photo credit: Wbs 70

There was a piece of news in mid Sep 2011 that jittered Malaysia property market:

Malaysian government to consider limiting home purchases

I would say Malaysia government is very “ambitious”, again as usual, since it is mainly run by people who “know” (or not?) so much about economy and law..

Recently there is another rumour also in the market about raising the Real Property Gain Tax (RPGT) from 5% to 30%-40% in year 2012.

I can understand why Malaysian government is in panic to cool down the housing prices. Inflation is one of the most difficult problems they could ever handle, according to Mr. History. One of the faster ways to lower consumer price index is by bringing down the housing prices.

Although the idea of limiting home purchases and rental increase seems more viable, I would still say both this and the idea of raising property gain tax are rather stupid, if not idiotic.

But if they really can implement these ideas eventually, in Malaysia, I can only say – Malaysia Boleh!!

Why?

Not a single government in any of the developed countries in the region such as Singapore, Taiwan, Hong Kong or even China are able to do this, yet, even they are facing the same problem. Because they know better the root cause of the hyper-inflation and increasing property prices. In fact, it simply boils down to demand and supply.

Asian markets is now having more demand on real asset as a mean to hedge against out-of-control global inflation, which has been deliberately fueled by those central banks whose priority is to contain their national debt problems.

To Malaysia government, raising RPGT is a way to curb the supply, allegedly from speculative activities, while limiting home purchases is to limit the demand.

However, history teaches us that the more intervention from government in the market the worse effect it could be.

For example, since RPGT was re-imposed in year 2010, property prices went up even faster instead of going down because all short-term sellers include this additional cost into their selling price. I cannot imagine if RPGT is increased to 30%…

In fact I would think government is trying to use this method to borrow more money from people (without interest!) because they can withhold more cash from each property transaction if they implement the idea. Currently they are withholding 2% of the selling price upfront from each transaction for “tax evaluation purposes”, regardless how much RPGT the seller has to pay. And who knows when they will return the money to you if you are not subject to RPGT or part of it.

On the other hand, limiting home purchases was indeed indirectly implemented in Singapore since year 2010. However, Singapore government controls through limiting the margin of finance in approved mortgage loans instead of stopping people from owning more than one property because it is against the Constitution – the individual liberty and right of property guaranteed by the Constitution.

In Singapore, one has to sell away his first house before buying the next house in order to enjoy a maximum 80% margin of finance from bank, otherwise only 60% is allowed. They control banks’ approved margin of finance because it is viable by law.

However, statistic data shows that the effect of this measure on housing price is limited – number of transactions is growing in a slower pace but the average housing price increased! Why? Because now the game is mainly played by those who are really cash-rich!

As a consequence of that, banks in Singapore are now lowering mortgage interest rates because their businesses are affected. At this time, only Singapore can allow banks to lower the interest rate because they do not rely on interest rate but their strong currency to regulate inflation.

Malaysia government should focus on increasing the actual supply in order to meet the actual demand. This will eventually let the market force cools down the prices. Singapore, Hong Kong and China governments are speeding up to supply more housing in the next 2 years.

So, what will happen next?

Nobody can tell you what is going to happen next. However, such irresponsible announcement by Malaysia government will only make housing prices to go even higher in short term. Existing property buyers will rush to close any outstanding deals before it is too late, regardless the idea is going to materealise or not. More uncertainty in the market will only cause more volatility.

Before the next recession arrives when people start losing jobs and incomes, now I can only see one direction where Malaysia property prices will head to – up. Thanks to all the unnecessary interventions from governments.

Post from: Real Estate Investment in Johor Bahru

Limiting Home Purchases: Malaysia Boleh?

photo credit: TheAlieness GiselaGiardino²³

In most case, rent of shopping centers and office buildings is established on a dollar per square foot per month basis. A 500-square-foot office renting for $7.00 per square foot per month will bring $7.00 x 500 or $3,500 monthly income.

How important is the square footage of a rental apartment? Most rents are based on ‘x’ number of bedrooms per unit. An apartment that has two bedrooms will rent for more than a one-bedroom unit.

But can you expect a 1,000 square-foot, one-bedroom apartment to rent for more than a comparable one-bedroom apartment with only 900 square feet of living space? Probably not.

Rent for more or sell for more?
When a tenant has a choice of the two, at the same rent, all else being equal, he will obviously take the larger unit. Conversely, he will pay as much or more for the smaller one if it is in a better neighborhood, better maintained, or offers additional amenities. Market conditions are the primary determining factor.

