City&Country: Cover Story-- The game plan

The regular property investor is usually content with owning a handful of properties that generate consistent rental income for his nest egg. Nowadays, however, real estate purchasers have become quite aggressive, having as many as 20 to 30 properties in their portfolios at a time.

For those of them who had inked sales and purchase agreements years ago, lucrative returns await, especially if they had taken advantage of the spike in prices in recent years.

To be successful, a property investor needs a combination of foresight, good timing, excellent control over his cash flow and the patience to invest for the long term. But one must be mindful that like in any other form of investment, there is an element of risk involved. Hence, a healthy dose of cautiousness is in order.

Moving online
Online communities and forums have brought investors together on a networking platform where they can share their experiences, acumen and, of course, information on deals and opportunities. One such forum is propertywtf.com.my.

Not long after its establishment, its founders realised that small groups of property enthusiasts who had made contact on the forum had organised teh tarik sessions among themselves to further network and discuss shared interests and potential property deals. This provided the catalyst for OPIN, which is short for the Online Property Investors Network.

The inaugural OPIN was held in April this year, followed by OPIN 2.0 at the end of July.

“The main objective of OPIN is to create opportunities for participants to network, network and network, [which we believe] is the new mantra in property investment. We find this a more refreshing quote than the trusted adage of ‘location, location and location’, as you need to network to get to the location,” says one of the founders of propertywtf.com.my who prefers to remain anonymous.

Seasoned investors Kam Wei Tsung, Juanita Chin, Albert Ko and Faizul Ridzuan, the author of bestseller WTF? 23 Properties By 30, were at OPIN 2.0 to share their thoughts with over 600 attendees.

Although they come from different backgrounds, they have a common love for property investment and have portfolios amounting to millions of ringgit. Kam, Chin and Ko are full-time property investors while Faizul and the forum’s founders prefer to pursue their interest part-time.

City & Country caught up with the six of them to find out their investment strategies.


Faizul Ridzuan
His book WTF? 23 Properties By 30 topped the charts at Kinokuniya, MPH and Borders. And no wonder. Armed with just RM2,000 and a lot of courage, Faizul acquired RM5 million worth of residential properties in just five years.

Game plan
Faizul says he will continue to play to his strengths and focus on a turf he is most familar with — residential properties in the Klang Valley. “I’m targeting developments that can yield at least 50% capital appreciation and minimum 8% rental yields,” he adds.

He does not expect the economic situation in Europe and the US to affect his investment decisions. “It will be business as usual for me. I’ll purchase whenever great buys come by and will continue to focus on high-rise residences. I believe these have plenty of upside if one knows what and where to buy.”

As a fundamentals-driven investor, Faizul says he never tries to time the market. “Anytime is a good time to buy, so long as you continue buying the right asset with long-term views.”

He notes that when one invests in mass-market residential properties, most of the demand comes from domestic users. “As long as people keep their jobs, the sale of and rental market for such properties should remain healthy.”

There may be a glut in high-end residences in the Klang Valley, but mass-market properties have always fared well, he points out. “There are some mass-market developments in the Klang Valley that have tripled in value in just seven years, and values are still on the rise.”

Best investment
“The single-best investment I’ve made is in Axis Ampang in Pandan, Kuala Lumpur,” says Faizul, adding that he picked up the condo on the secondary market at RM145,000 two years ago. The unit, now valued at RM300,000, has been rented out and has a return on investment exceeding 30% per annum.

Faizul’s worst investment is an office unit near the KLCC area. “It has yet to be completed, but I suspect the capital appreciation upon completion will be less than 50% and the rental returns below 10%,” he says, adding that this pales in comparison to his other buys.

Faizul welcomes measures to curb speculative buying because “I’ve always preferred organic growth that’s well supported by real demand”. “When everyone starts investing and expects 20% to 30% annual returns [all the time], that’s when things get out of hand.”


Kam Wei Tsung
The director of Platinum Property Ventures Sdn Bhd, Kam is a pioneer of bulk purchasing and is well known for having acquired 24 residential properties and RM8.3 million worth of commercial properties within three years.

According to him, the property market has been somewhat subdued lately with the tightening of loan financing.“Due to the 70% loan-to-value margin imposed by Bank Negara Malaysia on the third residential property financing, most can only afford to invest in one property compared with two to three when the loan margin was 85% to 90% a few years ago,” he says.

Game plan
With the tightening of loans, speculative buying has slowed down a lot. “One has to assess his property investment plan and follow it diligently,” says Kam, calling for thorough research of various localities, including the Klang Valley, Penang and Johor.

He sees property prices dipping, given that potential buyers are finding it difficult to get loans to purchase a new or subsale property, on top of lower occupancy in certain areas due to fewer tenants (especially in the high-end, high-rise residential areas like KLCC and Mont’Kiara).

