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Warrick Singh
Starfish Training Sdn Bhd Resource Realty
An Overview Of The Greater Challenges Globally
Being lulled into letting our guard down for the last three years, investors were rudely awakened being hit sledgehammerlike to the new challenges that confront the current scenario. This state of affairs has sent analysts, strategists and governments running back to the drawing boards. In 1997, it was the financial meltdown. Now it is a volatile combination of these factors:
- Rising prices pressure
(energy, food grains, essential basic foodstuff).
- Impending US recession following two quarters of negative growth.
- Global capital shifts attracted by artificial high interest rates keeping the "poverty chain alive" on developing economies.
- Subprime financial crisis estimated to mirror a mind boggling quantum of USD 3.3 trillion by George Soros. This coupled with the estimated USD3 trillion Iraq war has dire consequences aimed at derailing the largest economy.
The Current Malaysian Scenario And Its Impact On The Property Market (The Economic Fundamentals)
However, it may not look that bleak on all fronts in context of Malaysia and it is the objective of this article to share with the readers, the windows of opportunities that are still available. Let's have a quick look at some economic numbers/tables before we move on.
What it all means
- RM550 billion GDP economy.
- 30% wage cost of gross capital billings flushing the domestic economy with RM156 billion in liquidity.
- RM330 billion FD's currently in the banking system build on the above mechanisms.
- EPF funds buoyed to fund government securities for infra projects, domestic economy of housing, information technology, education, medical sector etc. etc.
- Yearly bank lending to the mortgage housing sector amounting to RM71 billion (2007 figures) constituting 39% of total financial lendings to broad financial sector.
- The above lendings translated themselves to 311, 000 SPAs (Sale & Purchase Agreements) last year.
Property Investment Alternatives
We would like to share with the readers a whole host of alternatives in the investment game:
- Ho Chin Soon Sdn Bhd, a digitalized data company has done intensive research on Hotspots, land bank owners and whose buying what, where? The company has just released a 4-in 1 digitalised maps set cover-ing the areas of Klang Valley, Mont Kiara, Penang (NCER) and South
Johore (IDR).
- Auctioned Properties - It would pay the readers to secure the assistance of a licensed auctioneer and familiarize oneself with the processes, opportunities, pitfalls and the roadmap towards acquisition i.e the proclamation of sale which doubles up as the SPA.
- REITS e.g Australian investment company buying into a conglomerate of high yielding Singapore industrial properties ensuring returns to REITs holders vs. structured capital guaranteed products, e.g variety of land base investments with capital guaranteed protection for a holding period of 1 1/2 to 5 years.
- Land Banking/Franchising e.g Waltons, UK Land, Profitable Plots, Country Heights Growers' scheme.
- Rentals as an investment.
- Fixed Loan vs BLR leverage - understanding financial mechanisms to benefit from the relevant products.
- The Power of Leveraging in property acquisitions and rental returns. We advise the readers to tread cautiously in this line of investment as many have had their fingers burned in economic downturn cycles. Choosing the right properties that are able to weather economic cycles are of paramount importance.
- Agricultural land as an investment in lieu of raging food shortages.
- Bereavement plots that are feng shui compliant as this form of investment has yielded handsome returns for the investors without having to join the departed on the other plane i.e there is a good secondary market in lieu of good choice land.
- Swiftlet farming and its positive impact on abandoned commercial properties or properties located in godforsaken far-flung locations.
- Gated & Guarded concept in view of security and unemployment concerns.
- Purchasing properties in MM2H hotspots e.g Penang, Langkawi, Karambunai, Sabah. When toying with this form of investment, the investor may want to take cognizance of the following findings done from a survey:
- Top 9 reasons for buying a 2nd home: Security, Value of Property, Location, Cost of Living, Amenities offered with property, Political/Economic Stability of Location, Value for money, Quality of Construction, Foreign exchange restrictions.
- Expatriates placed the following attributes in choosing a place to live : Free from untoward security concerns, availability of health service providers, value for money, availability of everyday goods at reasonable prices.
The 3 Types of Property Investors
- The First Time Home Buyer
i.e Who has never owned a home before. Totally new to home ownership, unaware of pitfalls and intricacies involved.
- The Ultimate Home Buyer
i.e. Purchase properties in the past, knowledgeable of the purchase road map and the technical intricacies/pitfalls etc. etc.
- The Home Buyer Heading Towards Financial Independence
i.e. Owns a couple of pro-perties, understand the mechanics of investments, does not fall for developers' selling dreams as he has experienced property investment nightmares and has a QBPE qualifications (Qualified By Painful Experience).
Keeping Self Updated On Property Investments Opportunities
- Daily Newspapers Classified (Digitalised Software programs available)
- Auction Property Section
- Web Property Marketing sites/portals e.g iproperty.com, thinkproperty.com, thetradingplaces.com etc.
These are, amongst others, some recommended property investment search alternatives.
Property Investment - An Excellent Hedge Against Inflation
Whilst the above maybe the market's perception but there is a list of pointers that investors should watch out for bearing in mind that there could be detractors to this line of thought. To give a balance view, we have enclosed a property compa-rative study between property vs. shares and a table tracking values of this 2 investments over the years. However, those who opt for the property investment route should be mindful of the following:
- Property is not that liquid in the intermediate term.
