Investing in Properties in Malaysia

General Principle

Investing in properties in Malaysia is the simplest form of investment. Unlike equities, there are definite and obvious periods of peaks and troughs. Granted it is impossible to predict the highest and lowest point but you know when it is generally a good or bad period. Similarly, unlike equities, properties can’t go bankrupt or suffer from poor corporate governance.

For most it is a matter of discipline, resisting the pull when markets peak, and poor debt planning. If you stick to the simple rule of buying with appropriate leverage only when markets are obviously weak and selling when markets are obviously high, you will make a reasonable return.

BUY Phase 1

If a reputable developer is developing a large development with multiple phases over an extended period, buy Phase 1. It is in the developer’s interest that Phase 1 is a resounding success as those are the statistics they are going to use to sell the subsequent phases. It isn’t uncommon for developers to price Phase 1 close to cost. Buying from a reputable developer lessens the risk of abandonment, poor finishing, etc.

Agents Are NOT Your Friend

Real estate agents are interested in closing a deal, as opposed to getting you the best deal. If the agent is helping you with the purchase or rental of a property, their commission is a percentage of transaction value. Put simply, the higher the price you pay the more commission they get.

Even when your interests are technically aligned (i.e. when they represent you as the seller or landlord) the difference in the commission they get is not significant enough to fight for the best price for you. For example, for the sale of a RM1 million property, RM50k more equates to a commission of RM21k as opposed to RM20k. Most agents would rather secure the deal and move on than to fight for an additional RM1k commission. However, as a landlord the difference could be a lot more significant. Assuming you had put down 20% or RM200k equity for the property, RM50k more is an additional 25% to you.

The point, take your agent’s advice with a pinch of salt.

Your Home is NOT an Investment

It is a misconception to view your home as an investment. Yes, it will probably increase in value but unless you’re willing to downgrade your lifestyle it isn’t an investment that you will ever monetize.  When buying a new home people often buy as much as they can afford convincing themselves that properties will appreciate. What they should do is buy a home that meets their needs and use the savings to purchase an investment property.

There’s obviously much more in depth analysis one can do on macro elements like housing supply and affordability, or analysis on specific areas to determine whether an area is fairly valued. These are real basics that are easy to put into practice.