Kuala Lumpur Property Investment

Do Properties REALLY Make the “Perfect” Investment?

2010-07-15T23:32:00.001+08:00

Do Properties REALLY Make the "Perfect" Investment?

The following are the various attributes to consider when evaluating any type of investment:

1. Returns: The Expected Returns must be powerful i.e. greater than 15-20% p.a. Since most properties yield an average Rental Yield of 4-7% p.a. (depending on property type, location, etc) + Capital Appreciation of 5-10% p.a. (depending on economic growth, inflow of foreign investment, etc), Properties are considered to be Moderately Powerful.

The returns are usually more than enough to keep up with and even outperform your family's "unofficial" inflation rate of 6-10% p.a. Hence, properties are an excellent long term investment for keeping up and even out-performing inflation.

2. Stability in Both the Market Value and the Annual Returns. Properties are considered to be extremely stable and hence safe. They are less risky investments as the Volatility or Price Fluctuations are extremely low. On the other hand, it's fairly common to see prices of even blue-chip property stocks fluctuate between +/- 20% in any given year.

3. Liquidity: How Fast Can You Convert to Cash either by Selling or Refinancing. Unfortunately, properties fare very badly in this regard. Properties take time to sell and convert to cash. The earliest, if you are lucky, is approximately 1 month to sell and another 3 months to get paid. Leasehold properties in undesirable locations may easily take 6 months to sell and another 9 to 18 months for the transaction to be completed.

However, if your property is fully paid-up or if you have built up sufficient equity by reducing your outstanding loan, you will have the option of revaluing and refinancing the property. It will take approximately 2 to 3 weeks to refinance a property with the same bank. If you are refinancing with another bank, it will take a few months for the paperwork to be completed.

4. Leverage: Does the investment offer you the opportunity to borrow money + does it give you the flexibility to choose your borrowing level? In properties, you can choose to borrow anywhere from Zero to as high as 100% of the purchase price whereas for Futures or Options contracts, the gearing levels are fixed as the contracts are standardized.

No other investment has this unique benefit. In some instances, it's even possible to borrow 100% of the purchase price if you are familiar with creative financing techniques. The advantage of borrowing money for property investments is that your loan is gradually being reduced thanks in part to your hard-working tenants and your asset is appreciating over time thanks to inflation.

5.    Expenses or Costs at the point of
a)    Entry or Purchase and
b)    Exit Point or Sale of the investment.

Properties are costly investments, both at the entry and exit points. During purchase, there are legal fees, stamp duties, mortgage insurance to cover the loan amount and several other costs involved. During exit, there may be property agent's fees payable, legal fees to redeem your outstanding loan and other costs.

While the above may not seem to be a complete list of attributes to consider when evaluating any type of investment, but they are a few of the main attributes to consider when choosing an investment type to invest.

6. Capital Gain Taxes on the Disposal of the Investment. On 1 April 2007, the Real Property Gain Tax (RPGT) was abolished, hence properties are now on par with other investments with regards to this point.

7. Annual Operating Costs such as Income Taxes, Other Expenses (e.g. Quit Rent, Assessments, etc), Interest Costs, Repairs, Management Fees, etc in up-keeping the investment. Properties fare badly in this regard.

8. Time taken for transaction to be completed, at the point of purchase and sale. On average, it takes anywhere from 3 months at the earliest to even 12 months in some instances for the property transaction to be completed and for money to exchange hands. For portfolio investments, it usually takes only 3 working days for contract to be concluded.

9. Stress or Headaches involved in maintaining and up-keeping your investments. With properties, you must be mentally prepared to deal with numerous problems with regards to property and tenant management issues.

10. Maintenance of Proper Records for Bookkeeping purposes if there are tax issues involved. Due to the various fees and charges involved, and the tax implications of them, it's absolutely essential to maintain proper bookkeeping records. The more properties you have, the more time, effort and money you will have to spend to ensure your records are kept properly.

11. One Time Effort Needed. Properties score a perfect 10 here. You only have to work once to acquire the property. Thereafter the property will continue working for you forever, as long as you keep it. On the other hand, portfolio investments requires regular monitoring as they are susceptible to any changes in the economic environment.

12. Impact of Mistakes. Mistakes are bound to be made by everyone especially new investors. The impact of buying the wrong property type, in the wrong location, taking the 'wrong' type of loans or having a nightmare tenant is thousands of dollars and a few years of your life to undo the damage done. Hence it's extremely important to get it right the first time and every time in all aspects of property investments. Mistakes are extremely costly both in money and time costs.

13. Market Efficiency: Are prices of the investment freely disseminated and known to everyone? Unlike mutual funds or stock prices, property prices are not freely available. To compound to the problem, valuation of properties is extremely subjective. The value of a property in the eyes of the seller, property negotiator, valuer, banker and buyer is different. This presents numerous challenges to novice investors as well as opportunities for savvy property investors who possess the knowledge of property values.

14. Investment Horizon: Is there any minimum period the investment ought to be kept? Properties should ideally be kept for a minimum of 3 to 5 years as the entry and exit costs are extremely high and the returns are only moderately powerful. Property investments are usually not recommended for those who want to get rich fast or for those who need their funds back in less than 3 years. However on some occasions, it's possible to make money by using "flipping" strategies by buying below market and disposing above market.