Builders and developers, on the other hand, know how much an apartment complex cost them to build based on a dollar amount per square foot of apartment. In the initial establishing of sales, a developer may determine that he must sell his apartments at $100 per square foot in order to cover his cost in the project, spread out over the number of units he considers reasonable to break even his investment, plus make a profit. A 1000-sqaure-foot apartment will then sell for $100,000.

We have heard investors say, “those apartments are too small.” They chose to ignore the fact that the units were comparable in sixe to others in the area. More importantly, the building stayed rented at good, competitive rent, and that is the prime requisite in purchasing in the first place.

Sri Wangi apartment in Tampoi discussed in our previous post “How to increase the return of an investment property to more than 20%?” is a typical example. The 3-bedroom unit is less than 1200 square feet. There is another corner-type of 3-bedroom apartment there which is around 1300 square feet. One can’t expect to rent the corner-type for more than the 1200-square-foot type except expecting to buy it with a higher price.

When the building is suffering because of the size of the apartments or lack of closet space, the square footage consideration then becomes important.

Your comment and feedback on our posts are very much welcome. Please visit our blog posts to view other readers’ comments and write your feedback.

Post from: Real Estate Investment in Johor Bahru

Fact and Myth about Apartment Square Footage

photo credit: TheTruthAbout…

Once the determination has been made to sell your property the next consideration is how to go about it. Remember when you purchase the property? You were convinced that the seller was trying to make a killing and had the property priced well above its fair market value.

Well, now the shoe is on the other foot. Now you are the seller and any potential buyer will feel that you are the one trying to make a killing. He can, as you did, find out exactly how much you paid for the property by performing land search at the land office.

How much should you sell
Perhaps I should clarify something at this point. It was suggested that you check the records at the land office and find out how much the present owner paid for a property. You discovered Mr. Seller would make a $70,000 profit at his price. Likewise, the potential buyer you have can find out that you expect to make a $40,000 profit in just five years.

The point is, do not judge a property’s value by how much profit you are willing to allow a seller to make. Remember, the value of an investment property is in direct proportion to the income it is producing (read “How to estimate the value of a property?”). I might add, that is the income it is producing today, not what it is capable of producing a year after you buy it provided you can increase the rent.

Knowing how much the present owner paid for the property may be some help in your negotiation, but has little or no value in determining what the property is worth today.

How to find a buyer for your property
You can try advertising your property yourself, but you may consider listing it exclusively with a knowledgeable investment property agent in order to obtain best results. He has the leads and contacts that you may never be able to locate on your own.

Why “exclusive”? It seems to be common practice in most areas for sellers to give only an “open” listing when he the seller is still free to offer it to other agents or sell it himself without paying a real estate professional fee (commission). Most investment property agents will shy away from this type of listing, or at least give it a very little attention.

Why? Because they have virtually no protection. They may locate a buyer and show him the property, complete with all the detailed information on the investment, which they have spent considerable time preparing. The next thing the agent knows is that the buyer has contacted the seller directly and made a private deal, cutting the agent out altogether.

If you decide to employ a property agent, be honest with him. A good one is well worth the fee he is paid. I apologise for a “plug” for the investment property agent, but you would be surprised at the number of beginning investors who make costly mistake due to lack of knowledge of investment real estate. But still, you can learn to “do it yourself”.

Selling it yourself: tips on preparing advertisement for your property
You will no doubt receive many calls on your “For Sale By Owner” ad. Chances are 90 percent of them will be from real estate agents looking for a listing. If you decide to cooperate with an agent on an “open listing” basis, do not spread your property all over among several agents.

Pick one or two that are qualified to represent you in a professional and ethical manner. Do not be attracted by the usual come-on, “I have a buyer for your property.” We all have “buyers” for well-priced investment real estate. You do not want a lot of brokers running around your property, so any broker cooperation should be on a confidential basis.

Several things you need to know about the ad that you run on your property:

1. Never put the property address in your ad. You will have a parade of cars past your building and may never hear from one prospect. Once he knows the proce and location, he can make a judgment as to the property’s value without your help. In most cases, his judgment will tell him that the property is overpriced. You also want to keep your offering reasonably confidential from your tenants as well.

2. Do put the price in your ad. This will eliminate calls from unqualified buyers.

3. You can advertise “low down payment”. “low interest mortgage”, “excellent terms available”, etc., as long as the price is the only number that appears in the ad.

