Income earners in their 20s are fast making their presence felt in the property market. But getting there takes discipline.
HE
acquires one property a year. He has been doing this for the past five
years. Today, at the age of 38, his one regret is that he didn’t start
earlier, when he was in his 20s.
Entrepreneur JS dishes out
advice that he himself takes seriously. He tells young people all the
time that they should invest in property from a young age, or the money
that could have gone into real estate would be frittered away.
He
believes that investment in property delivers the best returns. Apart
from property, where else can young investors leverage on a 10%
investment for a stable future gain? Any other transaction, whether in
silver or shares, requires payment in full.
As real estate is
based on supply and demand, one has greater control over it compared to
paper investments like unit trusts and shares.
JS believes that if a person is determined to own a piece of property, he can do so when he is in his 20s.
His formula is simple: the minute you start working, you should start saving for a property.
Put
aside a sum of 20% of your salary every month for two years towards a
property. But the challenge will be to live within the balance 80%,
especially if it means giving up Starbucks, clubbing, smoking and
shopping.
If your take-home income after several years of working
is RM4,000 and you put aside RM800 a month, by the end of 24 months,
you would have saved about RM20,000.
And that is good enough for a
10% down payment for your first foray into the property market,
probably a small apartment in the fringe of the city.
While
the cheapest high rise properties in inner Petaling Jaya and Kuala
Lumpur are in the region of RM400,000 to RM500,000, it is still possible
to buy properties close to RM200,000 in outer KL areas like Puchong,
Sentul, Cheras, Seri Kembangan, Serdang, Cyberjaya, Bangi, and in Shah
Alam.
With Klang Valley’s population at 7.2 million and expected
to rise to 10 million in another seven years, there will be a constant
demand for living quarters.
If you are renting out your property
(the average yield is about 5%) you will probably have to top up the
rental you collect on your property to cover your loan repayment.
As a simple ballpark, the loan repayment would be estimated at RM1,200 a month based on 20-year loan for a RM200,000 loan.
But after a year or two, you can increase the rental and eventually your property will be self-financing.
One
father who is completely sold on getting his kids to start young is
Ten. He got his daughter, 29, and son, 25, to fork out RM13,500 each to
purchase their respective three-bedroom apartments in Puchong for
RM135,000 more than a year ago.
His daughter sold her unit a year
after the purchase for RM170,000. After the real property gains tax and
other costs, she was able to make a net profit of RM25,000. The capital
appreciation on her apartment was about 20%, not including her rental
income that year.
With that, she now has close to RM40,000 (seed
money plus profit) for her next – and higher value – property. In fact,
the senior manager of a multi-national is now eyeing a RM600,000
condominium in Petaling Jaya and Ten is fully supportive of her next
purchase (only a 10% downpayment is needed for the first two existing
loans).
A great believer in property investment, Ten, a retiree,
is all smiles these days as his total property investment which was
valued at RM3mil in 2010 has since more than doubled. His own house, a
double-storey corner lot in Section 17, which he bought for RM63,000 in
1978 after working for five years, is now worth about RM1.5mil.
The
phenomenal increase in property prices in the past few years, shares
the CEO of a realty firm, is unprecedented. He attributes it mainly to a
prevailing low housing loan interest rate of about 4.1%, which is
barely above the 4% government housing loan rate.
According to a
report by Oriental Realty and Zeppelin Real Estate Analysis Ltd, the
residential property market in Malaysia has seen an overall price
appreciation of 78% from the first quarter of 2000 to the third quarter
of 2011.
While the CEO thinks that buying a property or two for a
young adult is a good form of forced savings, he cautions that one must
buy within one’s means and be careful with one’s cash flow.
“What
if you lose you job tomorrow? Don’t overstretch. As the Chinese saying
goes, don’t try to cover 10 woks with nine covers,” says the real estate
man who has been in the business for more than 30 years.
A tip
he shares for “good deals” is to look out for “leftover” property –
often balance or unsold units developers want to clear cheaply or
bumiputra units – which are not advertised but handled by the bigger
real estate agents. Usually, there will be innovative schemes to make
the units affordable. New launches are a good place to start too.
Sometimes, it’s also a fine balance between patience and research and paralysis by analysis.
Leigh,
35, was on the lookout for a property to buy when he was in his 20s.
But every time he found something in a new development that he liked,
his real estate businessman father would pooh pooh it.
“The first
property I looked at was a studio apartment going for RM90,000. My dad
was not keen as it was a new area. Today, it’s worth RM250,000.”
On
his fourth attempt in 2009, he managed to buy a condominium unit still
under construction in Subang at a good price from someone who had an
overseas posting. He sold it two years later at RM600,000 and pocketed
more than RM200,000.
When Leigh bought his current home in Mont
Kiara, he took his time and studied the area, went to the ground and
spoke to owners instead of researching only via online portals.
“Most
of the owners were asking for RM580,000 to RM620,000. So I told real
estate agents that if there were any units going for below RM550,000,
please alert me,” says Leigh who joined his father’s realty firm four
years ago.
After three months, he got his break when a Singaporean owner wanted to sell his unit and Leigh paid RM530,000 for it!
His
advice to young investors: do your homework. Study the master plan;
look into the background of the developer, quality and design of the
product. Be clear on what you want: are you looking for capital
appreciation or rental income? If you need the rental income to cover
the bulk of your monthly housing loan, you would choose the latter.
For
an investment of RM20,000 plus a housing loan, your return after three
years upon completion of the property could be more than two fold.
And the key to your first property – based completely on your own finances – is to save for it.
When
it comes to saving, don’t worry about the amount, worry about the
habit. Says a financial coach, if you’re an employee and you’re not
earning the income you need to make that first property, look at how you
can add value to your boss to get that increment. If there’s a will,
there’s a property waiting….
Common Sen-se by LEANNE GOH
Note: A recent chat with a
29-year-old colleague was enlightening. She has already sold one
property, bought the one she’s living in and has invested in another.
Among 10 of her friends, four have already bought property.
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