Since the start of property boom nearly 10 decades ago, owning a home has become the cornerstone of the Malaysian dream. Although, with the increasing cost of living, depreciation of Ringgit, GST implementation and various other lending restrictions, the dream seems to be increasingly out of reach for many especially for the younger generation.
Property investor and property investment coach, Kaygarn Tan says there are many reasons property is still the number one investment choice despite the current challenges, one of them being leverage. Your investment can either create enough positive cash flow for you to quit your day job or give you a good capital appreciation. But before you can achieve this, there are three important fundamentals of property investment that need to be addressed – Your intention of buying, property location and access to financing.
IDENTIFYING YOUR NEEDS
In identifying your intention of owning a property, Tan poses two important questions: (1) Is the property intended for own stay or for investment? (2) And if you are looking to invest, what is your strategy?
He suggests that those looking to invest should determine if they are looking for capital appreciation or cash flow (rental). Once the strategy has been decided, they need to identity the type of property that will match it.
“Buying a high rise property would be the obvious choice if you’re looking to capitalise on rental yield. On the other hand, if you’re looking for capital appreciation, a landed property would give you the best return. Make sure you do your rental return calculation,” advises Tan.
When it comes to capital appreciation, it is crucial to have the foresight and to be able to identify the boom factor/ development potential of a location. The quiet remote place, called Batu Kawan in mainland Penang that started booming during the construction of the Second Penang Bridge linking the mainland to Batu Maung exemplifies this point. With the arrival of notable developments such as IKEA, Designer Village (Premium Outlet), KDU University College, Batu Kawan and its periphery towns are expected to experience a price surge.
FUNDING YOUR FIRST HOME
Although it’s tempting to purchase a home with the best view and a myriad of luxurious facilities, Tan suggests that young investors stay realistic and purchase within their means. Keeping your purchase below RM300,000 (assuming that the buyer manage to obtain 90% financing) would only require RM30,000 down payment. Attainable as it may be (with calculated planning), the idea may seem farfetched to the Generation Y. To prove this possible, Tan lays down six solutions to funding your first home down payment.
Solution # 1: Invest in yourself first
You need to have the awareness that you are your best investment, thus is important to be well-equipped with knowledge. Without good knowledge, you will not be able to identify a potential property.
Solution #2: Good money management
Make a point to save some of your monthly income and contribute it towards your down payment fund. Your purchase goal should be realistic and according to your budget.
Solution #3: FAMA loan
In other words, father-mother loan. Knowing how little you earn on your first job, parents are usually more than willing to either subsidize a little bit or pay for the full amount.
Solution #4: Leverage using a credit card or Personal loan
Unless it’s a very good deal, credit card or personal loan can be a double-edged sword due the high interest charged. Use it merely as a tool.
Solution #5: EPF withdrawal
For those working and contibute to EPF, you could actually opt to EPF withdrawal. You can actually withdraw from EPF Account 2 to finance your 10% downpayment.
Solution #6: 100% from Government Scheme and Commercial Bank
For the 1st home buyer out there, do explore the option of getting 100% loan. For example, there are 100% Government Loan Scheme for 1st home buyer. Recently also announced, commercial banks are also providing 100% loan to buyer purchasing their 1st property.
Solution #7: Structure a deal with the developer for a No-Money-Down
Say you purchase a RM300,000 property and manage to obtain 90% loan. If you can work out a deal with the developer for 10% rebate, which is worth RM30,000, how much do you have left to shell out? Zero, of course. This is what you call buying with no money down.
Till then, happy investing,
*This article is contributed by Kaygarn Tan and appeared in iProperty.com’s Oct 2016 Issue.