BY Chris Prasad
Yes, it is expensive. Yes, rising prices are putting it far beyond reasonable reach. And yes, in the current economic climate, it may seem like too big a risk.
Yet, those who have benefited from the spoils of a sound property investment swear that it is still a necessity, because a missed opportunity to purchase now could impact your financial strength in the days ahead and put you well under the economic curve.
Why? Because there is no better way to combat rising inflation, the depreciating ringgit and an overall bearish economy than to put your money on something that, in the long run, inevitably appreciates in value.
In good times, property represents wealth accumulation. In bad times, it represents wealth preservation.
Indeed, a property is probably the most expensive purchase you will make in your life, but it is also the most intelligent, rewarding and safe investment option out there.
- The bank foots the chunk
Honestly, can you think of any other form of personal investment where the bank is willing to fund hundreds of thousands for a purchase while you just fork out a measly portion? Real estate is one of the few investment vehicles where using the bank’s money couldn’t be easier. The ability to make a down payment, leverage your capital, and thus increase your overall return on investment is incredible.
Basically, you pay relatively little to gain control of a very big investment, and that is a very enticing prospect. Furthermore, if you are buying an investment property to rent out, what you’re actually doing is getting someone to pay for your purchase, and then getting someone else to pay them back.
No, this is not unscrupulous or manipulative business practise; it is simply good investment strategy.
- Not exclusive
Unlike many other “big money” yielding investment funds or stocks, property is not exclusive to the economic elite. It is available to everyone.
Real estate is simply everywhere; all you need is a cheque book and a reasonable amount of savings to qualify. Just like food and clothing, it is a basic need that you have a complete right to own, and the choices are many.
Because Malaysia largely adopts a sell-then-build system of delivery for new properties, you can get into the game at a relatively low cost. While rare, it is not impossible to kick start a home purchase for as low as RM10,000. Developers are highly competitive for your business and often launch attractive financing deals to secure a sale, so be vigilant and keep a look out for these.
You don’t have to be a millionaire to own a property, there are always options to suit your level of investment.
- It appreciates!
Talk of falling prices is simply gibberish to a seasoned property investor who understands that real estate is a medium- to long-term game. Yes, prices fluctuate from time to time, but that is only cause for concern among speculators, for whom property is just one of many vehicles utilised to flip a quick profit.
That property prices inevitably rise is undeniable based on two factors: land is a diminishing commodity and inflation is an economic reality.
There are plenty of steps (such as enhancements) you can take to ensure your property value rises handsomely, but even if you choose to do very little with your investment, inflation, population growth and rising demand will always ensure that your property’s value will appreciate. Buy and wait, that’s all you have to do.
- No need to sell to cash out
Many people don’t realise that you don’t have to sell your property to unlock its cash value. You can continue to stay in your home and enjoy the gains you have made in its value.
Let’s say you bought the property for about RM200,000, and five years later its value increases to RM250,000. You don’t have to sell the property at RM250,000 in order to realise a gain of RM50,000. You can simply refinance it and you will get the extra RM50,000 out from your properties without losing ownership of the property, and then continue to watch its value grow over the next five years.
- It is an income-generating asset
One of the greatest things about investing in property is that it doesn’t just make you money in the long run, it can also generate recurring income in the short run if you choose to rent it out. As mentioned earlier, this provides an ideal scenario whereby the tenant helps you pay for the mortgage, while the property appreciates in value at little or no cost to you. In some cases, in areas where rental demand is high, you could potentially earn more in rent than your monthly repayment to the bank… that means you’re making profit on two fronts!
Once the loan is paid up, your property can continue to work for you as a passive income vehicle. Many retirees, who invested well throughout their lives, generate passive income from a number of properties they own to sustain their lifestyle without having to dip into their savings. In fact, those who have played the game well have actually retired early, because they no longer have to work for a monthly income – their properties work for them.
6 . Rent is “inflation-friendly”
Not many realise this, but inflation is actually good news for landlords. When property values appreciate and asking prices get higher and higher, the number of people who cannot afford to make a purchase increases. That means they will be looking to rent.
This means there will be more demand for your property. You do not lose clients due to inflation; you gain them because of inflation. So, when you own a property and its value increases, so too will your rental income.
- Control over your investment
Another major highlight of property is the fact that it is an asset you can fully control. You have the option to enhance your property to increase your rental income (via renovations and furnishings), you have the flexibility of choosing the type of tenant you want, and you can decide when you want to sell it so you make the returns you envisioned.
- Market price stability
Another factor that helps you stay in control of your investment is the stability of price movement in the property market. Unlike commodities or stock, the market price of real estate will not fluctuate and do circles like a roller coaster. It appreciates steadily, which means you have plenty of time to keep track of your investment and you won’t lose hair fretting about when to sell.
Ultimately, you get to sell your asset when you feel you’re right and ready, and not any time before. Plus, you get to sell it to whom you want, and if you are willing to wait, at the exact price you want.
- Tax benefits
Malaysians love to complain about tax, but the truth is we have one of the most liberal tax regimes in the developed world. This is particularly true in the property market, where real property gains tax (RPGT) is once exempted for every citizen (many choose to apply this on their first property transaction. This is good news for first-time home buyers because they will not have to hold on to their first property long if they are able to sell it for a profit and upgrade.
Even if it isn’t your first property, you only have to wait six years to be exempted from RGPT, and even if you do not plan to sell, the cost can be lessened with other deductible expenses such as interest paid for the mortgage and your repair for the house or commissions paid to the agent in order to get you a new tenant.
- The most forgiving investment option there is
It is not impossible to make a wrong decision in purchasing a property, but given time, that wrong can ultimately turn into a right. Even if you purchase a property at a wrong place, a poor location or probably at a wrong time (when prices were at its peak), and you are not able to enjoy the returns you wished for, with a little patience and financial holding power, the seed will eventually blossom.
Time is the greatest ally of real estate. A sour investment can turn sweet again so long as there is sustained development and population growth in the town or city you live in. In a rapidly developing country like Malaysia, this eventuality is almost a given.