Property is biggg business in Malaysia. There were 209,295 residential properties worth a total value of RM72.42 billion sold in 2019, according to data from the Valuation and Property Services Department Malaysia (JPPH).
Of course residential property isn’t the only kid on the block, as Malaysia is also home to millions of commercial, industrial, and retail-based properties.
It has created a multi-billion Ringgit property industry that boasts a huge range of opportunities for real estate investing.
While the impact of COVID-19 is likely to dampen the market in the immediate future, the truth is that property investment remains one of the most attractive types of investment for people all across Malaysia.
Bricks and mortar presents a very real, physical route for investment when compared to some other more distant investment choices. It’s nice to know your money is tied up in something you can touch!
With investment property such a hot topic, there comes the question of how to invest in real estate. Like any other investment, it’s always down to your own circumstances, your financial needs, and your attitude to risk.
However, there’s no guarantee in this game, sorry! But there can be some exciting opportunities if you plan properly, and make the right decisions.
If you’re now on the lookout for articles on how to invest in property, chances are that you’re thinking about diving into Malaysia’s residential markets.
That’s landed properties, strata properties, and all the weird and wonderful types in between. With that in mind, here’s a super simple guide to 6 types of residential property investment.
1) House Flipping
House flipping is a short-term property investment method that's based on the idea of ‘buy low, sell high, quickly as possible’.
The aim is to identify and purchase investment properties which are undervalued, or which can have value quickly added with as little cost, and then sell them off at a profit.
There are a number of ways that house flipping can deliver a return on investment. The first route is by finding an undervalued property, which may be priced that way because the owner wants a quick sale.
Or it could be through early (and sometimes lucky!) identification of properties before they hit the public market. Flippers buy that property, then use their market experience to place a better price for the resale.
Another common route is to purchase a new development property at launch, then sell it on once it's completed, to return a small profit.
The success of this strategy depends on identifying those properties which are going to be highly sought after once the development is complete.
There’s no guarantee on delivering that return, and it’s all down to shrewd analysis of market conditions, in-depth research on the area's amenities and infrastructure, as well as understanding of real estate investing.
The third common path towards house flipping for a profit is through a quick restoration or renovation. Tearing down the ugly bits, a fresh coat of paint, plus new doors, windows and light fixtures – it's ready to go!
Experienced house flippers identify old properties which can be quickly given a makeover so as to make them more attractive, and crucially – increase the value.
The trick is to ensure that the profit earned between the buying and selling price is enough to cover the total cost of the restoration/renovation.
2) Long-Term Investment
Long-term investment in property is based around the idea of capital appreciation. Basically, what that means is house prices almost always go up over a long period of time.
Sometimes, it doesn’t even take that long. In Malaysia’s ‘golden years’ of property investment in the 1990s, house prices increased by around 25% in 1991 alone!
We wouldn’t get too excited about that kind of return though. Those days are long past, and the truth today, is that capital appreciation is more of a slow and steady gain in most places.
Research by Khazanah Research Institute in 2019 showed that house prices across the country increased by a compound annual growth rate (CAGR) of 9.1% since 2009.
So what do you do with the property when you buy it, if you do decide to go down this route? Well, long-term investment can take many forms (some of which we’ll touch on in a minute).
You can buy and rent out the property (yay for passive income!), buy and live in the property while you wait, or even perhaps buy a property for family members to live in.
You're going to have to be patient for the next 10 years or so. All the while, the value of the property is (hopefully) increasing.
That means you can make a nice profit when you sell it for an important life event, such as funding a child through university, or even as an inheritance as part of your legacy.
Buying a subsale property to restore and/or renovate and add value is a tried-and-tested property investment strategy.
House flippers sometimes use this strategy for a really quick turnaround profit, but there’s no reason why it has to be such a radically accelerated timeline.
If something is worth doing, it’s worth doing right. And sometimes, that can take time to make sure the end result is the best it can be.
Identifying attractive properties for renovation is all about good planning. You need to analyse the prices of ‘good’ properties in an area, the cost of buying the rundown or tired property, and crucially – the total cost of renovating it over a year or so.
If it costs more to renovate than the difference between the purchase and sale price, you’ve wasted a lot of time and money, with no reward. That’s a real risk in this type of real estate investing, unless you do your math right!
Market evaluation is critical for this investment type. You need to take a good look at similar properties in the surrounding area, and understand the house price valuation criteria that apply.
That means matching up the sale price of properties which are the closest comparison to the ‘intended’ look of your finished renovation.
With the right planning, buy-to-renovate gives you the chance to purchase a modest property, invest in making it highly attractive, then sell it at a profit that gives you a big financial high-five for your efforts.
4) Buy-To-Let (Short-Term Lets)
Buy-to-let is pretty much self-explanatory: You purchase a property with the intention of renting it out to earn a steady flow of income.