4. Make sure your headline attracts the readers and compels them to read the remainder of the ad. If they skip the headline, they’ll never call you. The mere heading, “For Sale By Owner” always attracts attention. The average buyers automatically figure they can buy at a bargain price because there is no real estate fee (commission) involved.

5. Do not try to save a couple of dollars by cutting an ad short. Paint a mental picture that will attract an interested investor.

Which of the following two typical ads for an apartment would prompt your response?

For Sale By Owner
Apartment – Good Area
Priced at $230,000
CALL: 1234 5678

_________________________________________

OWNER MUST SELL!
High Income Producing Apartment
Bldg in Prime Rental Area
Beautifully Landscaped
Close to Shopping yet in a Quiet Neighborhood
Priced at ONLY $230,000
CALL Owner at: 1234 5678

Both ads are short, but the second should have more emotional appeal, and hopefully, attract some serious callers. No doubt the first question you will be asked is “Why must you sell?” you can honestly tell the caller that you are purchasing a larger property.

Try several different types of ads until you find one that attracts callers.

Your comment and feedback on our posts are very much welcome. Please visit our blog posts to view other readers’ comments and write your feedback.

Post from: Real Estate Investment in Johor Bahru

How to sell your property?

photo credit: macieklew

The economy is in a worse state than the World Bank thought
In March, the World Bank reckoned the global economy would shrink by 1.7% this year. Now, despite a three-month stock market rally, it reckons it’ll shrink by 2.9%!

The bank also reckons that poor countries will suffer more than developed ones. “Unemployment is on the rise, and poverty is set to increase in developing economies, bringing with it a substantial deterioration in conditions for the world’s poor,” the bank reported. Falling remittances from migrant workers, reduced exports, falling foreign direct investment and reduced aid will hit developing nations hard, it reckons.

But it also warned that stimulus packages and the like carried their own risks unless they are agreed on internationally. “Any country that acts alone – even the United States – may reasonably fear that increases in government debt will cause investors to lose confidence in its fiscal sustainability and so withdraw financing.”

Business insiders
It wasn’t just the World Bank’s glum prognosis that concerned the markets, however. Insiders in the US are selling out of stocks at the fastest pace since the credit crunch kicked off two years ago, reports Bloomberg. These insiders are company executives – people who should know their firms’ prospects better than anyone else basically. So the fact that they’re all taking profits doesn’t look too healthy for the bull case.

“If insiders are selling into the rally, that shows they don’t expect their business to be able to support current stock price levels,” Joseph Keating of RBC Bank told Bloomberg. Insiders also sold heavily in the first quarter of 2000, just as the air was starting to leak out of the tech bubble.

Post from: Real Estate Investment in Johor Bahru

Is the bear market returning?

photo credit: Robert S. Donovan

15th Dec 2011 Update:

Auction listing is no longer provided for REIJB.com subscribers.

Now the listing can only be downloadable in the members are of PropertyMethod.com

Sorry for any inconvenience caused.

Do you know that REIJB.com now updates all subscribers every month with the latest auctioned property listings from more than 10 banks?

We have sent the first update with more than 80 auctioned properties in Johor to subscribers in mid of May. We then followed up with a recommendation of auction unit at Sri Wangi apartment. Do you still remember this apartment in our case study that we shared previously, on how we manage to increase the return of a property investment to more than 20%? Read “How to increase the return of an investment property to more than 20%?” if you had missed it.

June’s update has been distributed in the last week of May. We continued to recommend good auctioned properties to subscribers when we have encountered any. (If you’re not already a subscriber to REIJB.com, subscribe here now to receive FREE auctioned property updates and our latest articles via email.)

If you are new to property auction, you can find out more from “What must you know before buying an auctioned property?”.

Thanks to our appointed real estated agents who provide these updates and service to our subscribers FREE. They are agents with years of experience in property auction. Currently they are appointed by more than 10 banks as their agents of auctioned properties in Johor Bahru.

What can you do when you found something from our lists?
You can contact the appointed real estate agent stated in every update when you found any interested property from our listings. They will assist you through out the whole process of auction. You can even authorise them to bid for you if you are not free to attend the auction. Simply give the reference number of the property to them to find out more details about the property and the upcoming auction.

All these services are FREE to you as these appointed agents receive commissions from banks ONLY should their clients successfully bid a property. No charges and fees are required from you!!!

