Thinking of buying a property and not sure whether the price is right?? To estimate the value of a property is not as difficult as you think. With some information from the market, you can do the estimation just like a professional valuer.
Always remember that the value of a property depends on the potential income the property can generate – annual rental income. This has been the guideline for valuer to perform property valuation and for government to derive property tax (quit rent & assessment fee).
A simple term used to estimate value of a property is rental yield. However, we call it capital rate instead of rental yield when we talk about valuation. But the formula is similar, i.e. capital rate = (annual rental income)/(property value)
To determine a property’s fair value, simply change a bit of the same equation:
Expected property value = (expected annual rental income)/(capital rate of property in the same market)
For example, in Johor Bahru normally the capital rate for apartment we use is around 6.0%-6.7%. Say if you have a unit with average monthly rental income of RM1000 in the market, annual income will be RM12,000 (RM1000×12). From the equation, your property value should not be more than RM200,000 (RM12,000/0.06).
Capital rate depends on the type and location of the property. You can easily estimate the capital rate for your property by asking the latest average rental income and selling prices in the same area from your property agents.
On the other side of the coin, valuers and government get the data of market average rental and property prices from the stamp duty records (tenancy agreements, sell & purchase transactions) of HASIL (Inland Revenue Board) and land office.
photo credit: woodleywonderworks
Estimating the value of a property is important for us to negotiate with seller, as well as to estimate return on investment (ROI). In our previous article, you can read more about how to finance your real estate investment for maximum return. (If you’re not already a subscriber to Real Estate Investment in Johor Bahru, subscribe now to receive our FREE latest update via email.)
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I guess you must have compiled a list of capital rate on specific areas of Johor Bahru?
for example, i buy an apartment at $200k with 10% down-payment of $20k, 90% with mortgage loan (BLR6.5%) 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.
Sorry KC, we have yet to compile such a list. 6.0%-6.7% is the range we found for apartments in most areas of JB.
Hi Raymond,
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 I assume.)
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 4.5% (floating rate), which reduces the monthly installmet to $910, a $200k apartment rented at $1000 is still not a good deal.
Hi Ong,
This is a very well written article, indeed given me a young one alot of insights on purchasing my 1st investment property. Also credit to KC for introducing me ur web !
Any specific advise for property buyer in KL/PJ? If age is proxy to my investment consideration , I am 23 years of age.
Kindly adivse.
Thank you, and a toast to 2009 to u !
Hi Jadelyn,
Glad that you like this article.
We have yet to go into KL & PJ markets, very sorry can’t give you any specific advice, yet.
Your age is your advantage. We always encourage to start young investing in real estate because you are entitled to the longest tenure when come to housing loan. You can enjoy the lowest monthly installment , just like you enjoy the lowest premium for life insurance.
Happy New Year!
Cheers
hi ongkl. hope can learn more from you in here. I am 26 yrs old, would like to invest in jb , to earn rental in porperty. should we find a agency to find porperty ? actually i find some housing is old but great location shouid we invest in it?
Hi divaha, through an agency we will save a lot of time to find our property.
Try to gather as much information as possible about a property and perform some estimation on its return. You can read our previous articles How to know if a property investment is worth investing? and Why you want to take up a loan for your real estate investment? to learn how to identify good properties worth investing.
AS long as the building structure is good and you find it located in good location and promised a good return, why not invest in it even if it is old?
Cheers
Hi,
I would like to know if condos have appreciated in value in Jb. I m keen to buy a unit at permas ville apaprtment. Do u think its a good apt to invest in. It cost RM200k.Pls advise.
Hi Sed Muhammad,
I have yet to see any condo in JB appreciates in value significanly since last year. That’s why I have been suggesting readers to focus on the cash flow that apartments/condos can deliver through rental income.
RM200k seems a bit high for Permas Ville. I personally think that its location is not good enough.
Cheers
Hi,
May I ask average capitalization rates for:
1. Klang Valley
2. KL/PJ
3. KL?
Thank you.
Hi Mox,
Sorry that I have no data for the areas.
Cheers
Hi KC,
I have 3 properties in JB and the location is like this Taman Universiti single storey house , Pulai Jaya double storey corner house and recently bought under construction Bukit Indah double storey house.
May I know how to know the current market value of these houses and also how do I know how much I can rent out for these houses at current market value?
Thanks
Hi Alan,
The best way to know the current market is to check with your property agents and banker who can get this information quickly from the pool of their valuers.
Cheers
Hi ongkl,
Nice article, enlighten by you to buy property in JB.
Found Bandar Seri Alam property price still affordable compare to JB prime area. There are new medical center and college in construction, and a new Coast Highway will shorter the travel time from Seri Alam to JB city area.
What do you think about about to invest the property there?
Thanks.
Hi BK,
It depends on the price that you can get and the return that you can expect from the property.
As I know the rental market there is still soft. If you are expecting to profit from flipping a property there in short term, I suggest you to think twice also.
Cheers
hi ongkl
i would like to know about the appreciated value for new Palazio studio apartment in mout austin jb, price is about RM 130K for 484 sqf?? is it a good location for investment?? the expected rental rate for f/f is rm1000/mth accordding the developer and banker. what do u think?