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For those with sufficient savings to afford a house, backed by a stable income, there is no better time than now to consider property investment.
With the soft property market due to the economic effects of the Covid-19 pandemic, potential homebuyers are now spoilt for choice.
Data from the National Property Information Centre shows that property values had been increasing steadily year-on-year for the past decade.
In fact, the Malaysian Housing Price Index has almost doubled in the past 10 years, from 100 points in 2010 to 197.5 in 2019.
But before you take the plunge, here are some things you must research before deciding on what property to invest in.
Understand your finances
First things first, be sure you have enough savings for the down payment. Those who already own property must bear in mind they are no longer eligible for most financing assistance schemes.
Use the same method you used when deciding the budget for your first home, preferably the debt-to-service ratio, which is debt divided by net income.
Consider every expense, from renovations to furnishing to additional maintenance costs.
Some experts believe it is best to invest in a lower cost property the first time in case you experience the worst-case scenario and do not make as much profit as you hoped.
Before adding another monthly commitment to the list, try to clear as much debt as possible first such as student loans.
Short term or long term?
Decide on the type of investment, whether it is for the short or long term. Short term refers to properties you plan to sell off as soon as possible and long-term investments are properties that rely on appreciation of their value over time.
One way of investing in the short term is to purchase properties that are known to sell well, either in terms of location or property type. When the value has increased sufficiently, sell it off and there is your profit.
There are two things to look at in long-term property investment – capital return and rental returns.
Capital return is a waiting game for the market price to increase against the original purchase price, which means you could be holding on to the property for a few years and selling it for a higher profit.
Rental return, as the name suggests, is renting out the property to receive a steady stream of passive income.
Choose your property type
In addition to the usual residential offerings, such as landed and high-rise, you can also choose to invest in commercial and industrial properties. Each property type has its pros and cons.
Residential investments include terraced houses, condominiums, and so on. The original price of the property does not necessarily translate into the amount of profit.
One crucial factor to consider when buying to rent is that the owner typically must pay for all maintenance fees.
Other than office and retail spaces, commercial investments include small offices and home offices, which are popular as investors can obtain a higher loan margin than other commercial properties since they fall under the Housing Development Act.
A huge plus point for commercial properties is that they usually involve multi-year leasing, which means a more stable cash flow.
In addition, utilities and management fees are usually covered by the tenant, as well as any defects and damage to the property.
However, commercial investments also require stronger holding power as commercial units are dependent on external factors such as overall occupancy and building maintenance.
Identify the location
The age-old mantra of “location, location, location” in real estate is especially true when it comes to investment.
The main things to look out for are accessibility and nearby facilities. Is there an institution of higher learning, public transport and so on nearby?
An established township is always better than a new one when purchasing for investment as you can be assured of the value. That way, whether you decide to rent or sell, you know there will still be takers even if you ask for a higher price.
If you are planning to rent out the property, try to find one not too far from your own home. That way it is less of a hassle to check on the property for maintenance purposes and to meet the tenant in case of any issues.
Ask the experts
Last but not least, do not make a decision on your own. Ask friends who have experience or do some research with the help of experts. In terms of price comparison, the right place to start is websites such as Property Advisor, which lists all the previous property transactions in an area along with the transacted prices, so you can spot market trends and identify hotspots.
Take advantage of Property Advisor’s Ask Property Advisor campaign. You can enquire about a specific location and residential property type, and receive market insights and price comparisons free of charge.
This article was written by Adlene Hanna of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.