For property which its auction date is already due, you may check with the agents if there was any successful bidder in the previous auction. If the property is still available, find out the next auction date from them because the new reserved price will be 10% lower than the last reserved price!

We will soon expand this service to auctioned properties in Klang Valley and Penang.

Happy investing!

We write regularly about real estate investment. Some of our featured articles include:
“How to find good real estate/property agents?”
“What must you know before buying auctioned properties?”
“Where to find cheap properties?”
“Why apartment can be the best real estate investment?”
“How important is location to an investment real estate?”

Your comment and feedback on our posts are very much welcome. Please visit our blog posts to view other readers’ comments and write your feedback.

Post from: Real Estate Investment in Johor Bahru

Auctioned Property List Monthly Update

photo credit: laureskew

Recently we have been hearing media and papers talking about the recovery of economy. Is economy really on her way of recovery? Well, we have seen stock markets rally for more than a month. But we are still not sure yet if the bull market returns.

In fact, we are rather concerned when seeing people rushing back to buy stocks indiscriminately recently without looking at the global situation. Even the property market has becoming crowded for the past one month. Is Malaysian market really reaching the bottom? Are we totally isolated or immuned from what’s happening worldwide in the midst of the latest IMF’s forecast about year 2009 to be the worst global economy slowdown after world war two?

Restarting bull market?
To restart the bull market, banks need to be adequately recapitalised and willing to lend; even if they achieve that, it would also require consumers and business to return to borrowing. This morning we have just attended a seminar for small medium enterprises (SME) conducted by EON bank at Mutiara Hotel. The objective of the seminar was to encourage these small enterprises to borrow money again from banks so that banks can have a chance to tap on the funding channelled by government through its RM 67 billions stimulus packages.

While financial institutions and private businesses are yet to really utilise or benefit from the two stimulus packages, do you believe economy is going to turn direction now? Well, some people may say that stock markets are always 6 months ahead of the real economy. But wait…

Over the last two weeks we have seen a number of interesting items which would appear to give hope for a new global bull market and a number that do not.

For economic recovery and a new bull market
• Barack Obama said “Impressive efforts to boost the economy are starting to bear fruit even though recovery would cause more pain this year.”

• Ben Bernanke, Chairman of the Federal Reserve, said “The economy is no longer ‘falling off a cliff’.”

• CBI – “Worst of recession over.” Ian McCafferty, Chief CBI Economist said “The rate of contraction will moderate quite noticeably in the second quarter of this year.”

• “Germany could be nearing the bottom of its sharp economic downturn,” said Angela Merkel.

• Tim Geithner said “The large majority of banks had sufficient capital.”

Against economic recovery and a continuing bear market
• US industrial production, year to March, fell 12.8% – the fastest rate since the end of World War II.

• Eurozone industrial production in February fell 2.3% versus January and 18% compared to a year ago. The biggest decline since records began in 1990.

• Globally economic activity and employment continues to contract.

Although some of the recent data has been a little less bad and some even a little better, there are other developing problems which represent a significant threat to the economy and to asset values.

• According to Standard & Poor’s, this year, worldwide, there have been 68 defaults by global debt issuing companies, of which 35 occurred in March. Quite clearly it is serious that the rate of default is accelerating.

• The rating agencies are downgrading at a near record pace. More companies had their rating cut to junk in March than in any month since the Asian financial crisis of 1997. In March, 17 companies were downgraded compared to an average of six per month for the previous 12 months – acceleration.

Another burgeoning problem is the commercial property market and commercial property mortgages.

• In the US, first quarter 2009, vacancy rates at shopping malls rose 9.8%.

• In March, US banks seized 464 commercial properties, valued $7 billion – three times the number in December – more acceleration.

• Last year, US commercial property sales fell 73%.

• At the end of 2008, US office space, vacancies rose to 14.5% and is expected to worsen.
What’s coming towards us is truly daunting. The forces at work until 2007 that drove asset prices to ridiculous highs have ended and won’t come back for years to come.

• The pre-2007 period of share buy-backs and private equity funded by limitless and mindless lending has been followed by a period of equity issuance and a collapse of lending.

• The period of borrowing and spending has been followed by a period of saving and debt repayment.

• The willingness of banks to lend to anybody as much as they wanted, has been followed by a period of very tight lending – whilst their balance sheets remain weak, banks don’t want to lend, other than to the very best propositions. There is a growing lack of willingness to borrow by both businesses and consumers.

