DON’T DO WHAT I DID
by Lim Lay Ying
Property Times, New Straits Times
14th August 2004

If you’re thinking about buying a property, don’t do it the way I did some two decades ago.

Not that I regret my action – I shouldn’t really as I had not lost money, though I do wish I could have made some considering the efforts I put in.

Things could have gone horribly wrong though, because my decision to buy the shoplot was largely based on my speculative instinct rather than cold hard facts. I had earlier bought my first property – a double-storey linkhouse, which naturally was meant to be for my own use.

The shopping itch followed soon after when everyone and anyone who’s eyeing a piece of real estate started talking about property investment. Shop properties were the craze then, and the thought of being the owner of one got my adrenalin rushing. It was nearing the crest of the real estate cycle in the 1980s.

A decade down the road and a few more acquisitions followed. While most were up to my expectations, generating pretty good returns on my investment capital, a couple of deals almost derailed me. For those, I had done what real estate professionals wouldn’t recommend – that is buying real estate on grounds of sentiment and paranoia about “missing the boat”.

These days however, I obediently abide by the key tenets that prospective buyers should always remember. They are : the property’s “marketability” – its resale value, or income potential; their repayment capability; and the initial cost of the purchase.

With speculative and sentimental reasons set aside, my financial goals are to make sure that the property could be rented out and draw some income – if not build equity. To achieve this, nothing is more important to me now than determining whether there is likely to be strong demand for it, whatever the type of property.

So, if I have to be a shameless sleuth to make sure I’m getting a good deal, I would. This may involve canvassing every person I meet – analysts, real estate agents, marketing/sales personnel, etc, for information, while astutely investigating for important market data on prices, sales and rental trends, demographics, accessibility, job centres, etc. My search would include:

• Information on the prices and features of a variety of locations and neighbourhoods for comparison purposes. This helps to uncover bargain-priced properties as well as identify the one that offers the best investment potential.
  
  A lower-income area, for instance, that’s attracting middle or even upper-middle income residents signals appreciation as the “new-comers” are likely to push up home prices and rental rates.



• Demographic data of the people (owners, buyers, and renters) living in as well as moving into the area, such as income levels, occupations, education, ages, nationalities, etc.



• The accessibility factor which means a great deal to increasing numbers of home buyers as they do not want the hassle of fighting traffic everyday. This includes how convenient it would be relative to the past, the existing shopping centres, office complexes, restaurants, schools, etc, and in years to come.



• Identifying where the area’s job centres are most likely to grow indicate potential demand for homes and commercial properties as most people prefer to live close to their jobs. Thus, properties that are situated near fast-enlarging employment zones imply higher-than-average appreciation in prices and rents, as the amount of nearby developable land dwindles.



• Development activity trends, whether in the form of new construction or renovation, as they usually contribute to an area’s desirability. While looking out for signs of overbuilding which may lead to difficulty in renting out later, a comparison of prices or rents of the new properties against those of the existing ones in the area will reveal whether they are trending up or not.



• Tracking trend data on property selling prices, time-on-market, volume of listings, rent levels, and vacancy rates, is useful to detect on-going market changes.
  
  In a depressed market, properties usually sit unsold for six, nine, or twelve months, or even longer. But when this shortens, it signals upward movement of prices. Decreasing inventory of unsold properties also indicate this price advancement trend.
  
  Similarly, steady or increasing rents, falling vacancies, and lesser concessions offered by property owners, are tell-tale signs of strong market demand.

Along the way while learning to become an astute real estate investor where I can enjoy higher-than-average appreciation, I have come to realize that shopping for the best values in the properties ensure more monetary benefits than basing my investment decision on their best features.

Finding the right property however, is just the start of the investment process – there’s the affordability issue to contend with, which includes the downpayment, brokers’ commission, stamp duty, legal fees, the monthly payments to the bank, and outgoings such as service charges, government dues, etc.

Right now, banks are offering competitive mortgages and extremely flexible in their terms. So, it’s really quite worthwhile to consider taking out the longest-term mortgage we can qualify for so that the monthly payments are more manageable, and later shorten it when we can pay down more. When the sums payable per month are lower than the rent, the pressure from owning the property is reduced.

Investing in real estate may sound complicating and could cause headaches. In the end however, it’s all worth the effort…for me at least, as I can proudly say that I own the property.