Malaysia has become one of the top tourist destinations in all over Asia. It has not only attracted tourists, but also investors from all over the world. Both domestic and foreign investment has substantially changed the infrastructure of Malaysia in recent years. Investors are attracted to the high returns of Malaysian real estate. However, without substantial amount of research, you are highly likely to fail. Thus, here are a few tips for you before going into battle. Although the tips provided below are by no means exhaustive, they will provide you with some tricks to beat the game.
What is the pay-off?
If you buy a real estate, you will be either expecting returns from investment-for-beginners renting or flipping. Lucky for you, rental yield in Malaysia is fairly stable at 4%-5%, which is among the top gross rental yields in all over Asia. If you are looking to ‘flip’ the deal, which means reselling the property for a higher price, then there are certain criteria that need to be met.
First of all, there are economic factors. Foreign investors can take advantage of the fact that the Malaysian Ringgit is lower than the Euro, Pound or Dollar, and so, a little goes a long way. Moreover, property here is only US$2,616 per square metre compared to that of Singapore and Hong Kong, which are 7 times more! Now looking at it from a political perspective, being one of the ASEAN countries, it is politically quite stable comparatively, and it is also among some of the most peaceful nations of the world.
What are the risks involved?
If you are a buyer who intend to flip the deal to make a quick profit within a few years, you really need to be careful. Before doing so, you need to evaluate the strength and weaknesses of your property. Is it in a prime location? What is unique about your project that will blow out your competition?
In order to secure your position above all others, you need to think like the potential buyer of the property. Try to grab the most sought after ones, such as the corner lot or the penthouse with a gorgeous view. However, even if you get the most lucrative property, things don’t always go according to plan. Thus, there is always the need for an exit plan.
The risk of getting an abandoned project can be reduced if you only buy new properties from big developers. If your property is couldn’t be sold in the short term due to oversupply, then you must have enough holding power. Consider to rent it out first to ease your cash flow, while wait for the for the next buyer to come. This falls into the long term strategy, and indeed flipping the property is far riskier if you don’t know which way the deal would go.
What type of properties to invest?
In order to be a successful investor, just knowing about one type of property is not going to cut it. It is best that you know it all. First off, is everyone’s favorite residential property. Malaysia offers a large variety of this type, such as the ones with the linked terrace, condominiums, high rise, bungalows, apartments etc. After having compared rental yields, it should not be surprising to see that the rental yield of a high rise loft is 2 or 3 times higher than that of a landed apartment.
This is due to the fact that most foreigners, international students and expatriates prefer to stay near to the central business district, where all the “happening things” are happening. The properties around these areas like KLCC and Mont Kiara, especially the high-rise fetch good rental yield.
Properties used for industrial use or commercial buildings, such as offices, usually have multiple tenants. These tenants usually have specifications under which the property must be renovated, thus, needless to say that they will want it unfurnished and empty.
Even though commercial property investment is relatively commonplace, industrial properties are that much rarer. Industrial lots will command long term lease because, industrial giants are big players and once they set up a factory here, it will be a long term.
Commercial properties have steady rental return and require the least amount of maintenance work, from the point of view of landlord because corporate tenants would like their place to look good all the time!
How to get consultation and find bargains?
They say that life is too short, so we must learn from others’ mistakes. It is imperative that you take the gist of the market from locals as well as expats. Furthermore, take advice from professional consultants, and also hire a lawyer you definitely need them in property transactions.
Do not just jump into a deal, make sure to compare prices in different regions and to check out the level of demand for the property. This is especially important if you are looking to flip the deal. It is also important to read the agreement carefully. Finally, do not forget to bring with you an army of realtors, solicitors, agents, lawyers, advisors etc. You do not necessarily need all of them at once, but make sure that they are just a phone call away.
Properties are everywhere. Don’t rush into a deals because there is always good deal out there. Do your due diligence and talk to the people who can provide advice and valuable opinion, before making your investment decisions.
What’s your bullet-proof backup strategy?
As I have mentioned before, you must have enough equity to fall back on. Even in a ‘bull’ market, investment is tricky. If the property value falls after purchase, it will eat up your equity. If you do not have solid cash flow, property investment can be very risky. This is because, once your deal goes south, you will have nothing to fall back on. Your strategy must include a prediction for the worst case scenario, which should be used as a guideline to establish your initial budget.
Most realtors and consultants suggest that the long term approach is a less thorny path. The justification is that property is not very liquid, and that money tied up in it is not easily untangled. Provided that the long term prospects of the property is highly based on location, demand, trends, etc. getting high returns from it should not be a problem.
Malaysia is becoming a rapidly growing tourism destination and many foreigners had chosen to start their businesses here to tap into the Southeast Asia market. Many projects are brimming with potential to become the next prime hotspot. The bottom-line is, do your research and do not try to go at it alone, since, even big players have large, well-funded battalions for property investment overseas. Good luck, and I wish you all the best in your endeavors.