Martin Wolf, this week in a Financial Times column headlined “Why the ‘green shoots’ of recovery could yet wither”, asked: “Is the worst behind us?”

He answered: “In a word, No” – explaining – “The rate of economic decline is decelerating. But it is too soon even to be sure of a turn-around, let alone a return to rapid growth … Complacency is perilous. These are early days.”

He ends what is an enlightening article by saying “The brutal truth is that the financial system is still far from healthy, the deleveraging of the private sectors of highly indebted countries has not begun, the needed rebalancing of global demand has barely even started and, for all these reasons, a return to sustained private-sector-led growth probably remains a long way in the future.”

So what do you think?

Post from: Real Estate Investment in Johor Bahru

Is economy on her way of recovery?

How many are there (places i can know abt auction houses) and usually how fast do they update their list. Also for good bargain do they “keep” the info to regular gangs of property agents instead of releasing it out to the public?

Answer #15:
You can contact auctioneers to get a latest auctioned properties list from them. Their contacts are available at auction advertisements on papers, notice board at the ground floor of JB High Court and Internet.

Besides City Plaza, some LACA auctions are held by auctioneers in their auction houses in TJB tower.

Most auctioneers are appointed by banks. Banks also appoint certain property agencies to find bidders for their auction properties. These agents collaborate with auctioneers to provide services in facilitating their clients to successfully bid the property they wanted in auction.

We have discussed some of our experience and details in acquiring auctioned properties in “What must you know before buying an auctioned property?” with recommended links and agents.

Question #16 – Inspection of auctioned properties
I admit that I never really consider to buy an auctioned property just because of the tedious due diligence works.

One particular thing is that the potential bidder can’t inspect the property. How do you go around this?

Answer #16:
It is necessary to conduct on site inspection of an auctioned property and its surrounding neighborhood to ascertain the physical conditions of the property. You may not be able to inspect the interior condition of a house. But you can ask around the neighborhood who may have visited the house. From the exterior condition also you can have a rough idea how much cost is needed to refurbish the house.

The stage of maintenance has a significant effect on property’s value. Don’t go for the deal unless you are confident that you understand the value of the property and the possible costs required.

Question #17 – Property agent’s conflict of interest
How would u know if the agent you’re hiring won’t be trying to sell for his clients? Wouldn’t there still be conflict of interest as agents would likely already have a pool of clients they’re already serving and earning commission from?

Answer #17
In today’s market where sellers are more than buyers, agents start to know they have to serve buyers better in order to close any deal. However, we always encourage home buyers and investors to do their ground work like learning how to estimate the property value, how to identify a property worth investing and borrowing before negotiating any price with the seller through agent. (You can learn these from our previous articles “How to estimate the value of a property?”, “How to know if a property investment is worth investing?“, “Why you want to take up a loan for your real estate investment?“)

No doubt most of the agents today still tend to sell for their clients and the conflict of interest is there. It’s our own responsibility to protect our own interest. And the best way to do so is to equip ourselves with the right investing and market knowledge.

Question #18 – Questions for prospective property agent
Maybe you can come out with a set of questions we should ask our prospective real estate agents, before engaging any.
In Penang, I’ve met many agents who don’t really know about the market. Only a handful of them are professional and knowledgeable.

Answer #18:
Some questions that we normally ask our real estate agents:

How old is the property? Fully-furnished or unfurnished? Lease hold or free hold? How big is the built-up area? How much is the monthly maintenance cost, if any?

Any other expenses for the property? Has the individual title issued? Why does the owner want to sell?

What is the lowest offering price? Is the price reasonable in the market? Any room for negotiation?

How much is the highest and lowest rent I can get from the property? How long will you need to find a tenant for the property?

Once you have asked the same questions to several agents, you will be able to identify who can serve you better.

Question #19 – Commission rate of property agent
May I know what’s the standard fee like for hiring/paying an agent in KL or PJ area? Is it 1% of the property purchase price like in JB?

Answer #19:
Yes, you are right. But for certain higher value transactions you may negotiate with the agent to have some discount on the commission. For example, for a transaction above RM250k we normally expect to get 20%-30% discount from property agent, i.e. 0.7%-0.8% of the purchase price instead of 1% for agent’s commission.

