City & Country: Real estate investment is for everyone

"It is easy to succeed in real estate investment,” said N K Tong, group managing director of Bukit Kiara Properties, a high-end niche property developer.

“If you have the discipline to take a long-term view, find opportunities to add value and be patient yet decisive,” he added at the recently concluded The Edge Investment Forum on Real Estate 2010 held in Kuala Lumpur on April 10.

Tong was speaking to a packed house of over 500 participants during a panel discussion on investing in “Property, REITs or property stocks”.

His point on finding opportunities to add value to real estate struck a chord with many participants. He described at length how one of his companies, Bukit Kiara Interiors, acquired a dilapidated house in 2005 for RM2.1 million, spent RM600,000 renovating it by basically taking down two walls to allow more light into the premises, and sold it two years later for RM4.2 million.

“This is more profitable than being a developer,” Tong said, drawing laughter from the crowd. “It is much safer: you have a proven market, low or no overheads, easy financing, high loan margins — up to 90%, low rates, quick turnaround, no development risk as it is a simple renovation, and you can still apply for one-stop approval. There is no Housing Developers’ Act and best of all, no 18-month defects liability because on the secondary market, what you see is what you get.”

He added that if he had kept the house for up to five years, he could have sold it tax-free. If he had rented it out for between RM10,000 and RM15,000 a month, the yield would have been between 3% and 5%. However, he cautioned that one has to buy a property that is in a good location and is structurally sound, or, in his words, “has good bones”.

Tong was asked during the Q&A session whether this could be done for properties in a lower price bracket of RM200,000 to RM300,000. He said it could be done because he knew of friends and acquaintances who had transformed apartments and terraced houses into profitable ventures.

Finding one’s personal investment profile
Tong also elaborated that, over time, property values increase and one has to be patient until the time is right to sell or buy.

To know how one should act, Tong suggested that participants find out their personal investment profile. To discover this, some of the questions range from the typical — whether the property is for one’s own use versus investment, capital appreciation versus yield and cash flow needs — to the more in-depth — how comfortable one is with debt as anyone who buys property takes a loan which needs to be managed wisely.

Another element to consider is one’s investment asset allocation model. If a potential investor doesn’t have any property, then buying one now may be a good idea, but if he or she has too many properties, then there might be need for a review.

Tong also suggested that people have to discover their own point of view regarding property investment. He quoted several prominent investment gurus and their books, such as Dave Ramsey of The Total Money Makeover, who believes that debt is evil; Robert Kiyosaki, who states in Rich Dad, Poor Dad that if you don’t take on debt, you are lazy and shouldn’t bother with stocks, only properties; and Phil Town’s Rule #1 which says to buy stocks and not bother with property. Whatever one’s point of view, Tong said an investor should find what he is most comfortable with and go from there.

“In Malaysia, I think it makes sense to own property as part of your portfolio,” Tong advised the forum participants.  He then explained that in every property decision made, there are two views to consider. “Every facet of property investment is both a pro and a con. It depends on which side of the coin you are looking at,” he stated.

In closing, Tong preempted the forum participants who were eager to find out his take on investment hot spots by telling them he believed that at the right price, place and time, every property is a potential hot spot.

He also advised that, on the secondary market, if one isn’t confident of the self-develop route, then buying off the plan of a reputable developer is another option. Furthermore, he cautioned participants to ensure their investment mentality wasn’t based on speculation but a long-term view. Tong said that if returns are early, that would be a bonus and to beware of being seduced by seemingly attractive financing schemes.


Pros and cons of property investment: 'It depends on which side of the coin you are looking at' - Tong

Pros
Property is illiquid which forces commitment for the medium to long term and this is how most investments succeed

If you know the market is emotional and you can remain rational then you have a better chance of buying and selling from and to irrational investors

For investors, buying property provides an opportunity to differentiate oneself from the pool of investors and to add value to a property

Property is not homogenous resulting in a variety of projects available but provides the ability to differentiate one's product

Cons
Property is illiquid. Why hang on to something that you can't let go of immediately?

The property market is too emotional - those who are greedy rush in and pay too much or are too fearful and thus hesitate and walk away from a good idea

Investing in property is a lot of work - scouting for property, renovations, dealing with difficult tenants and so on

Because property is not homogenous, everything is different which requires research and takes time to find a property or create a difference


This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 802, April 19-25, 2010