Property Investment 101A – A View to a Kill

Property Investment 101A – A View to a Kill

For a property investor, the wide range of property in the market can present both opportunities and risks in the pursuit of assets acquisition. There is a smorgasbord of landed and high-rise residential property to choose from in terms of price, design, build-up and location to suit one’s life-styles and budget. Selecting the right property depends on many factors which interplay to make it challenging for a novice investor. A good location that comes with good amenities and accessibility is a good place to start.

The decision of which property to invest hinges upon the aforementioned factors which can also be colored by one’s emotion. As much as one try to be objective and practical, the sweet-talking salespersons or real estate agents and enticing decor of the show units can pull wool over our eyes. We can easily overlook the fine prints in the glossy brochures or the subtle defects in the ready units. Developers tend to embellish their sales publication with hyped-up value and benefits to attract potential buyers.

Be this as it may, one should always be mindful of the tricks of the trade employed be seasoned sales agents who act in the interest of the developers or sellers. Some agents can be quite economical with the truth and gives unverified information to close the sale. It is therefore prudent to check and verify information with reliable sources. One can also do research and compare data with other sources such as the internet and the community at large. Your friends, family members and relatives can also be a source of reference.

Now that we have covered some of the pitfalls and hazards in property investment and selection, we should take calculated risks and weigh the options we have in an enlightened manner. This article will focus on high-rise serviced apartments which are flooding the property market in my home country of Malaysia. This is because many property developers over here are building high-rise residential units to cater to the life-style living aspiration of the people who looks for convenience, accessibility and security. Most of these high-rise developments come with a myriad of facilities and living comfort. These so-called lifestyle themed development can come with a hefty price tag in the form of maintenance fee, quit rent and assessment fee. For the investor, the objective is to get good rental yield and capital growth in the years to come. A good rental yield for high-rise serviced apartment should preferably be 5-6%. This will make it worth your time and effort in finding and selecting a good property to invest which can be quite a hassle. Otherwise, you are better off holding cash in the form of fixed deposit or placing your money in bonds or unit trusts which are more liquid when you need the money.

An investor needs to pay for the upkeep of the property. As such, any expense such as maintenance fee and cost of repairs will cut into the rental incomes derived from tenanting the unit. For high-rise residential units such as serviced apartments which sit on commercial land, the quit rent, assessment fee and utility bills are charged at higher rates than residential property. The rental incomes are also taxable. Interests from mortgage loan taken to finance the property is the other major expense that will reduce the rental incomes unless an investor choose to pay the property by cash. However, the investor who prefer to borrow for want of gearing can use the rental incomes to defray the monthly loan installments payable to the banks. The interests charged by the banks can also be offset against the rental incomes before tax is charged under the law. For cash purchase, the investor has stronger negotiating power and is in a stronger financial position to hold on to the property compared to a purchase via bank loan which can be risky when interest is going up.

Finding tenants to rent out the units in a high-rise serviced apartments can be fast or slow depending on the density of such development within the locality. A heavy density development creates more competition for tenants compared with the one with lower density. This holds true for rental yield as well.

Property investment is also a good hedge against inflation as it offers capital gain over a period of time. Depending on location and type of property (leasehold or freehold), the capital appreciation can be 5-10% per year. Over a period of 5 – 10 years, a property can appreciate at such rates if the property cycle is expansionary. A property can also remain stable or unchanged in terms of capital growth compared with other properties in the same locality. This is due to saturation or property glut in the market. If an investor is not careful, a property investment can result in negative capital growth owing to contraction and troughs in the economic cycles. Timing is therefore important in property investment. In addition, if you buy a property in a location with plans for development of MRT/LRT stations or transportation links to other major roads and highways, you can expect capital appreciation in the future.

When deciding what type of property to invest, high-rise residential units earn better rental yields compared with landed property which offers a lower rental yield of 1.5-2%. This can be attributed to the lifestyle convenience provided by high-rise serviced apartments which provide facilities such as swimming pools, gymnasium, sports and recreational activities, 24-hours security, etc. High-rise serviced apartments with facilities tend to attract younger families who look for such lifestyle conveniences. On the other hand, landed property has higher capital growth simply because it sits on its own titled land which is getting scarce with the growing population. It can offer capital growth of 5-10% per year especially freehold and those in prime location. High-rise residential units with strata titles usually do not offer the same capital growth. Do bear in mind that any capital gain obtained from disposal of the property may attract capital gain tax.

In the end, the return on investment (ROI) from rental incomes and/or capital gain should give justification for the investment in the first place.

All the various points elucidated above offer a macro view of property investment in the context of high-rise residential development. Let’s take a micro view of property investment in terms of quality and workmanship.

If you are looking to invest in a high-rise serviced apartments or serviced offices (SOHO/SOFO), you need to keep your eyes open as the devil is in the details. For ready units in a new development or sub-sale, you need to inspect the unit for any leaking in the ceiling or water seepage through the window. If the ceiling has water marks, it indicates that water is leaking from the unit above. This leaking problem can pose to be a challenge to solve as it needs the cooperation of the resident who is staying in the unit above and the management corporation of the property.

Water can seep through the window between the frame and cement or between the glass and frame during heavy rain. This is especially problematic for units on the higher floors. The rubber seals and silicone used in the construction of the window and frame can crack and melt under the heat of the sun. Through the ravages of time, you can see water marks appearing on the wall adjacent to and underneath the window.

The residents in the unit above can be a nuisance to the residents in the unit below if noise is a major issue.

A developer with good track record does matter in property investment.

On a positive side, high-rise serviced apartments can offer panoramic view especially for upper floor residents. A view to die for some may say. These units also come at a higher price.

From the perspective of Feng Shui, the view from the balcony should be overlooking a landscape of lakes or rivers, preferably in the southwest, east, southeast or north. The common areas within the property such as walkways and corridors should be brightly lit. Any property which is subject to windy condition is also not auspicious as the life force known as Qi is unsettling in such an area.

A view to a kill in property investment is a doubled-edged sword. You can make a “killing” after viewing a property or be “killed” financially by your decision, right or wrong.

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