Talking Bricks & Mortar

I lived in Australia for a good 4 years and one of the best ways to start a conversation there was to talk about the weather. The 1sttime someone smiled at me and said, “Beautiful sunny day isn’t it mate?” I thought the guy needed to have his head checked. How could a hot day be a beautiful day?

They look like experts don't they?

Then a few months into my stay in Melbourne, a friend of mine informed me that he was planning to move to Queensland. I almost chocked when he cited the sunny weather there as his main reason for relocating. Clearly something was wrong with the Aussies.

In Malaysia, no one cares about sunny days. A few times a year we have animated conversations about the haze, Indonesia’s most controversial export to Malaysia. We’re mostly upset with the weather here. It is always too hot to do anything or too wet to do anything.

If you really want to strike up a conversation here, a good starting point would be property... and rightly so. In 2012, IP Global ranked Kuala Lumpur as the 3rdglobal property hotspot after London and New York.

If IP Global surveyed deeper, they would have found that all Malaysians are property experts. The friendly neighborhood nasi lemak lady advises me on property from time to time.

There is a story of a man in the ward of a private hospital in Kuala Lumpur. A passing nurse overheard him giving what appeared to be final instructions to his 2 sons and wife. “Son,” he told the elder boy, “you take all the condominiums in KLCC. Let your brother take the shoplots in Bangsar.”

Then he turned to his wife, “And my darling, you take all the residential houses in Damansara Heights.”

The nurse who was looking on was very impressed and touched. She put a hand on the crying wife’s shoulder and told her that she was very lucky her husband had so much property to leave behind. The wife still sobbing replied, “I’m crying because I wish it were true. My husband suffers from grandiose delusion”

That day, the nurse learned that absolutely everyone in Malaysia enjoys talking about property.

Inevitably, when Malaysians talk about property it is about rising prices and a looming property bubble. Many Malaysians are angry and upset over the unfettered rise in prices. Some foreigners may think we need to get our heads checked.

Per square foot prices in Malaysia are the lowest in the region, only after Indonesia. Gross rental yields are also fairly competitive.

The real problem in my opinion is lagging wages.

When I first entered the job market back in 2001, a fresh graduate on the average received RM1,500 per month. According to a recent survey, the average basic salary is RM2,500. That is a year-on-year increase in wages of about 4%.

But this is not just a problem in Malaysia. Between 2002 to 2012, the average Wages Price Index growth in Australia was just above 3.7%. In the UK it was 2.7%.

Poor fresh graduates (pun intended). Many literally meet the definition of poor – the state of having too much month at the end of their money.

For the lucky 3% of Klang Valley residents with salaries of RM15,000 and above, who can comfortably afford more than 2 properties, there are plenty of opportunities to boost income and net worth.

Property investment is quite simple actually.

Many people over-think it too much and miss out on good opportunities. I know of some fancy management consultants who call this phenomenon “paralysis by analysis”.

In property, look for a good location, with the right developer, emphasizing lifestyle, and choosing the right size. Of course, there are other considerations but this should generally save you from getting caught with your pants down.

There is an old adage about the marketplace and it goes like this; “location, location, location.” I learned the importance of location at a young age, in the classrooms of my alma matter, Victoria Institution.

Sitting right at the end and next to the door ensured that my teachers rarely noticed me reading my favorite novels and when recess came, I could make it out of the class and into the canteen before most people. There were occasions when I even left class quietly and sneaked back in without the teacher noticing.

That is the power of location. It can make you invincible, or in my case, invisible.

A lot of savvy property investors look out for gross rental yields (GRR) and capital appreciation when they invest in properties. However, fewer look into vacancy rates and sustainability.

This phenomenon is a lot like retail discount sales. In a sale, many people buy things they do not need because the price is so low. They think they have got a bargain but in effect, they have wasted good money on items they are never going to use. They might as well have donated the money at the cash register.

Similarly, when you invest for GRR but overlook the factors that keep your vacancy rate minimal, your GRR drops significantly. The whole point of selecting a property with great GRR is shattered. You might as well have bought a property with lousy GRR.

Impressive deco, great views, and competitive rental prices are examples of the factors that lower your vacancy rate.

Sustainability on the other hand is about how long your property remains sexy. A good example would be properties in the KLCC area. Take a look at Marc Residence there. It was completed 7 years ago yet looks like it was built only yesterday. Such properties will experience good appreciation for a very long time.

These are some general principles that you could apply immediately onto your investment strategy or when scouting for your next property. It will also provide you with fodder for your next social event. Like I said earlier, a good way to start a conversation in Malaysia is to talk about property.

You could also talk about politics, the most popular topic of conversation in Malaysia. But whatever you do, do not mix the two. The last time politics and property mixed (somewhere in a condo in Bangsar), Malaysians were cowed into a debacle. It was as awkward as a cow on a crutch.

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