I have received a number of inquiries to check whether is now a good time to start property investment in Malaysia in the year 2021, another year haunted by the pandemic.
Declining overall property market price seems like a strong buy-in signal for most investors, but when will it stop? Property investors have been wondering is this good timing to enter the Malaysian property market and what considerations need to be measured before investing in Malaysian properties in 2021?
Here are things you have to consider starting your property investment in Malaysia.
1. Observe Property Average Price Trend
The first thing to take note of here is the overall price trend in the property market. Some investors are keen to start investing in property due to the current trend of the property market, Malaysia average property price is slightly declining as a whole in the year 2020, it is a clear signal to start.
However, property price changes vary for different locations and states.
Based on the chart from National Property Information Centre below, the Malaysian property price is still increasing if you look at long term comparison from 2010 to 2020, despite a -0.7% decrease in Q2 2020.
If we look into the detail, property price in Selangor was in a downtrend in Q2 2020 based on the chart below. If you are an investor who is looking for buying properties at below market price or undervalue property, you can start hunting for properties in Selangor now.
As for cash-rich property investor, this is really good timing to look for property investment in the property auction market which is now overloaded with gems. Here is a brief guide from The Edge Markets on how to buy auction property.
2. Leveraging Government Economy-Aid
The government has taken a few measures in response to this economic impact of the pandemic. First Bank Negara Malaysia (BNM) reducing the Statutory Reserve Requirement (SRR) Ratio to 2% which allows more amount of cash liquidity in the market.
BNM has also cut the Overnight Policy Rate (OPR) from 3% to 1.75% in the year 2020 and maintaining. Mortgage loan moratorium measure taken by the government for 6 months in 2020 also ensure more cash liquidity in the market. A lower OPR also creates a domino effect of lower mortgage loan rate and lower instalment of properties.
The instalment amount is significantly reduced due to the low-interest rate implemented by the government. Investors will consider investing in property now as the cost of fund to acquire an asset is lower now, property rental has the potential to cover all instalment amount or even with positive cash flow under this low-interest rate period if you bought the right property with the right renting strategy.
Here is some housing loan plan from iMoney you may refer to, alternative, hire a mortgage specialist to help you source the best deal without any cost upfront.
3. What’s the budget of investment you can afford?
You need to consider the budget price of the property you can afford including all down payment, legal fees & stamp duty, and also repair or renovation cost of the property.
Debt to Service Ratio (DSR)
Your loan borrowing power is also a key to determine your property investment budget, your borrowing power can be determined by your DSR.
DSR = (Monthly commitment + target property loan monthly instalment ) /Net monthly income
You may refer to this guide from Property Guru on how to calculate your DSR
In common case, your debt / monthly commitment shall not exceed 70% of your net income, you can calculate what property price you can target according to your commitment preference.
Downpayment
Initial capital includes a down payment usually 10% of the property price stated in the Sales Purchase Agreement (SPA). In short, be clear of the property price you can afford, and prepare the relative amount of downpayment as part of the initial cost.
Legal Fees
Legal fees and stamp duty also an initial cost to take into consideration especially when you’re buying sub-sale/second-hand property. First-time buyer can pay their stamp duty at a discounted rate under Home Ownership Campaign (HOC).
Heres the calculation of legal fees for your reference :
| Property Price | Legal Fee = % of Property Price |
| First RM500,000 | 1% |
| Next 500,000 (RM500,001 – RM1 million) | 0.8% |
| Following RM2,000,000 (RM1,000,001 – RM3 million) | 0.7% |
| Next RM2,000,000 (RM3,000,001 – RM5 million) | 0.6% |
| Thereafter (> RM5 million) | 0.5% |
| Property Price | Stamp Duty = % of Property Price |
| First RM100,000 | 1.00% |
| RM101,000 – RM500,000 | 2.00% |
| RM501,000 – RM1000,000 | 3.00% |
| Above RM1000,000 | 4.00% |
Renovation Cost
Renovation Cost – the property condition you’re buying also need consideration as it incurs renovation cost or repair cost, some initial cost of renovation to the property can actually improve your property rental and ROI for excellence investment result.
With all the information above, you can roughly know what loan amount you able to get and also what kind of amount of cash you need to get ready before entering the market.
4. Short Term or Long Term Property Investment
After you know what price range of the property you can afford to invest in, now you can decide on a short term or long term property investment you’re looking for.
Rent out the property to cover the monthly instalment or collect rental as passive income is the most important part of long term property investment. A good property investment choice will give you 2 major advantage which is collection passive rental income while enjoying capital growth over the years.
The average rental yield in Malaysia property is around 2% to 4%, where some good location can hit up around 5 to 8% rental yield (I will cover in point 6 later), hence location and the average rental yield should be considered while making a decision on property investment.
You can also appoint an expert for Property Management Service with ROI of up to 7-9% or more. This is a common practice by most seasoned property investors.
Short term investment strategy includes flipping property, it targets for short term capital gain, or purchase auction property at a low price and sells high.
However, it is now a tenant’s market or buyer market trend in property, buy low sell high approach doesn’t seem to work under the pandemic impact. Besides, given the moderated increasing rate of the property price is not so suitable to do so if you not cash-rich.
At this point of time, cash-rich buyer might have a better advantage in this environment and still able to benefits from property short term investment.
5. Property Type
Generally, you can pick from the commercial property, ranging from office, shop lots, retails or residential property like landed house, condominium, apartment etc.
Residential property tends to be more favourable to beginners or most property investors as it has lower entry cost in downpayment renovation cost. Last but not least, the benefits you can enjoy from HOC.
Residential property prices can vary significantly across different states and different area, the right location of residential property can give you a very stable rental income and capital growth as the surrounding area developing.
Commercial property can be your consideration also if you have larger cash capacity, the right area commercial property can give you stable income as tenancy tends to be longer especially when you have tenants from banks, big corporate or MNC.
6. Property location and rental yield
The location of the property is vitally important for property investment, as the location of the property directly affect the rental yield of your investment.
A more mature or more developed location property usually occurs at a higher price but it also gives you a very good rental return, as the demand is high. Sometimes it can hit up 6% to 8% rental yield in a good area especially when purchasing price is low now.
More demanding location property often has multiple rental strategies to collect higher rental such as short-stay renting, room renting etc. The only downside is that the higher possibilities of fierce competition in the area. A proper renting strategy is required to maximise rental yield and hiring a property manager might be a good choice.
As for property in newly developed area, it might have large value growth potential. The rental yield might be lower compared to the developed area, but it gives more potential for a higher capital gain, the property might take time to grow in value but the margin of growth could be very favourable.
You can do your research the area in detail, understand the area amenities such as university, office tower, big corporate etc, who lives there, the demographics, the property types the tenants there prefer, the level of current and future development prior to investment.
Conclusion
In conclusion, property are still good to invest if you able to afford, and it is good timing to look for under value property this year. But before you enter the market, you need to know very well your budget, loan borrowing power and the initial cost you able to afford.
After knowing your property investment budget, then you can plan your investment strategy for example short term or long term investment, renting strategy, rental rate research on that area, coming development on that area or surrounding area etc. Plan your investment and keep track your ROI along the way.
All the best to your property investment and Happy Investing!