Post from: Real Estate Investment in Johor Bahru

Real estate investment Q&A #3

Answer #10 (contributed by KCLau):
If it is an investment-linked policy, you can redeem the unit (just like unit trust). Of course there are terms and regulations that require minimum unit left in the policy in order to keep it in force.

If it is a traditional policy, the cash value is available for loan. Currently the loan interest is 7% (not low actually).

Question #11– Is now a good time for rental properties?
“Credit is tight, Approval of loan are low, …”
Persons who wish to own a house are forced to rent one. Thus, there is a need in rental market during this recession. But, properties have no market, value is going down, this affects rental.
Good timing for income producing properties?

Answer #11:
We found out that although the property values have been going down after Sep 2008, rental market is not much affected, yet. We believe the rent will not drop as fast as the property value, and thus give us more and more opportunities to find properties with high rental yield.

In other words, the gap between the selling price and the expected rental income of a property is becoming smaller now. But here we are only talking about residential properties because people still need a place to stay in hard time.

Question #12 – Lido Boulevard
I was told Lido Boulevard is a good investment. Can i have any feedback on this project?

Answer #12:
In Jan 2008, the developer, Central Malaysian Properties Sdn Bhd (CMP) said the project “is set to commence in March 2008“.
In June 2008, again, the developer said it “will start work in September 2008“.
So sorry that most of the time we just have no faith in most new development projects in Malaysia, especially those who claimed to be “one of the biggest private finance initiatives” in this uncertain period of time.

Question #13 – Tebrau City Residences, Desa Tebrau
How do you think about Tebrau City Residences, Desa Tebrau? Shopping malls around there create much value. Developer is http://www.plenitude.com.my .

I’m looking to buy a unit @ Tebrau City Residences…

Do you have any views on that? I happen to think that the rental yield will be good as it is situated in the IDR and also has 3 huge hypermarts surrounding it….

The developers are also hinting of a 5* hotel being built behind it.

Any ideas or hints??

Answer #13:
Though we don’t know much about this project and its developer, the location is definitely premium. We also learn that the price of most properties such as the apartments under this project is considered affordable for the quality they deliver.

As we are expecting manufacturing, retail and service industries to be hard-hit by recession in the coming quarters or years, we are reserved about the short-term yield that the area may deliver. However, there is one thing for sure: when the economy starts to recover, which it will eventually, the properties in such premium location will be the first to enjoy the fruits.

Question #14 – Lagenda Tasek
What do you guys think of Lagenda Tasek by IJM?

Answer #14:
IJM is quite a prominent developer in Malaysia. However, with the economy situation right now, the risk of buying property from new project has increased due to the potential financing problem with both developers and buyers.

We find the location of Lagenda Tasek a bit inconvenient though it is located beside Jalan Skudai and adjoining to Larkin. Unless there will be some improvement of the traffic system there, otherwise future residents of the estate may find it a hassle to get in and out from there.

Other than that, we also find Lagenda Tasek a bit ambitious with the number of units just like IJM’s Suria Mas apartment in Larkin. Maybe that’s the reason why they can be priced as the “affordable” apartments in the area.

Post from: Real Estate Investment in Johor Bahru

Real estate investment Q&A #2

Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges like shares of common stock in other firms. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.

Like buying stock, you have no control in the operation or selection of the investment property although some REITs make a public offering of a specific investment property. You, at least, have the opportunity of examining the property in which your investment funds will be placed. But, you still have no control over the management or operation of the property. (Read “Why real estate is a good investment?” to understand the advantages to have control over your investment property.)

The key statistics to look at in a REIT are its NAV (Net asset value), AFFO (Adjusted Funds From Operations) and CAD (Cash Available for Distribution). REITs face challenges from both a slowing economy and the global financial crisis, depressing share values by 40 to 70 per cent in some cases since 2007.

Is the worst over?

The market has discounted REIT shares to levels that anticipate a drawn-out period of deteriorating fundamentals. They are trading at steep discounts to asset values. The single most important factor affecting a recovery will be the course of the economy.

We expect the record fiscal and monetary stimulation being put in place worldwide to at least stem the economy’s decline. We should start seeing evidence of this by the end of 2009, when economic statistics begin to suggest a bottom. REITs tend to be early-cycle stocks, so they could start to perform well sometime between now and then. Meantime, it is hard to imagine valuations getting much worse.

It is likely things will get a bit worse before they get better. When you are going through a recession, sentiment is always bad, and things always seem worst near the bottom. The “it’s never coming back” chorus is getting louder.