Despite current global economic uncertainties, Kam says, “I am a cash-flow investor and mainly invest in the secondary market. I have devised strict criteria for getting into a property deal. One of them is to buy at least 20% below market value.” And if his criteria are met, he will not hesitate to go ahead with the deal.

Kam’s focus is bread-and-butter-type of properties, such as medium-cost apartments and condos near universities and colleges that would cater for local and foreign students.

He categorises his buys as: residential buy to keep, commercial buy to keep, residential buy to sell and commercial buy to sell. The buy-to-keep property serves to create passive income while that to sell is quickly disposed of when its market value rises. “The funds raised from my sold properties are kept aside as seed money for future acquisitions,” Kam explains.

He believes that there will be tremendous growth in the next few years in the Austin and Tebrau areas in Iskandar Malaysia, Johor Baru. In the Klang Valley, investors can look at the Bukit Jalil vicinity and Rawang area due to the better accessibility and connectivity there. The opening of the Kuala Lumpur-Kuala Selangor (LATAR) Expressway and AEON supermarket in Rawang boosted property values there.

Best investment
Kam says his best investment is a shop in the Danga Sutera area in Johor. “I bought it in early 2010 for RM1.3 million. It is now priced at RM2.4 million. This area is highly accessible with major roads while the surrounding area is mature with an upper-middle-income settlement.” He adds that the shop is also in the vicinity of Sutera Mall and a private Chinese school.

His worst investment is a 1,013 sq ft apartment in Kajang, bought at an auction for RM45,000 with two partners.

“We bought it because one of the partners had already bought three properties there through auctions. He said he would manage the investment to accommodate workers from nearby factories but that didn’t materialise. Lesson learnt — always choose your partners carefully!”

Juanita Chin
The Penang-based author of Zero To Thirteen Properties, Inspired To Change began investing in 2003 with her husband and has since managed to acquire properties worth millions of ringgit.

Chin is a project-marketing consultant for Reapfield Properties Penang Sdn Bhd and specialises in project marketing for property developers. Since plunging into property investment with her husband, the former bank teller has not looked back.

Game plan
Chin says investors would have to know which type of properties to invest in. “Properties in choice locations and built by good developers are resilient even during downturns. Those in relatively low-density and well-connected locations, that are reasonably sized and have a good concept will still be sought after.”

The Penangite believes there are still hidden gems to be discovered on the island for those looking hard enough. “I see a lot of investment opportunities that are still affordable and have potential for appreciation in the future.” She says she would be looking at good commercial properties and go for medium-end ones priced below RM1 million.

Besides Tanjung Bungah, Batu Ferringhi and the inner city of George Town, Chin believes the future investment hot spots in Penang are areas near the Second Penang Bridge, such as Bayan Baru and Batu Kawan where new factories are being built.

“Heritage properties are also good picks,” she says.

Her best investment to date is a condo she invested in Marina Bay, Gurney Drive. “The prices have almost doubled. It is a much sought after place for rent by the Japanese community and has given me consistent rental returns of 9%,” says Chin.


Albert Ko
The engineer turned full-time entrepreneur and Australian property investor obtained his Australian permanent residency in 1991 and subsequently migrated Down Under in 1994. He returned to work in Malaysia upon receiving a job offer in the penultimate year of his engineering and IT degree. He now travels frequently to Australia because of his business and private investments there.

Ko says Australian properties are a relatively safe bet because historically the residential property market there has recorded an average appreciation of around 7%.

“However, between 2000 and 2005, the annualised gain was 10.5% per annum, followed by an above-average growth in the following years. These unsustainable gains surpassed wage growth, resulting in low affordability,” he explains. Ko believes that potential investors can still look for Australian properties in locations that are driven by resources, a population boom and first homebuyers.

His best investment was made in 2005. “The value has since doubled. The best part is that just like the rest of my Australian portfolio, it requires minimal management on my part and I’m now receiving over 20% in rental yield,” Ko says without revealing the exact location of the property.

His worst investment is a new serviced apartment bought in 2004 in Kuala Lumpur’s Golden Triangle. “My siblings and I bought four units, but the project was abandoned. The worst part was not losing the deposit, but the opportunity cost,” Ko laments.

His concerns about the Klang Valley property market are affordability and rising household debt. “From my general observation, high wage growth has been limited to a few industries, like those related to the oil and gas industry,” he says, adding that if not for family support, many young graduates would not be able to get into the property market.

“The market will eventually find its equilibrium. If prices have risen too much, it just means that the market will need some sort of correction — either through a series of price corrections or a period of stagnation. Bank Negara has done the right thing in stemming speculative activities.”

Ko says as a property investor, he is not too worried about the economic situation. “Property investment is a medium to long-term play. What is most important are the fundamentals of the investment.” Nevertheless, Ko monitors the global economic climate closely, particularly what is happening in China, Australia’s largest trading partner.


Founder of propertywtf.com.my
This businessman and property investor who prefers to remain anonymous says his current interest is very much the primary market.

