The double whammy of oversupply and virus outbreak is making it crucial for investors not to make mistakes when investing.
The first few months of 2020 have not been kind to the average Malaysian. First, there is the Covid-19 outbreak that had spread from China to Malaysia.
Even before the spread of the virus, Malaysia’s GDP is expected to crawl to 4.3% and with the double whammy of the virus, is expected to dive to 3.6%.
With so many headwinds, surely as an investor you don’t want to be caught with your non-performing properties.
So, what are the 5 investing taboos you must avoid?
1. Never Buy Property Without Market Research
Before you buy a property, can you safely say the following?
- Do you know the median price of that area?
If the median price for comparable highrises (similar specs, size and layout) in the area is RM500K, you would be in a safer position to buy something that is below the median price.
- Do you know what are the boosters of the area?
With boosters, you can be a bit confident to pay a bit more. But a mall can be a booster and also NOT a booster. Why do I say so? A proper mall in Cyberjaya (e.g. IOI City Mall) is a booster as there is a lack of proper malls in the surrounding areas of Balakong, Serdang, Putrajaya and Nilai. But a mall in Damansara Uptown vicinity is NOT a huge booster.
- Is it connected to any public transportation?
It is a known fact that developments located within walking distance to the Putra LRT line have better rental yields than developments within walking distance to the STAR line. Even public transportation lines have different yields as NOT ALL public transportations are created equal. Some lines are better and hence will have a premium in terms of rental. We have covered it extensively in our Faizul Ridzuan Private Group (FRPG) and hence we have been buying voraciously, more than 100 units in the past 12 months projects that are walking distance to a certain line.
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Even public transportation lines have different yields as NOT ALL public transportations are created equal.
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2. Do Not Follow the Herd
There was a time when a top developer launched a project in a hyped-up area, which everyone queued up to buy. It was sold out in less than a month. Fast forward to today, see the complaint in the posting here:
Bank instalment plus maintenance should be around RM1,400-RM1,700 but asking rental is only RM650. So, it is a negative cash flow every month. It has everything going for this project.
- Hyped up area.
- Top quality developer
- EVERYONE bought it. Surely it cannot be wrong?
This is the one taboo that you must not forget. Do your own research. Just because it was sold out does not mean that it is a good project.
3. Only One Rental Option
Has anyone ever sold you a project in the middle of the city that promises sky high daily rental via Airbnb? If you are as active in buying properties as we are, I am sure the answer is a big YES.
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The danger for this strategy is that there are no alternatives if that strategy or option fails. What if a virus adversely impacts the tourism sector? What if the major chain hotels start to refurbish the hotels and deploy penetration pricing strategy? Can you easily switch to long term rental? Can you target the family? Chances are the people who want to stay long-term, or the families prefer and value privacy; they would not be too happy to stay in a development that has strangers moving in and out on a daily/weekly basis.
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There is no way that property prices double every 10 years.
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4. Overconfidence
Property investors who have been buying since 2008 would be at least smiling to the bank. When that happens, some would be in a euphoric mood and believe that they have the Midas Touch. This leads to a case of overconfidence that sadly impairs their judgement. They buy projects that do not fit into their investment criteria, they simply buy without any regard for the median price, etc.
5. Property Price Doubles Every 10 Years
Have you heard of this fallacy, that property price doubles every 10 years? While it makes for a great sound bite, it is just not supported by any data.
There is no way that property prices double every 10 years. And if you invest with that kind of mentality, it is very likely you will lose money in the short term.
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Just because it was sold out does not mean that it is a good project.
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