15. People Skills: Property investment is a people intensive business and you must be able to build rapport and get along well with real estate agents, sellers, tenants, lawyers, bankers, contractors, etc. Also you need to possess good negotiation skills and almost everything is negotiable. If you do not have these skills, you may not find real estate your investment "cup of tea".

Cheers!

Article attributed by Milan Doshi

2010-07-12T21:59:00.004+08:00

Lying in the magnificent Lang valley, Kuala Lumpur property investment is increasingly becoming a worldwide attraction for property investments with all indications showing that the property investment market is destined to become a global attraction. As the tourism industry grows, the capital city s tourist, residential and commercial property markets is also expanding towards the tourist areas as well as social and professional housing needs.

Why Invest in Kuala Lumpur?

Malaysia offers a stable, democratically elected government

The country enjoys a stable economy
Kuala Lumpur has grown extensively and is the regional headquarters of many of the world s major corporations
The old town maintains some links to its colonial past with narrow and winding streets and a delightful hybrid of Chinese and European architecture
Malaysia practices a justice system based closely on the British legal system
Foreigners can buy up to 2 houses and are entitled to 60% bank loans
Kuala Lumpur continues to benefit from a growing tourism market helping to create a mature rental market
Kuala Lumpur is extremely well connected major airlines fly to the Kuala Lumpur International Airport
Kuala Lumpur s education and medical services are some of the best in the Pacific Rim

Past Trends of the Kuala Lumpur Property Investment Market

In the recent past, purchase of investment property was a reserve of foreign companies or local government development partners. Past trends indicate that besides looking for commercial and high-end real estate property sectors, foreign property investors have been seeking to undertake property development projects in the Kuala Lumpur property investment market. For the past decade there has been a steady increase of foreign property investment consortiums in the Kuala Lumpur Property investment sector. The most notable foreign property investment consortiums include Singaporean institutions such as the Government of Singapore Investment Corp (GIC) and Capital land Limited. These international property investors have been taking up equity stake in established Kuala Lumpur property investment companies.

Foreign property Investment consortiums have also ventured into property development in Kuala Lumpur s real estate property. In the past two years this trend has also caught up with other countries such as Indonesia, Hong Kong, Japan, Australia, Europe, South Korea and the Middle East as well as European countries. Recent major office transactions by Middle East consortiums include Macquarie Global who purchased the Empire Tower, Crown Princess Hotel and City Square Shopping Centre in Kuala Lumpur for RM680mil; Injaz Mena Investment who purchased the Menara ING at RM495per square feet; and Injaz Asia Equity who purchased the Kenanga International at RM555 per square feet.

Current Trends of the Kuala Lumpur Property Investment Market

Unlike the past when ownership of investment properties was a reserve of foreign owned companies and government s development partners, Malaysia property investment market has opened up even to individual investors. The Kuala Lumpur property investment market is evidently reaping from the benefits of the Government s attempts to attract both foreign investors and workers. The growing expatriate community, under Malaysia My Second Home (MM2H) or direct foreign investment in real estate, is increasing demand for new accommodation in up-market central districts.

Current trends in the purchase of investment property in Kuala Lumpur are characterized by both real estate property investments within the capital city as well as new investment properties within the coastal resorts. The City s property investment opportunities are growing in line with the direct foreign investments from China, Japan and the US. Off-plan properties are being sold to international property developers with impressive guaranteed rental yield of between 6 and 10 percent.

A survey by Real Estate and Housing Developers Association (REHDA) indicates that enquiries from foreigners for Malaysia s property investments increased by 13% in the second quarter of 2007. Property Investors mainly target the medium to high-end gated and guarded residential projects, prime condominiums and service apartments in and around the Kuala Lumpur City Centre area. Grade A office towers in Kuala Lumpur's central business district, malls, hotels and warehouses with good tenants are also major property investment attractions. With yields in certain countries below 4%, Kuala Lumpur's office assets - yielding 6% to 8% are very attractive. As a result of these increased activities in the Kuala Lumpur property investment market the rental trends have also changed significantly, with a general increase in the value of rents payable.

Future Prospects for the Kuala Lumpur Property Investment Market

Malaysia s property investment market is taking on new dimensions due to a major government s Initiative, the Ninth Plan, which calls for impressive new provisions for the country s infrastructure. Economic experts are predicting that Malaysia s Economy is on a firm long term growth path, with growth of 5.3% reported in the first quarter of 2007. The influx of both foreign businesses and foreign national is increasing every other day.

According to Deutsche Bank, Malaysia is going to sustain a 5.5% annual gross domestic product (GDP) growth till 2020 due to its young population, investment in human capital development and trade openness. Kuala Lumpur real estate property market is the fastest growing property investment hotspot in Malaysia. According to property investment analysts, the recent spate of multi-billion property investments by international consortiums in Malaysia in general is just but an indication of bright prospects for Kuala Lumpur property investment market.

When you add in the fact that unemployment remains low, interest rates are relatively low and the GDP is steady, the building blocks are there for what will be a lucrative property investment market for years to come. The Kuala Lumpur Structure Plan 2020 will be the instrument to guide it over the next 20 years and will also form the basis for the preparation of the Kuala Lumpur Local Plan. Strategies and policies have been formulated in earlier chapters of this Plan, which are derived from the all-embracing vision of Kuala Lumpur as A World-Class City.