Residential Outlook for 2012

Residential properties have been a good portfolio to hold since I enter the back in 2005 due to lower entry cost and easy management. I remembered my total investment cost for a unit of 1050sf is less than RM20K which included initial down payment, legal fees, stamp duty and renovation costing. But as per today residential selling price, I believe with RM20K you might be able to pay off your legal fees and stamp duty. Simple example, a house that cost you RM450K will incurred stamp duty of RM12K (S&P stamp duty together with loan agreement stamp duty). Further burden with non-discounted legal fees by lawyer will easily bring your costing up to RM20K or more. Today if you would like to invest a simple landed home at reasonable location, the total initial investing into a single property would easily cost you RM70K (including RM45K down payment and minor renovation). Comparing to these days, RM 70K has helped me to bought at least 3 properties!!

This eventually has pull down the overall rental yield for residential properties. The relativity of rental and purchase prices is too sensitive. Whenever the selling price going up, the rental yield will start to dropped. Look at the example below:

Clearly indication, whenever prices of property go up the rental yield will continue to dropped. But can you expect your rental yield to remain at 8% at all time? That means you will rent the unit above for RM 1650 per month!!! Stop dreaming. The whole picture getting gloomy and risky when you talk about higher priced residential properties especially newly built and launched condominiums especially at matured area like Damai, Luyang, Likas and Signal Hill. When you talk about RM500 on average per square feet, virtually you can’t see your front view clearly already. Ask yourself, can you get enough monthly rent to cover your monthly loan? Is your rental yield going to remain at 4%-5%? To be conservative, I think on average of RM2000 per month for a condominium priced at RM600K! What about your bank monthly installment? For a loan of RM 540K, 30 years tenure and 4.2% interest, you are required to pay RM2650 per month (ex management fees) that’s mean, every property you included into your portfolio will hurt your wallet. It will continue to bleeding!! Why I say so? Simply because for what you know, residential properties will have “FLAT” rental over the longer term as you cannot expect your rental yield to continue to go up parallel with your bank loan installment. Look at over “new condo” which price at RM600K (ex under construction interest and other expenses). Frankly, I’m less confident on the rental of RM2000 per month unless it’s fully furnished unit which eventually means you are subsidizing your tenant to get more rental.

 Of course, some of you might say residential properties will still be a good especially for those speculators. Those who buy low, sell high, buy high sell even higher. Last few years were the fantastic years for speculators to make money but coming year will you continue to enjoy the same? Buy high sell even higher? Can you buy RM600K residential and sell at RM800K? Will you still have such privilege? My answer is “not likely”. The golden year has gone, yes you will make money from speculation but the amount would be much lesser comparing to previous years. Bear in mind, developer are developing 30-45 storeys building now. As I always say, non landed supply in the market next 5 years would be unlimited. Like it or not, 95% of the developer are planning to build high rise building to capitalize on higher land cost and higher profit margin. Rather than selling you double storey might as well they sell you 40 storeys. You own your title in the air!! 

Year 2012 would be challenging years especially for residential properties. I strongly believe people will switch themselves more into commercial properties as the rewards are more attractive and worth taking the risks over longer term. Look at the above example, the rental yield for commercial (first floor matured commercial area like Damai, Lintas, Luyang & Kingfisher). They are enjoying better rental yield comparing to newly build non landed properties!! Bear in mind, over longer term the rental yield will pick up and you should enjoying steadier rental income with less management as commercial properties tend to have longer tenancy. Year 2012 would be more relaxing year for me and those who just get started in property investment please study careful and look at your own financial strength before you commit. Life is too short for all of us to make big financial mistake. Get a mix portfolio to neutralize your risk and Happy Investing.

You cannot Grow Land..CK Wong & MY RiCH DAD

Related posts:

1. Landed Residential Back in Favor
2. Residential Vs Commercial
3. Residential Property Within City
4. Commercial vs Residential

Tagged as: Damai, Luyang, Neutral Portfolio, rental Yield, Steady capital Appreciation, Steady Rental Yield