Property investments have always had a bad name in Malaysia - read that as ‘get rich quick’ schemes - and occasionally even accusations such as “It’s people like you that’s driving property prices up!”
But the truth is, it is the ‘get rich quick’ group that have been tarnishing the property investors’ name in the market by treating properties as commodities rather than an appreciating asset. In short, these are the ‘Flippers’ in the market.
A Short History
Back in the days of 2001 when the prices of property were still flat, many property investors did actually make a significant amount of money in the short run. Many property owners were unable to serve their mortgage repayments, and as of 1st January 2001 the government waived the Real Property Gain Tax (RPGT) to encourage property transactions and property development.
The prices of property then began to pick up. New projects were launched and things gradually began to come to a head again. Property prices were increasing exponentially, and again whispers started to go around, “If you don’t buy a property now, you will never be able to afford one later”.
Property investment then became the all new hot topic at dinner functions and party gatherings, with the media paying close attention to it. Many lucky chaps made a quick buck in the property market which prompted others follow in their footsteps.
Shortly after, self proclaimed ‘gurus’ began hosting seminars to ‘teach’ the public how to invest in properties - and thousands of people began to buy newly launched projects to sell upon its completion and thus earn a handsome profit from it.
This process turned into a whole new rat race of making a quick buck in the property market.
The Greed of the Market
It would have been fine if property buyers had kept to buying only one or two properties. But eventually this was not enough and investors began to pool their resources to qualify for loans, and ‘bulk buy’ to get the best discounts. All sorts of schemes were cooked up in form of ‘no money down’ and ‘guaranteed returns’.
Adding in a lot of spice to the property rat race was when the developers introduced the Developer Interest Bearing Scheme (DIBS), which allowed buyers to pay only the downpayment but only begin serving their loan upon completion of the development. The response to this scheme was naturally overwhelming.
This was when Bank Negara began to sit up and take notice. Then in came the cooling measures imposed by Bank Negara in January 2012, which caused an almost instant drop in property sales. ‘Responsible Lending Guidelines’ became the new in, and suddenly property speculation died almost overnight - and many casual investors who expected to cash out handsomely were stuck with loans they could not manage.
The Truth of the Matter
While this may seem like something out of a horror film, the truth of the matter is that property investments in Malaysia are actually quite safe - if you are not greedy. Since Malaysia’s independence, property prices have always appreciated in value year-on-year.
Even during the bad times of 1997/98, prices of property merely flatlined; which they recovered swiftly and surpassed previous levels. Part of the reason Malaysia has always had good property appreciation value lies in our Asian culture which places much importance in owning a property.
Property investors must therefore realise that to be certain of good gains in the market, they need to be in it for the long term. Even as inflation grows on a yearly basis, rental rates will also creep up which will in turn cover the inflation rate.
Opportunity is in fact not only found in residential properties, but also in commercial properties. Shop houses and offices in fact have great potential for rental returns with long term tenants, while factories with MNC renters generally also lock in for long periods.
The only issue is that rental returns are decreasing in percentage, hovering at an average of 4% to 5% annually. The ideal ROI is 7% in order to cover monthly mortgage repayments, hence many property investors are not too keen in this market.
Nevertheless, the margins on investments are thinning out globally. Pension Funds, Investment Houses and Insurance Companies are looking for ways to get more returns, but usually the higher returns you get also comes a higher risk.
But at the end of it, the best advice is: If you are an individual investor, play it safe. When you obtain a property, be happy with the 4% to 5% rental returns per annum. Hold on to your property for a minimum of between 5 to 7 years, and your rental returns will gradually creep up to between 7% or 8%. And in the long run if you wish to sell off your property, it would also have appreciated by much in value.
Property investments are actually safe; if you play it safe. Never over-borrow and make sure you can hold on to your property for a minimum of 5 years. In order to be a property investor you need to be patient, and to be able to plan carefully and wisely.