouTube channel: https://www.youtube.com/channel/UCf5f7O3vuOhnwy_wflDuuKA

Smart Finance: https://smartfinance.my/planners/chan-aun-kei-rfp

To book a free 1-hour consultation with Angel Chan: https://forms.gle/8Ur46Dox9T6g3yKS8

June 21, 2022
Why The Best Investment On Earth Is Earth Itself?

Raw land is a “Hands-off” investment. In fact, land is the ‘raw material’ for just about every property development. As a budding investor, you need to know just what kind of land is needed for an upcoming project:

Is it the right size? The project may not be big enough to meet demand around the area. The individual unit size may or may not meet the demands of the demographic it is attempting to serve.

Is it the right type? Is the land fit for agricultural projects, or is it better suited for industrial ones? Are there any environmental factors that may hinder project growth? If it’s a residential project, does it connect well with surrounding facilities (public transport, hospitals, etc)?

Buying land is usually significantly cheaper while it is underdeveloped than land that has a useable structure constructed on it. It is clear that land is the raw material of any property development. Thus, the saying “the best investment on earth is earth (land)”.

Might be a good read : 4 Tips To Invest For Long Term

Land is always a scarce resource as it is non-produceable. Hence, developers are constantly on the lookout to increase their land banks.

Acquiring the right type of land (agriculture, industrial, residential, commercial, etc) and the right size (density, plot ratio, type of usage and development, individual unit size, etc) will ultimately help decide the potential value of the land.

Right Location?

Is it at the right location? The area could already be matured, which could lead to a steady interest. If it’s an upcoming developing location, there may be a spike in valuation over time.

Our strategy includes land acquisition for property development in Hong Kong (HK), probably one of the most challenging markets in the world. Population density, land scarcity, and off-the-charts growth make it an extremely complex one.

However, we have managed to gain a foothold with a strategy of land bank acquisition, i.e., acquiring small tracts of land with an eye to future development, taking into consideration the political, social, environmental and cultural realities of HK.

When we were first introduced to land acquisition opportunity in HK, we felt excited to explore more and eventually got involved due to HK properties which are ranked among the most expensive in the world. And with land scarcity, it all boils down to capitalising on demand and supply.

Below are some key indicators that will be used to decide if the stipulated land will be suitable for this strategy.

As a rule of thumb: Islands with scarce build-able land and high population density with high PPP or FDI will never go wrong.

Please keep in mind the information below is an example to help you understand details on a new level and I would like to remind you that every opportunity is different. You must always do your own research before you commit anything.

Location, Political System And Economy

With a landmass of 1,104km² and a population of over seven million people, HK is one of the most densely populated areas in the world. As of 2018, HK’s gross national income (GNI) per capita is US$67,810 Purchasing Power Parity (PPP) dollars and its gross domestic product (GDP) per capita is US$64,597 PPP, according to the World Bank.

Under the principle of “One Country, Two Systems”, HK has a different political system from mainland China. The law of HK is based on the rule of law and the independence of the judiciary where the constitutional framework is provided by the HK Basic Law.

The Lands Department in HK is practicing the British system, which is common law and familiar to us when we invest.

Hong Kong has a free market economy and it is highly dependent on international trade and finance.

Alternative To Land Acquisition

One of the alternative proposals to land acquisition is leasing the land from landowners for a certain lease period. Leasing land may also support sustainable project development since the lands need to be returned to the landowners at the end of the lease period in a condition similar to its original form without considerable environmental degradation.

When the land is leased then anybody who has to otherwise give up land or livelihood will be compensated for its growing valuation over time. In this model, the landowner lends her land to the government for a steadily-increasing rent, or through an annuity-based system.

In any case, how do we contrast this with what we are doing in Malaysia?

Despite having already established viable businesses in more than 10 countries, and being able to show healthy profits in most of them, I am still bullish about the place I call as home. I believe there are many areas where both local and foreign investors can invest their funds for very healthy returns on investment.

We tend to believe that we need a lot of money to invest, but it’s not always true. But it can be done.

You have to be able to make different kinds of investment, like investing time in doing proper research and learning about markets, that will help you make well-informed decisions and taking a calculated risk. Be consistent. Your attitude towards small things should be the same as your attitude towards big ones.

Some “good” and “bad” qualities vary from one community to another. If the investor knows the local community, they could know better which parts of the land or town are less or more desirable.

It is always smart to rent in a new community before committing to purchase a land for investment. Sometimes, renting allows the investor to become familiar with the location.

“Location, Location, Location” Makes All The Difference

“If you are avalanched by adversity, hold on. Don’t give up; rebuild. Make decisions and stick to them.”

About the Author

Max Shangkar is group CEO of Max Capital Management Holding Ltd and an expert in global project management consultancy. He is also the author of the best-selling book Investment Strategies for Global Real Estate.

He propounded the market-proven investment strategies of Property Investment Life Cycle and Business Investment Life Cycle that educated over 6,000 Global Investment Community members to invest in property projects and businesses in over 10 countries.

June 15, 2022
Land Titles And How They Affect Your Property Buying Decision

While a freehold land refers to a land title in perpetuity which, in most cases, is the most preferred type of land title to own, a leasehold land means that you just have a lease from the freeholder to use the land for a number of years, which can range from 30 years to even 999 years.

In most parts of Petaling Jaya, the authorities have extended leases for another term. The extension of leases for leasehold properties is governed under section 197 of the National Land Code (Act 56 of 1965) pertaining to the applications for approval of surrender of the whole of the land, as well as the land rules of the various states (for the state of Selangor, the extension of a lease is governed by the Selangor Land Rules 2003 and Selangor Quarry Rules 2003).

Read : Housing Loan In Malaysia: What Is Debt Service Ratio (DSR) And How To Calculate DSR?

There is also another type of property built on private leases of similar tenures to that of government leasehold. This type of lease poses more challenges for buyers as the owners of the land are private parties and they do not have renewal or lease extension in the same manner as the government.

In addition, there is also the case of Malay Reserve Land (MRL) vs Bumi Lots. While it is quite common to think that both are the same, in reality, they are not. Properties developed on Malay Reserved Land can only be owned by Malays and are governed under the Malay Reservation Enactment. Malay owners are not allowed to sell the properties built on MRLs or the lands themselves to non-Malays. Businesses operated on MRLS must be owned by Malays.

Bumi Lots, meanwhile, are units of land or property which can only be purchased and owned by Bumiputeras. To some, this means a more restricted market whereby you can only resell your property to another Bumiputera. There are, however, incidences where a transfer can be made to a non-bumi, although this is subject to approval from the authority.

“Bumi Quota” is also another term commonly used when developers market new projects, and this is again not to be confused with Bumi Lots. Under the New Economic Policy (NEP), this was introduced to increase Bumiputera shares in real estate to at least 30%. However, depending on locality, this percentage differs. Bumi Quota can also be released and is subject to the fulfilment of conditions.

About the Author

Chan Ai Cheng is the General Manager of S.K Brothers Realty (M) Sdn. Bhd.

June 15, 2022