- Property needs 3 - 5 years to appreciate.
- Property repayment costs can be expensive.
- Buying completed projects vs. developers' launches especially unknown developers could lead to project abandonment.
- STB (Sell then Build), BTS (Build then sell), Hybrid of BTS/STB. The pros and cons for appreciation e.g in good areas, proper-ties can appreciate by 15 - 30% on completion.
- The right loan scheme for the property investor needs to be selected.
- If necessary, a debt management strategy needs to be formulated.
- Knowledge of hidden cost i.e legal fees, stamp duties, Deed Of Assignment to strata titles conversion, outstanding cukai tanah, cukai pintu upon conversion etc. etc.
Property Investment - An Excellent Hedge Against Inflation
- Be .....In the know and hone your instincts for "cream properties" as the investment purchased property would soon be the investor's. in 15 - 20 years' time whilst the tenant helps you to pay for the cost of your property.
Two Successful Property Investment Case Studies
- Case Study 1
A smart investor, Mr Chan bought properties in the Damansara Utama location in the 90's and within 8-15 years, the price of the properties have appreciated by nearly 80%. All Mr Chan did was place an RM20,000 deposit for a RM190,000 house and sold it for RM 350, 000 - RM380,000. Just imagine! A stupendous RM140,000 was made in profit.
- Case Study 2
There is a distinction between DOA (Deed Of Assignment) and properties with Q.T (Qualified Titles), Strata Tiles, Freehold/Leasehold titles. A group of very savvy entrepreneurial businessmen approached banks/financial institutions to purchase distressed properties on an "enbloc tranche sales basis" i.e 50 - 60 properties at a go in a unit price range of RM50 - 60,000 per property.
Banks are more than willing to party with these investors as they purchased these properties outright on a discount cash basis as it helps to clear NPLs from the banks' accounts. Banks are also complying with the famous Development & Commercial Bank Berhad vs. Sharma case where Bank Negara only allows outstanding loans to be parked under "outstanding income column" for a maximum 3-year period. This will enable Bank Negara to gauge the true position of NPLs in the financial sector for a wholistic perspective.
These tranche holders then hold private talks explaining the concept of "participatory percentage returns" i.e the acquisition cost of the tranche could be worth RM3 million i.e RM50 - 60,000 per unit multiplied by 50 properties (approx.) with a market value of RM4 - 4.5 million. Hence a unit purchaser of anything between RM10 - 25,000 forming a percentage of the initial acquisition could translate into a 60% returns i.e RM25,000 on RM40,000 = 60% nett returns.
The company has some "hidden costs" to facilitate the process from zero to hero. They also work closely with the broad facet of tradesmen, estate agents, lawyers and the like to translate this investment into reality.
Feng Shui As A Positive Aid In Smart Property Investment
- Feng Shui, an age old chinese metaphysics art spanning coutless civilisations holds true to its form even to this date.
- Feng Shui practitioners (e.g master chang) are consulted before many a smart investor signs on the dotted line e.g facing west, t-junction, large monsoon drains, sewage ponds, hospitals & other chinese negative aspects.
- Today, digitalised feng shui software are available for do-it-yourself (diy) believers.
- Smart investors will find it hard to sell properties not feng shui compliant or will not get the price they want due to the unfavourable aspects.
Buying Properties Abroad
Many smart investors purchase these properties for their children education accommodation.
However, some pitfalls to watch:
- Investors must have spare cash to speculate.
- Rental returns scams with initial property acquisition price above market value vis a vis local investors' purchases.
- Knowing your neighbourhood before purchasing.
- Acquainting yourself with the hidden costs, land laws of the country etc. etc.
- We however, have to be mindful of currency values fluctuations as per the illustration table below as these can have a positive or negative impact on nett property investment returns.
Land Banking/Franchising
Understanding the nature of business i.e the promoters buying large land tracts with investment funds in new growth centres through exhaustive research.
Pointers to watch before investing in these property products as a smart property investor:
- Is the foreign company registered to conduct business in Malaysia?
- Is the company a member of a reputable trade organisation in its country of origin?
- What is the company's track record?
- Are there any built-in guarantees e.g capital protection?
- Are there exit cash-out avenues?
Legislation/Taxation For The Smart Property Investor
Like taxes or the tax man, intestate premature depar-tures to the heavenly abo-
des can have devastating effects on property ownership.
Suggested road-map:
- Engaging services of professional will writers.
- Acquainting self with relevant legislation e.g SEDA 55 (Small Estates Distribution Act) which fast tracks property ownership under RM2 million without the rigmarole/heartache of the courts.
- Other relevant Acts e.g Strata Titles Act/BCPA (Maintenace & Management) '07.
- MRTA (Mortgage Reducing Term Assurance) in the event of untimely eventualities during loan mortgage tenure vs. MLTA as per advertorial illustration.
Free Public Service
- As a smart property investor, you may have queries, questions about the technicalities of property investment and starfish training will help point you in the right direction.
- Starfish Training has created a host of strategic alliances with advocates/solicitors, bankers, software specialist, magazines and the like.
- Email your enquiries to mail@starfish-training.com.my.
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