On the other hand, there has never been more fiscal and monetary stimulus thrown at the world’s economies. Mortgage rates are down. Mortgage refinancing is up. Spreads are starting to narrow between different grades of securities. But it is going to take time because the economic and financial crisis is just too big.

Post from: Real Estate Investment in Johor Bahru

Is the worst over for real estate investment trust (REIT)?

photo credit: Moe_

reijb.com is going to enter into her 5th month. Thank you for all your support.

We have received many feedbacks and comments from readers which help us to improve the contents of this blog and make reijb.com a place of discussion about real estate investment.

We hereby summarised some of the questions and answers which you may have missed but yet interested:

Question #1 – Fixed and floating rate mortgage, which one is better?
Last time, there are fixed interest rate home loan package available. But nowadays, this kind of offer is getting less.
Some investors pointed out that it is safer to use a fixed rate mortgage because we don’t have to worry about interest rate hike in the future, which might affect the monthly installment amount. What do you think about this?

Answer #1:
Yes, there is virtually no more fixed interest rate mortgage in the market now. But no worry, it can be a good thing for real estate investors and home buyers to choose floating interest rate in this period of time of economy crisis.
Please read “Why floating rate mortgage can be a better choice now?” for detailed discussion.

Question #2 – Is now a good time to buy house?
Is now a good timing for buying a house in JB since BLR dropped? We are looking for a house near Tampoi area. Please advise.

Answer #2:
Generally speaking, compared to months or years ago, yes, we would say now we can find more good bargains in JB. From what we have seen in the past few months since Aug 2008, the attitude of most sellers (home owners/developers/agents) have changed to become “softened”. And we discovered that more developers are throwing in those units they previously held (to jack up selling price) into the market.

Also, now we can get better offers from banks in terms of interest rate and other terms. For example, Maybank now offers shorter lock-in period (3 years) for non-zero entry cost mortgage. But according to bankers, however, loan approving rate has dropped nearly 50% since Sep 2008 due to more stringent policy adopted by banks. They are trying to secure more ‘quality’ borrowers by promoting more attractive packages.

Specifically for housing estates near Tampoi, we have yet to look into this market. However, the area is classified as one of the prime suburban areas by JB town councils. Most of the residential lands for apartments/condominiums there are lease hold mainly because of its location as the nearest industrial area to town and better traffic system. The other area that deserves such status is Larkin, but you may find less choice of houses there.

Question #3– Is there really a high-return property?
There is one big problem with the 1st scenario in “How to know if a property investment is worth investing?“. How many people have actually bought a condo for RM168,000, or even RM200,000 and manage to rent it out for RM1,400 within even the 1st 6 months? Agent fee alone is 1 month.

AFAIK a condo that is worth RM168,000 in JB or KL can only be rented for around RM1,000.

I would stand corrected if someone is able to have proven to own a property worth RM168,000 that fetches RM1,400 monthly rental. This does not include a property bought several years ago for RM168,000 but renting at RM1,400 now (in which case in the first few years there would probably be negative cash flow).

Answer #3:
Yes, not many people are able to spot such good deal from the market.
If we spend some time searching for wholesale bargains like fire sales by developers, desperate owners or bank auctions, we will be surprised by their offering prices and quality of properties.

Some apartments/condominiums in Larkin area worth RM160,000-RM190,000 now are rented for around RM1200-RM1500 (fully furnished). The unit in the 1st case was found in the same area with existing tenant from a local company. 2 weeks after we found the unit, our agent was able to rent another unit out in the same building (2 floors higher) for RM1500 within a week!

However, we cannot deny that there are many units of these apartments/condominiums currently rented below market price (RM800-RM900). They may be rented to owner’s friends or relatives or rented out several years ago.

“Seeing is believing” – that’s what we always say in the market….
Question #4 – Are rental markets of JB, KL & Penang the same?
I think your explanation about the rental market in “Will property price and rental fall further?” (that rental rate are expected to increase as more people will prefer to rent instead of buying house in this uncertain period) applies to the market in KL and Penang too. Isnt’ it?

Answer #4:
Theoretically, yes, rental markets in KL and Penang are expected to see the same things happen.

