Eyeing for something to invest on? What about properties that are under construction? Will you be able to strike gold with these sort of properties?
There are currently 90,491 of unsold units that include 64,077 units in various stages of construction while work on 11,622 units has not begun.
In fact, property booths are mushrooming rampantly around the country, selling these latest projects as developers are fighting tooth and nail to reduce the overhang supply of properties.
And of course, these projects look enticing, given the abundance of freebies and gracious throw-ins luring you to purchase units that are under construction.
But there are a couple of things that you need to think about before saying yes to the property and signing on the dotted lines:
Do your research
Always do your research on the project of interest.
Project Reviews is ideally the best place to seek for the latest plethora of projects that are under construction. If you have one in mind, type the name of the project and the review will pop out. These reviews are comprehensive, which include segments like Introduction, Project Details, Location, Analysis and Summary.
These segments will give you in-depth knowledge of the property with current psf., state of construction, available types as well as projects that are similar in built and within the same vicinity as the acquired project. All constructively written from an unbiased point of view.
You can easily understand the property better and perhaps able to evaluate it in dollars and cents clearly.
What? Paying interest for an intangible unit?
Here’s the catch of buying under construction property. You would still have to pay interest even if it is not completed yet. Buyers will be incurred interest expenses throughout the estimated years that the project is deemed to be completed; be it from one to three years.
Yes, you will be paying for something that is still intangible.
As for sub-sale or completed properties, you won’t be paying any additional interest as you will be serving the mortgage upon purchase. If the purchased property is intended to be an investment, you could immediately find for renters to start the money rolling.
Ready to compete for renters
Imagine when every single owner receiving the keys to the units at the same time? And imagine investor-like minded owners who would jump gun in getting tenants to rent their units. Some would immediately refurbish their units by providing new interior and furniture, which enable them to mark up the rental.
While others would instantly enlist their bare unit on the market at cheaper rates, trying to beat out other competitors. You might end up scrambling for opportunities to get renters and risking lowering the rental price even below the market rate to survive.
GRR Scheme? Sounds too good to be true…
Read the thin fine lines when it comes to Guaranteed Rental Return schemes (GRR).
GRR is considered as future rental income, guaranteed by the developer or management company to the property buyer for an agreed period after signing the sales and purchase agreement. It also means that it will generate rental income by owning the property; with or without tenant. A normal GRR package can run from 5 to 10 over years with 6% to 7% in returns.
But please make sure that you have a tenancy agreement or a leaseback agreement with the management company, to avoid unwanted outcome. There has been an increase number of cases involving owners suing developers over unfulfilled end of the bargain when it comes to the GRR scheme, ripping buyers from what they have signed up for.
You want more housing loans above the current loan of an under construction property?
It’s hard to determine the current loan’s eligibility. Policies and implementations can differ from one bank to another, which include age, monthly income and debt servicing ratio (DSR). Things can be unpredictable on most occasions.
But if you are starting to serve a mortgage for an under-construction property, it is most likely that you might not be able to get another loan. The bank might not see any immediate increment in your current income and would consider you as financially incapable to take on another loan.
Again, it would be a different scenario if you have purchased a completed unit. Since you are servicing your home loan, the principal mortgage value will decline from its first payment. If the property is up for rental, then this could be considered as additional income from the bank’s point of view. It gives you an extra edge in getting another home loan.
But really…
In the end of the day, you are the key and decisive decision maker. Weigh in what you will be getting from the developers that include rebates as well as interest incurred with your overall finances. See if you are able to get by the years paying for an under construction property while having other financial obligations. If you can pull it off, click here to start your property hunting!
For the latest property news, trends, resources and expert opinions, visit our Property News section. Home buyers, sellers or property renters looking for Malaysian Properties, may like to visit the New Launches or Project Reviews page.
