There are various differences when it comes to investing in properties in Malaysia mainly because this market is very dynamic. In fact, Malaysia has one of the most attractive property markets in the region today.
Why invest in Properties?
The sole reason why you would want to invest in properties would be because of its potential for profit. Among the various types of investments, properties are known to have the best (and possibly most stable) returns. But this DOES NOT mean it absolute and that you will only profit and not lose. If you invest blindly or do not carry out your own research, there is a chance that you might not make money at all. The term Real Estate is commonly used to refer to all types of property investment which covers the likes of:
- Residential properties
- Commercial properties
- Retail properties
- Industrial properties
- REITs or Real Estate Investment Trusts
Major types of property investments
Each type of property will have its own risks and features that you must be aware of before you invest. Below are profiles of these investment types and some advice on how to invest in them.
Investing in Residential properties
The most common forms of residential properties are apartments, terrace houses, bungalows and condominiums, among others. Take note that you can only buy (or sell) properties with residential titles apart from those that are protected under the HAD or Housing Development Act. This refers to properties that are considered as residential titled properties but are actually commercial titled ones like newer projects like SoHo (Small Office Home Office) properties.
- Tip: You must carry out proper research before investing in residential properties because of the location. If you are looking to earn a profit, you must find out about the location on whether it has been marked for development in the near future.
Investing in Commercial Properties
Commercial properties are always more expensive than residential ones. If you invest in this type of properties, they are commonly used for business purposes. They include:
- Office buildings
- SOVO or Small Office Versatile Office
- SOSO or Small Office Smart Office
- SOLO or Small Office Lease Office
- SOFO or Small Office Flexible Office
- Retail Lots
- Shop Lots
Buying a commercial property is very much the same as buying any other property and depends largely on the location (which directly influences the price). Commercial properties usually come with multi-year leasing terms.
- Tip: You will need to have more money allocated for a downpayment if you want to invest in commercial properties because they usually have about 70 to 80% margin of financing (versus residential which is 80-90%).
Investing in Retail Properties
Retail properties are actually a type of commercial properties but they have very different systems. This type of properties can be divided into those that are retail storefronts as well as those that are in shopping malls. When you invest in a retail lot (in a shopping mall), the landlord normally takes a cut of the revenue of the shop.
- Tip: You should invest in a retail lot if the location is very good. A lot of investors do not get to choose the location in a mall where they end up in obscure locations within the premises.
Investing in Industrial properties
Industrial properties meanwhile is another form of commercial property but are way larger. They can be factories or warehouses used for the long term. At times, they are used as storage or distribution centers with very good returns as you get to lease it out for a long time. When a tenant rents the industrial property, it is highly likely that they will not leave for a long period of time. However, the upfront payment would be higher.
- Tip: Industrial properties are a lot more expensive and harder to maintain. You need to allocate more funds to invest in this type of property
REITs or Real Estate Investment Trusts
When you invest in REITs, you do not necessarily own the property per se but you do enjoy the low risk of investing in properties nonetheless. What you are investing in really is in the shares of the firm that owns a collection of real estate properties. At the end of a term, the firm actually pays out dividends. This means you are actually investing in properties but not directly owning any.
- Tip: REITs is a great way to start investing in the property market because of its low cost and very easy to start
Profiting from Property Investment
Ultimately, what you want from property investment is to enjoy the returns no matter how big or small. It is, however, not just about buying a property and then waiting for your returns. You need to have a strategy for this. Here are some tips:
Renting the Property
This is the one method which is most reliable. When you buy a property, whether it is commercial, residential or otherwise, you will want to keep it and then rent it out. Typically, you want to calculate your ROI or Return-on-Investment before deciding to buy any property. This includes finding out about what and where the property is and location. The rule of thumb is to buy properties at high traffic (or demand) areas. Besides that, check out what potential tenants you might be dealing with.
- Gross Rental Yield – This is one term that you need to fully grasp and understand. The formula is:
- Annual Rental Income = Monthly rent x 12
- Property Value = Purchase price/ Market Value
Sell the property
For this type of strategy, what you want to do is to buy a property and then keep them until the price goes up and then sell it off for a profit. This type of profiting strategy works very well if you are looking at properties that are already mature. In most cases the property developer will inform you that there is a good potential for returns which will normally be at high demand locations.