But there is one factor in JB rental market that KL and Penang markets do not have – Singapore. Within the next 6 months, Malaysian workers retrenched by Singapore firms will flow back to rent houses in JB while they look for new jobs. This may temporary create another influx of tenants to JB. The strong Singapore currency will also attract more people from the north to come and find job here in long term, just like what has happened in the last 1997 Asian currency crisis.

p/s: we further discussed our recent observation about the increased occupancy rate of certain rental apartments and condominiums in Johor Bahru in “Why apartment can be the best real estate investment?”.

Question #5 – Is inflation your friend or enemy?
I don’t really “catch” the meaning of “inflation is an enemy to all home buyers because they don’t earn income from their houses…” (in “Inflation may come back soon”)
Would you explain more details about it?

Answer #5:
Home buyers buy houses for their own stay. Whenever inflation strikes, cost of living becomes higher and higher, including the price of a new house, monthly installment of new housing loan, maintenance of house, utilities and other household expenses.

Unlike property investors who benefit from higher rental income and property prices due to inflation, home buyers have to rely on their existing sources of income to cover the increased home-related expenses.

Question #6 – Does Iskandar Malaysia project benefit property investors?
How do you think about Iskandar Malaysia project? Does it really benefit the property investor?

Answer #6:
In his latest comment on remarks made by Singapore PM Lee Hsien Leong that the republic was not competing with Johor especially with Iskandar Malaysia, Johor Mentri Besar Abdul Ghani claimed that the special economic corridor had attracted RM40bil in investments since its launch in November 2006.

If everything portrayed by the government about Iskandar Malaysia is true, it definitely benefits almost everyone in JB including property investors there. However, in the market we found more speculations rather than concrete confidence from investors. For example, price of land plots along the second link has increased tremendeously (>80%) as a result of speculators’ operation. This has also invited criticism from former Malaysia PM Maharthir because without the support from true economic activities, everything looking good now will not sustain, and eventually someone will have to pay the bill – most likely the locals will lose their ownerships of agricultural land and tax payers will have to repay additional natioanal debts incurred by unnecessary infrastructure projects.

Investors are realistic players while speculators are gamblers.

Question #7 – Why prices of some properties never go down?
I see that supply > demand in JB property market due to many housing development projects, but price of properties never go down.

What is the reason behind this?

Answer #7:
Property price of new developments may not easily go down as developers have to meet their break even points. Unless they are really in deep trouble. So we see a lag effect compared to resale/sub-sale market.

Certain resale properties in JB like high-end semi-D, condominium, bungalow and land are mostly bought by cash-rich buyers such as wealthy Malaysians and foreigners (Indonesians and Singaporeans). They have the holding power and normally do not like to let people take advantage from their properties when the market is bad. Sometime we can even face difficulty to find such properties in bad time.

Properties that reflect instantly the effect of supply and demand are those bought by middle and low classes in the resale market.

Question #8 – Why strata title is not issued yet for a completed project?
Regarding Wadihana, I was told that though it was completed more than 15 years ago, strata title for individual unit has yet to be issued and that the owners are now in dispute with the developer over it for the developer is dragging its feet. Is this true?

Answer #8 (contributed by goBetong):
If strata title is still outstanding after 15 years, the property is not worth any consideration. Either (i) the developer is intentionally irresponsible and to his advantage, keeps dragging the title application it to enable them to control/manage/continue to make monies from the properties or (ii) that the developer is still owing $ to the bank and is unable yet to redeem the master title or (iii) the property is not constructed to specification, CF is temporary. Whatever the scenarios, it stinks to seven heaven. Why anyone of sound mind would want to invest in a property w/o title and which, is not outrightly his is beyond my comprehension.

Question #9 – Does a property with average rental yield or capital rate guarantee a cashflow investment?
For example, i buy an apartment at $200k with 10% down-payment of $20k, 90% with mortgage loan (interest rate 6.5%) of $180k with $1100 monthly installment.

if my capital rate is 6%, i manage to get monthly rental income $1000.
in fact, i invest $20k then getting -$100 cash flow.
please advice.

Answer #9:
Yes, you get a preliminary monthly cash flow of -$100 before other expenses like tax, repair, insurance, etc. (with 30 years of tenure for your loan)

Here we can see how high interest rate (6.5%) can turn a so-called high rental yield (6%) investment into a negative-cashflow deal.

In fact, even though now we can get lower interest rate at around 4%, which reduces the monthly installment to $860, a $200k apartment rented at $1000 is still not considered as a positive-cashflow deal if its monthly maintenance fee is above $140.

Post from: Real Estate Investment in Johor Bahru

Real estate investment Q&A #1