Property or real estate investment is investment in a resource that is increasingly getting scarce. Similar to gold or silver, land is a resource that will appreciate in value and returns over time. Thus, property investment is becoming a popular option for aspiring investors.
Like any type of investment, the property investment market has its own set of challenges, yet if you acquire the right real estate that fits your purchasing power and investment needs, you could get a good return on investment (ROI). Let’s first understand the different types of property investments in Malaysia.
There are a 5 major types of property investments in Malaysia, namely Residential, Commercial, Retail, Industrial and Real Estate Investment Trusts (REITs), each with its own earning strategy, pros and cons.
The 5 Main Types of Property Investments in Malaysia
Residential investments are investment into properties that hold residential titles, such as terrace houses, apartments, condominiums and others.
Some commercial land-titled properties that are protected under the Housing Development Act (HDA) are also considered residential titled, for example SOHO (small office home office) developments, and are also popular and common residential investments
One of the key attraction of residential investment is that residential properties have lower entry price points with higher financing margins up to 90%, ie. less risky compared to industrial investment.
Note that, not all residential investments will give you the same ROI due to various factors, the main one being the property location. Thus, proper research is important so you acquire a property that is in a ‘preferred’ location, in order to maximise your investment return, whether in terms of rental collected or re-sale value.
Investment into this category include properties with commercial land titles, such as shop houses, retail lots, SOVOs (small office versatile office), SOFOs (small office flexible office), SOLOs (small office lease office) and SOSOs (small office smart office). Investment in commercial titled properties are typically leased out for business usage only.
Commercial properties are usually involved in multi-year leasing, thus you can attain a greater and more stable cash flow from it. A key positive to commercial investment is that the utility costs and management fees are typically borne by the tenant. And unlike residential properties, commercial properties can be rented or re-sold unfurnished.
One thing to consider when investing in commercial properties, is that it requires higher upfront capital as the financing margin is usually less than 70%. Also, returns on commercial investments are highly dependent on commercial occupancy rates as well as the surrounding township occupancy, public transportation network and other factors.
Retail investments are similar to commercial investments, with different mechanics and prime locations, as retail properties refer to properties that are located in malls and other retail storefronts.
In essence, retail investment is a combination of property and business investment – the landlord receives a percentage of profits in addition to the basic rental returns.
Industrial properties are properties such as industrial storage or warehouses and distribution centres that have long term agreements. Investment in industrial properties generate a unique level of income from both rental and re-sale, with significant fee and service revenue that may increase the ROI for the property owner.
Before investing into industrial real estate, do note that it is a very niche market and often require specific professional maintenance and management, as well as a heftier upfront capital cost. As such, this type of investment are generally considered to be more risky.
Real Estate Investment Trusts (REITs)
REITs are a new property investment concept that leverages on the ease of entry and affordability. It is basically investment in real estate by buying shares of a corporation that owns real estate properties and distributes its income as dividend.
The plus point is that you can match your preferred property industry; if you want to ‘own’ hotels, you can invest in hotel REITs. However, do bear in mind that with REITs, you do not actually own the said property and do not have decision-making power on how the property is managed or run.
How to Earn from Property Investments?
One way to earn from property investment is to buy the property and rent it out to earn rental income. You should do some ample research beforehand to understand the type of property that you are buying, the location and the potential tenants that you want or may attract.
Look for a property in a high-demand area, with high catchment market such as universities or business areas nearby. If possible, find a property that is closer to where you are living, so you can immediately respond if any emergencies arise.
Before confirming prospective tenants, you should do some basic background check on them. Make sure to have the proper tenancy or rental documentations and agreements to further protect yourself and your tenant. Depending on mutual agreement with your tenant, visit your rented unit regularly to monitor the condition of the property and to avoid your tenant from skipping out on rent.
When deciding on your rental fee, consider all your ongoing expenses such as instalment and maintenance fees or other property costs involved.
Another way that you can earn from your property is to capture the demand for sub-sale property and buy properties with the intention of selling them for capital gain.
Among the factors that characterise an in-demand property in the sub-sale market is its location (especially in a matured township with comprehensive public amenities), good property management, immediate ownership and move-in condition, and potential rental return.
With the buying-to-sell strategy, you should consider if you have the necessary commitment to hold on to the property until it is sold, including the time to maintain the condition of the property. This may involve higher costs on your part, or a longer time to acquire the ‘right’ buyer.
Understand, Strategise and Engage A Professional Property Investor
Interested in property investment? Knowing which type of property investment is suitable for you, and deciding on the right strategy are the two most important factors to succeed in the real estate investment market.
No matter which strategy you plan to take, keep in mind the objective of your investment and know your financial limitations to avoid any financial distress along the way. Getting help from an insightful professional can also ease your property investment journey. Good luck!
This article is intended to convey general information only. It does not constitute advice for your specific needs. This article cannot disclose all of the risks and other factors necessary to evaluate a particular situation.
Any interested party should study each situation carefully. You should seek and obtain independent professional advice for your specific needs and situation.