Imperfect Market

Overall properties market in Kota Kinabalu has reached all time high especially when our growth is ranked top 3 among all other state in Malaysia.  Will market hit another year high this year and next year? It’s the million dollar question yet to be answered? Personally I’m doubt over it!!  Personally I think overall market is getting a bit hot. It’s time for us to look into the real principles in investing.

Avoid speculation

For me under constructions properties in to be “totally” avoided especially employed investor simply because the interest under construction is too heavy. This will drag overall investment into danger zone and it might destroy your whole portfolio. Take an example of residential properties under construction worth RM400K. That mean investor need to prepare around RM32K (8%) of the purchase price as interest cost which equivalent of RM800 per month. If you are committing to this property you need to “PAY” RM800 or suffering negative cash flow every month until the completion after 36 month. Upon completion you might need to wait another 6 month-12 month for the rental market to be stable. Which “ALL-IN” you need to prepare at least RM50K to “Auto-Pilot” your single property!!!  Of course you might say, RM800 per month is ok but bear in mind additional properties added will kill you especially if you are under employment which receiving fix salary every month!! To solve this…buy completed properties as even with “minor” negative cash flow you at least save first 36 month interest!! 

Investing in Value properties

To buy RM450K condominium (1000 sf) or RM450K first floor commercial shop (1200sf)? Which one is better investment? I would go for commercial. Looking at Damai area and Lintas, first floor shop has gain popularity when ground floor rental has reach beyond a lot of business affordability. Do you all know what is the rental for first floor around this few area? My few clients are getting RM1500-RM2500 per month!! Yes you heard me right!! But how much is your condominium rental per month? I believe it would not be more than RM2000 per month even at matured area like Damai and Lintas. So carefully study on this few investment options. You will know what I mean later part.   

Reasonable rental yield

Looking at all current newly developed residential or commercial, you will find out that rental yield is very low. Residential yield would be around 2.5%-4% and commercial would be around 3.5%-4.5% only. That mean in general if bank is charging average interest of 4.2%, your portfolio is hardly enjoying breakeven point!! I really afraid of “negative” portfolio as this will stop me from investing one day in the near future. Unless you are fully loaded, otherwise better keep less “alligator” in your portfolio unless your portfolio is mostly commercial, ie commercial properties are enjoying more incremental of rental over the years. Take an example of first floor commercial which my client bought lately. He bought it for RM265K enjoying gross rental yield of 5.8% @ RM1300. Nett rental would be around 5.2% and incremental of 20% after 2 years (4 years agreement). But if you invest in residential non-landed ie Alam Damai for RM400K (1091sf) which is consider cheap. With fully furnished, you would be easy to rental it out for RM1600 per month. Your gross rental yield would be 4.8%. So make your wise decision.    

To conclude, always remember property is “cycle” activity. It would not forever on uptrend mode. Whenever there is the change of the value, the rental yield and all surrounding economical activity must support. Of course I’m not discourage all of you to invest in properties but just need to bear in mind you need and have to build “recession proof”, steady rental growth and capital appreciation portfolio.   Happy Investing.

CK Wong & MY RiCH DAD

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Tagged as: Alam Damai, Aligator, ALL-IN, Cycle, First Floor Commercial, Recession Proof, Speculation, Steady capital Appreciation, Steady Rental Yield, Under construction