Real Estate Investment in Malaysia: Real estate is a popular middle option for investors. It is believed that there is a fair of challenges in the property market, namely the excess of residential property.
But if you buy the right real estate product that fits your purchasing power and needs, it can provide a healthy return on investment (ROI) in terms of rental revenue or capital gains. According to the National Property Information Center, the value of homes honors each year.
And if nothing, you’ll at least get a roof over your head or a piece of property that you can hand over to your children, so the possibility of damage is not an option.
Real Estate Investment in Malaysia
Determine how much money you can spend on investment property in Malaysia
The initial step is to decide how much funds you have for property investment. This is important for you to secure a home loan – a true and tested way to determine your purchasing power is a loan-to-service ratio (DSR).
DSR is a measure of your debt against your net income and a prudent benchmark that your debt should not exceed 70% of your net income. All banks in Malaysia use the DSR rule to find out if you can repay your monthly loan installments.
A healthy DSR is especially important for those who are not first-time home buyers. Most second-time buyers get 70-80% home loans – the higher your DSR, the better your funding margin.
Bank Negara Malaysia recently reduced the Overnight Policy Rate (OPR) to 1.75%. OPR has an impact on home loan interest rates so that you can enjoy cheap home loans.
However, be sure to compare and contrast rates between banks before settling on a fixed loan product because a lower base rate offered by a bank does not mean that it has the lowest effective lending rate.
What are the different kinds of properties ready in Malaysia?
There is a diverse set of properties to take from:
Residential Property
Under this sub-category, 4 popular options are Terrace House, Semi-Detach House, Detach House (Bungalows), and High Resin or Strata residential properties such as condominiums, serviced residences, and apartments. The chart below by NAPIC describes how residential property prices have risen over the years:
Overall, Malaysia’s house prices have risen 1.9% over the past year, but if you look closely, capital values are better in terms of capital price appreciation (3%). However, the average values shown by NAPIC are only country averages. Residential property prices in different states and housing suburbs can vary greatly.
Commercial property
Commercial units such as shop lots and office lots require a lot of downpayment as these units typically cost more than RM1 million. Should you have the cash capacity, commercial real estate can prove attractive because the tenancy period is long – businesses established in a fixed location often do not change their address.
If you’re lucky and manage to secure a blue-chip tenant like a bank, you don’t have to worry about your monthly cash flow for the next decade! Also, if you decide to start your own business in the future, you will have a ready place to start your business operations.
Nevertheless, people with small budgets may consider investing in a small office, flexible office, or small office-to-office. These commercial units provide entry points of less than RM300,000 – RM400,000.
Sophos and SoVos are typically built within a mixed development near a popular business district and aimed at individual business owners, small startups, and more.
Are you planning for a short-term investment or a long-term investment? When determining what type of property you have, you should think about your investment strategy.
Although property purchase is considered a long-term investment, it can be used to obtain short-term investment, read Think to Sell Properties. In such cases, you will be withdrawing your money within 2-3 years, sometimes even less.
Meanwhile, in long-term investment, your “money” will remain tied for years. Given that you have the power to invest in your property for at least 5 years, your property will generate more capital appreciation over the years as house prices rise sharply.
Buying Property For Rent Return – Long-Term Investment
Renting your property for income is the default option for most property investors. Rental property is a great start for investment because you can enjoy positive cash flow, and benefit from potential capital gains/property appreciation – we will touch more on capital development at the next point.
Given the slow economy over the past few years, the average rental property in Malaysia is between 2% to 4% for your typical rental property and 5% -8% for units with more demand. Similar to property prices, rental yields will vary depending on the location of your home, nearby facilities, and the availability of public transport.No fixed percentage is considered a ‘good rental yield’, but the golden rule for investors is to ensure that the rental income received will cover your monthly expenses, including monthly and lump sum expenses, thus an Affirmative.
Cash flow will be guaranteed. So a better way to determine if your property can generate an adequate rental return is to ensure that your cash flow is black.
Monthly cash flow
For example, suppose you bought a serviced apartment costing RM500,000. You were able to get an 80% home loan with a tenure of 30 years, so your EMI is RM1,360. According to property listings online, your required rent is RM 2,100 per month.