“I guess for flippers, the play is to time the market for a honeymoon period in the next two to three years.”

However, this is not a good idea in a slowing or stagnating market, he says. Obtaining properties on the secondary market may be a smarter move now, but it is trickier to acquire one in a good location.

He is convinced that the southern part of Kuala Lumpur is evolving nicely into a new hot spot. “Bukit Jalil’s accessibility and its proximity to both KL and Petaling Jaya are things we should take note of,” he says, adding that one should also look at regeneration projects in older and mature neighbourhoods and existing hot spots.

He says speculative buying persists despite the tightening of loan conditions. “More often than not, this happens in residential projects, where offers from developers just evolve, taking on various forms,” he says, citing an upcoming project in KL that is said to be offering a 20% rebate.

“This brings us back to square one!” he says with a shrug. The tightening of loan approvals may also be less effective when some people have non-bank lenders and other alternative financing sources to soften the blow.

He says he is also concerned about the rise in residential-use properties such as SoHos and other variants, which may distort the true property supply figure.

“The anti-speculative measures are also impeded as this new specific class will allow the circumvention of the 70% loan-to-value (LTV) ratio limitation on third residential properties,” he adds.

Game plan
The current global economic situation, he shares, is not going to deter him from continuing to invest nor will it affect his buying and selling decisions.

“I review my position constantly and will still buy if there is a good property out there. I’ll find a way to afford it somehow. And I will still consider letting go of some [from my portfolio] if it suits my game plan or if it warrants my portfolio to adapt,” he says.

His future investments will primarily be in property classes instead of being location-centric. Properties he will hold for the longer term are landed commercial and residential.

“Better yields still come from decent-sized condos with building management under reputable developers. I will pay more attention to areas that will bridge the upgrader’s pool, a niche growth area for capital acceleration,” he says.

With the LTV ratio of 70% in place, it makes sense to venture into commercial properties. “New landed shops are hard to come by in KL, so I may look at the other states,” he says, adding that he will also be hunting for subsale commercial properties that are 15% below market rates. Such properties are usually not distressed, but he believes this is old money waiting to be cashed out. He might also be willing to pay a premium for prime lots with strong liquidity.

Best Investment
One of his better property investments was his first venture in 2008 — a subsale strata commercial unit in KL. “I guess it was beginner’s luck — it netted a monthly positive cash flow of about RM9,000 against rental of RM25,000 after associated costs and repayments [at a maximum loan quantum],” he shares.

Shortly after he secured a second property, he halved the size of the first unit and reset its rent at RM14,000. “My monthly commitment was just about RM7,000 with optimum mortgaging. The properties yielded double-digit returns and the realised gains were above a million ringgit each,” he says.

He hopes that the government will not be overzealous in its plans to curb speculation and in the process unintentionally cripple the market. “The focus should be to rebalance market forces, not seize control to the extent of interfering.”

He suggests that a simple categorical processing revamp, like delaying the upfront stamp duty on memorandums of transfer for certain classes of subsale properties (to be time-bound or imposed at the point of disposal) would also help the market.

“If the deferred payment eases the affordability of genuine owner-occupier purchasers, then hopefully the inventories on the secondary market can be managed and absorbed better.”

Co-Founder of propertywtf.com.my
The full-time professional and part-time investor believes that the current market is set to undergo a correction soon.  “Areas like KLCC, Mont’Kiara, the suburbs of Petaling Jaya such as Damansara Utama, Damansara Jaya and Desa ParkCity have seen astronomical price increases over the last few years. Hence, I believe there should be some correction soon.”

Current measures to curb speculative buying are good for the short or medium term but in the long run, they may stunt growth and actual market forces, he adds.

Game plan
“For me, anytime is a good time to invest. We just need to adopt different strategies for different economic environments. I’ll just arrange my portfolios to suit the external economic environment,” he says, adding that he plans to buy residences to flip and retail and office commercial assets for yields in the future.

How about potential hot spots? “I’m putting my money in Johor. While I’ve also invested in Penang Island, I’m less optimistic there,” he says. He believes there will be a glut in Penang, but definitely not in the Klang Valley (especially in the mass-market segment). This is because young working people are still migrating to the Klang Valley for better career prospects and social life, he adds.
He says the current hot spots in Petaling Jaya are Damansara Perdana and Kelana Jaya as these areas are very popular with yuppies with higher disposable income.

Best investment
He says his best buy was a commercial shoplot in Subang in his early years of property investment. “I was only in my 20s. My capital outlay was less than RM100,000. After deducting loan repayments, I still saw a positive cash flow of about RM3,000.”

He was fortunate enough to have a tenant who spent RM250,000 on enhancing the building and when he eventually disposed of the unit two years later, he gleaned a gross profit of RM600,000.
His worst investment was a 3-storey link house in Bukit Jalil. “I only made around RM100,000 after three years. I disposed of it during a recession.”

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 929, Sep 24-30, 2012