City&Country: The Klang attraction

Klang in Selangor may not be considered a real estate hot spot. But if one looks hard enough, there are gems waiting to be unearthed and savvy property investors in Klang are raking in attractive returns. One such person is Eddie Soh. Only in his early 30s,Soh and his wife have in the last three years bought and then sold for a profit more than 20 properties. They currently own about 30. 

Interestingly, the couple does not invest in property for a living; Soh runs a family business — EH Motor, a used car dealership in Klang — while his wife is an accountant. They live in Taman Desa, off Old Klang Road in Kuala Lumpur, because it is more convenient for the wife to travel to work. Soh began buying real estate three years ago, influenced by his father who has been investing in the property market for some time.

Properties that have featured in Soh’s investment portfolio range from modestly priced RM20,000 homes to houses worth RM1 million. These were acquired on the secondary market, most of them at auction.

“Unless you buy from a highly reputable developer, or in a blue chip location, you are never entirely certain of the secondary market value and yield. Besides, you run the risk of projects being abandoned before completion. I do not want to be greedy, but I have to consider the holding cost, repair cost, legal fees, and now the real property gains tax (RPGT) of 5%, plus other potential problems. I lost sleep when the government first announced the RPGT,” says Soh.

Price aside, Soh is particular about the location. He likes what he calls the “bustling” areas in Klang, such as Pandamaran, Botanic Garden and Bukit Tinggi.

“The cost of living in Klang is generally cheaper than Kuala Lumpur and Petaling Jaya. For the price of a RM1 million condominium in, say Mont’Kiara, one can buy five or even more landed terraced homes in Klang,” he tells City & Country. He says his rationale for investing in Klang is that there is less competition from other investors and because he is familiar with the area. “I usually buy within 5km of where I work and live. I work full-time in my business and don’t have time to look beyond Klang. It’s a hassle to show prospective buyers or tenants your homes if they’re located far away. What’s more, you’ll lose your passion for buying properties after a while.”

Soh likes landed properties for their capital appreciation potential. “There are many empty, cheap flats and commercial properties in Klang, which are not as well-developed as those in Petaling Jaya or Kuala Lumpur.”

Buy below market value, cash out quickly
What is Soh’s investment strategy? He conscientiously thumbs through all the newspapers for notices of property auctions and zooms in on properties in acceptable locations that are going under the hammer with a reserve price that is at least 20% below market value.

He recalls a 1-storey house in Kampung Raja Uda that he bought at auction in 2008. He paid RM160,000 cash for the house, which had a market value of RM260,000. Soh then extended the building, creating three sections with individual access for better yield. The house is rented out at RM1,300 to a company to house its staff. Soh says: “Getting rental income is a bonus. But if I sell the house, I can get say a net [profit] of RM80,000 immediately and roll this money into another property or buy inventory for my business.”

Choosing the right mortgage is vital. Soh picks those without lock-in clauses to avoid incurring early redemption penalties.

Buying at auction
Buying property at auction is not without its challenges. One of those is to spot properties in prime locations.
“There are few of these to come by. At most, you’ll find one or two properties way below market value in the area you want among the hundreds put up for auction. It’s not easy to find cheap and good properties these days.”

Does Soh feel anxious when he happens to be the only one bidding on a property? “Yes, I do! It is only human to feel that way. But I still go ahead with it if I have budgeted for it,” he laughs.

Soh has learnt his fair share of lessons through his investment exploits. An important one is to inspect the property before the auction. He says he once bought a property located next to a cemetery without realising it. “It was raining so I did not get out of the car to inspect it properly.” He bought the property for RM100,000 and only managed to sell it a year later for a 30% gain.

“The exterior of a property will give you an idea of what it’s like inside. You must walk around to check out the surrounding area as well, and of course, don’t go when it’s raining!”

The saying that what you pay is what you get is true in property investment,Soh stresses. “My agent told me not to buy low-cost flats but I didn’t heed his advice.” He went ahead and bought four low-cost flats priced at about RM20,000 each.

“There was an exemption clause on a restriction in the auction documents and I mistakenly thought it was a permanent exemption. As it turned out, this exemption was given just for the auction. I am restricted from disposing of the property within five years and the buyer must be an eligible low-income earner.

“Buyers should be careful about purchasing such properties. Not many lawyers can advise on this. This purchase defeated my objective of selling the properties quickly. But I am renting them out now. The yield is high at 10%, but there is a high turnover of tenants.”

On another occasion, Soh bought a property with a caveat on it because the ownership was under dispute. He had not got his lawyer to do a land search before the auction. He says, “One option is to get a court order to remove the caveat. This will take about a year. The faster option is to negotiate with the person who put the caveat on the property and negotiate a fee to remove it. The cost of both options can be about the same; with the latter, the person gets a fee.”

As Soh is a regular at property auctions, he sends an agent to represent him. He adds, “My agent has experience in dealing with the syndicates at auctions. They ask for pay-off to not bid on the same property. They can make thousands of ringgit a month without doing much. One payoff can be RM500.”

While others shy away from auction properties in Klang, Soh is proof it can be a lucrative investment option if one’s investment objective is clear and focused.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 814, July 12-18, 2010