There are both short-term and long-term rental markets in Malaysia, with various pros and cons of each of the relative markets.
Short-term lets means renting out your property to people for a period of days or weeks. That includes platforms such as Airbnb, and often means renting out to business people or tourists.
The potential profits are higher per night than a long-term rental agreement, but the security and guarantee of income is based heavily on how often you rent out your property.
Short-term lets do offer a chance for higher profit, at the risk of less stability. But, you get the flexibility in selecting the timeframe which you want to open your property for rent, and then closing it off if you want it for personal use.
It’s all about location. A condo in Penang could represent a lucrative short-term let opportunity which benefits from the region’s popularity with tourists!
5) Buy-To-Let (Long-Term Lets)
Long-term buy-to-let properties are perhaps the more traditional view of a rental property investment.
This investment method is about purchasing a property that is then rented out to long-term tenants (a year or more) with a stable rate of return.
The question with long-term lets is about ensuring the right rental yield. That’s a measure of the annual income received from a rented property as a share of the total purchase cost. Here’s a simple example:
You pay RM300,000 for a house, which you go on to rent out at RM15,000 annually (RM1,250/month) .
Your rental yield is the rental figure (RM15,000) divided by the total cost (RM300,000), then multiplied by 100 to make a percentage. So your rental yield is 5%.
Rental yields vary A LOT by property type, location, and infrastructure. However, in general terms, a rental yield of 4% or more would be considered good in Malaysia.
Long-term rental yields can also be impacted by the maintenance costs required for the upkeep of your property.
That means purchasing a luxurious heritage property or an old rundown one could significantly impact your returns, as the relative cost of maintenance bites into your profit.
The benefit with buy-to-let is that you’re not only earning stable returns through rental, you also benefit from capital appreciation as the underlying value of the property increases too (assuming you’ve purchased the right one).
6) Vacant Land Development
If you’ve got experience in construction, or good understanding of the property market more generally, then it might be that you’re interested in the idea of vacant land development.
This can be a very lucrative property investment opportunity... when done correctly. It does require a lot more involvement and moving parts than other investment types, which is why the risk is much higher, and certainly not for an amateur property investor.
Before you even purchase the land, you should have a solid understanding of the development rules and regulations, and how your intended property development will look like.
There’s no point buying a few hectares outside Ipoh, only to realise you’ve purchased some sort of protected ex-mining land with extremely high development costs.
Of course, the crucial first investment step here, is identifying a suitable plot of vacant land for sale in Malaysia.
That’s by no means a simple process, and you should be familiar with the process for vacant land purchase before even considering this option.
Once the land is purchased, you set about constructing your property or entire project, and sell it on for a profit! That’s an incredibly simplified explanation for what can be a significant multi-year process.
Of course, the development costs are substantially higher than other property investments, which means cost or time overruns can have a significant impact on your potential return on investment (ROI). Not for the faint-hearted!
Key Points When Investing In Properties
We cannot stress enough the importance of good financial planning and sticking to a strict budget when it comes to property investment.
Sure, there are no guarantees, but the better you understand the process, the more likely you are to be one of the smart property investors making hard-earned money in Malaysia’s property market.
It’s essential that you don’t overlook the ‘hidden’ costs of real estate investing. That’s not just the purchase price of property or land itself, but the legal fees, transaction costs, tax implications, and all those additional costs and requirements.
One common oversight is your own time commitment too. Don’t assume you’re going to be able to completely renovate and restore a house on your own in just a few weeks, especially if skilled craftsmen will be required.
You should get to grips with the key pricing factors that impact property in Malaysia. That includes elements like location, accessibility, nearby development plans, as well as wider economic conditions such as political or economic stability.
If you purchase an investment property in an undesirable area, you shouldn’t be surprised if your investment return is significantly less than a property in a more attractive address.
It’s all about making shrewd investments that analyse the difference between the price you pay, and the return you can receive from rental yield/property flipping/renovation and resale.
Ultimately this comes down to good planning, and understanding margins. That’s particularly true for investments where you’re committing time and/or money with the hope of increasing value.
If you’re purchasing a property for RM290,000, spending RM10,000 on renovation, and selling it at RM310,000, you need to consider how all the additional costs of property conveyancing, as well as the time and emotional resources put in, are worth it for you.
Property is an extremely exciting investment, and one which offers a huge range of investment paths to travel.
There are almost 300,000 properties for sale on PropertyGuru today, representing everything from the perfect buy-to-let, to the ideal renovation-required house flip.
The true measure of potential is down to how much effort you put into understanding the market, and designing a well-planned investment strategy that sets out your route to success!
Are you excited about property investment? Then check out our guide on How You Can Spot A Great Property Investment Opportunity!