How to estimate the value of a property?

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 (RM1000x12). 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.

Saving is for wimps!  I have a plan for affordable housing.
Creative Commons License 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. 

About The Author

ongkl

Coming from a humble little town named Tangkak in north Johor state of Malaysia, I am so lucky to have chances to learn and work both in Johor Bahru and Singapore - a conurbation with 6.49 million still fast growing population - since year 1996. Hope now I can have a chance to contribute back to the community by sharing what I see, what I know and what I learn in this wonderful place.

51 Comments

  • KCLau

    Reply Reply December 30, 2008

    I guess you must have compiled a list of capital rate on specific areas of Johor Bahru?

  • 雷門

    Reply Reply December 30, 2008

    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.

  • ongkl

    Reply Reply December 30, 2008

    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.

  • ongkl

    Reply Reply December 30, 2008

    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.

  • jadelyn

    Reply Reply December 31, 2008

    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 !

  • ongkl

    Reply Reply December 31, 2008

    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

  • divaha

    Reply Reply February 12, 2009

    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?

  • syed muhammad

    Reply Reply October 20, 2009

    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.

    • ongkl

      Reply Reply October 25, 2009

      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

  • Mox

    Reply Reply November 15, 2009

    Hi,

    May I ask average capitalization rates for:
    1. Klang Valley
    2. KL/PJ
    3. KL?

    Thank you.

    • ongkl

      Reply Reply December 5, 2009

      Hi Mox,

      Sorry that I have no data for the areas.

      Cheers

  • Alan

    Reply Reply December 15, 2009

    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

    • ongkl

      Reply Reply December 28, 2009

      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

  • BK

    Reply Reply December 22, 2009

    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.

    • ongkl

      Reply Reply December 28, 2009

      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

  • karen

    Reply Reply February 26, 2010

    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?

  • Magdalene Sim

    Reply Reply December 22, 2010

    Dear Ong KL

    I am seriously considering buying a unit at Wadihana for RM390K for a 1844 sq ft freehold condo in Johor Bahru. The unit is currently rented at RM1,800 per month.

    I am not too familiar with Johor Bahru property and am thinking of buying it for investment.

    Could you please advise if this is a good buy? Any pointers you can give me on whether I should buy Wadihana e.g. location would be appreciated. The only thing that I do not really like about Wadihana is that I have to pass through a kampong to get into the condo. I really need advise before I purchase it. Thank you.

    P/S: Of course I would love to buy Petrie Apartment but I can’t afford it as it is about RM600K.

    Kind regards,
    Mag

  • wbtee

    Reply Reply February 4, 2012

    Hi Ongkl,

    I planing to buy a property near danga bay area. One of the new project coming soon studio type about 560sqft sell about 392K. How do u think?

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