Property Investments Explained. =)

A few days back, I wrote a little blog post on The Biggest Mistakes People Make When Investing in Properties. I tried to explain the whole situation in kinda... layman terms, and then I decided to relate different property segments to different food joints. =) Since that post, I have received numerous questions and queries for advice with regards to property investments - I hope I am able to answer and reply to each and every one of you... but do bear with me in case I havent, and pls do remind me to answer you. =P

Today's blog post... is titled rather simple - Property Investments Explained. =) To keep it in the similar manner as the other day's post - I shall use food to relate.

Here's a little recap...

• The Chinese kopitiams that serves the regular chicken rice and char kuey teow - and generally RM6-8 per meal - is similar to properties in the range from RM300,000 downwards
• The bak kut teh joints, with meals from RM20+ per person, relates to properties in the range from RM500,000-RM700,000
• The restaurants like Oriental Pavilion or Ah Yat, meals ranging from RM40+, relates to properties from RM700,000 to just above RM1mil. =)

I had mentioned that the bak kut teh type of properties are amongst the safest, as it caters to the mid range market, and becomes the bridge between the cheaper and the more expensive, ideal for upgraders as well as the downgraders.

Let me expand further from here...

La Fite, Shangri-la Hotel. =)

Some had asked... what about the properties that are like... RM3million and above? I would say... these properties are like the La Fite type of cuisine, fine dining, and expensive as well. It is the type that not everyone can afford, and mostly for the super rich only. But do note this - while it is expensive, it does give the top quality food and dishes, with all the upper segments of the society frequenting places like this.

A property in the La Fite range would be something like One KLCC. =) It is considerably expensive, priced for the upper segments of the market - but it does give the best quality finishes, and plenty of additional facilities such as having an individual swimming pool for every unit. Another point to note is that... it is located next to KLCC, hence the enhanced value.

One KLCC.

With the sudden surge in property launches recently, consumers and investors are able to explore and consider a lot more investment opportunities. However, I would advise the investors to take reasonable amounts of precaution before jumping to make a decision. For instance, when you are looking for location for lunch... you have plenty of choice to look at.

Would you go for the RM5 chicken rice? Or the slight premium RM6 char siew rice? Or maybe the RM20 bak kut teh? Or sometimes... you would go for fast food, which probably cost about RM10-12 per meal. There are so many different fast food joints in our country - and it would always have some kind of a bargain deal... (okay, lets not mention names here...)

These fast food joints... what do they give you in their bargain deal? Sometimes a free drink, sometimes a buy one get one free deal, sometimes they throw in some toys as well, a special lunch deal at a special price and many more... But sometimes, as the prices go lower, the burger sizes do become smaller too. According to Wikipedia, fast food chains have come under tremendous criticism over concerns ranging from claimed negative health effects, obesity, alleged animal cruelty, as well as claims of cultural degradation via shifts in people's eating patterns away from traditional foods. In my opinion, some of these allegations could be true, but some could purely be just speculations and rumours only.

You might ask... how does this relate to property?

Apart from the usual chicken rice and bak kut teh type of properties, there are the ones which I would call... the fast food joints type of properties. These properties launch with various packages and deals to tempt the market into investing in them. They come up with plenty of great bargains - such as interest-free during construction, guaranteed buy-back, guaranteed lease-back, guaranteed yields, low downpayment and so much more...

But... like the controversy about fast foods - the fast food properties also have its fair share of irregularities or controversies. In most cases, all the interest-free, guaranteed buy backs, yields and so on are already priced in the selling price. Hence, investors are attracted to take up units thinking that they had received a super good deal - but in fact, they are merely paying for it over the loan period.

And regarding sizes... you will be surprised that there are some developers out there who are developing properties... of similar price quantums, but at smaller sizes. In the past, you could purchase a 1,200 sf unit for RM360,000. Today, the unit prices remain at similar levels, but units can go down to as small as 400 sf!

S P Setia's Setia Sky Residences.

In my honest opinion, not all the developers who give these type of packages are bad. There are plenty of good ones out there. I like S P Setia's 5/95 packages which allows for no interest repayment during the construction period. Under the package, buyers need to only make a downpayment of 5% - and the balance is payable upon completion of the property. In the past, the 10:90 variant of the build-then-sell system, buyers had to make a downpayment of 10% of the property costs. S P Setia had also committed various other entry costs such as legal fees, stamp duty on the SPA and loan agreements as well as the memorandum of transfer for purchases under the campaign.

I believe this package had worked very well for S P Setia - and we are definitely seeing them as the main trend setters as there are plenty other developers who are giving out similar deals.