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I have read a very interesting article from Hong Kong about the types of signals that we can refer to when property bubble is going to burst.
How property bubble is formed in the first place?
Before a bubble bursts, the reaction of the crowds in property investment is indeed important. Generally, their reaction can normally range from pessimistic to optimistic and become over-excited at the end. When the crowds are over-excited, their decisions are not rational most of the time. For instance, they will buy properties regardless of the loan’s interest rate, household saving, property price and risks. When a property bubble bursts, the crowds will resume to pessimistic mode and another repeated cycle will take time to happen again.
There are 3 signals that are worth to take a look when we need to evaluate property market:
1. House price-to-income ratio
For developed countries, typically the ratio will be ranging from 1.8 to 5.5 times. According to the methodology recommended by World Bank to evaluate urban housing, affordable house price-to-income ratio should be 3.0 and below. In another words, we need 3 years to save enough money to purchase a property. For example, Shanghai & Hong Kong (>36.0), Guangzhou (~25.0) and New York (>10.0). However, this index is depending on the location, demography and government’s strategy on that area.
2. Debt-to-income ratio
There is no limit or general definition of how debt-to-income limit should be designed. It’s effect can vary depending on different designs. For example, the limit can be designed to target individual households or the bank’s lending stock. A number of countries have adopted this index by establishing an upper limit to a household’s total loan in relation to its disposable income. This ratio can be compared to worldwide ratio to have an idea about property bubble. Normally, 50-60% is still considered acceptable and note that most of the released data regarding household debt actually includes other debts such as consumer debts and mortgage loans and not only housing loans. Some of the countries/areas which have debt-to-income ratio more than 100% are indeed at higher risk for investment.
3. House price-to-rent ratio
This is referring to home price to annual rental rates. Based on statistics collected during economy crisis in 1997 and 2007, a reference figure can be around 100%. If we observe a figure which is lower (<100%) than the reference, that could be the right period to buy/accumulate properties.
I will discuss in more details in my coming article to relate these 3 signals with Malaysia’s property market. At the same, we should also take into consideration the effect of macro-economy for example interest rate increase by Fed etc. You can also read the recent updates of property related news and like our page here.
The slogan “location, location, location!” is no longer the most important factor for real estate investment, at least not all the time. Many great locations have become hot, too pricey and unworthy for investors to pursue especially when economy is going down, just not wise! Not everyone affords to buy properties at the city centre. For an investor without a super deep-pocket, we should not risk our money and limited loan opportunity for solely location especially a mature location. Yes, you might still make a profit having higher chance to make a mistake at the same time.
During tough period, I prefer property with higher rental return. If I had to take a larger loan for property at a hot location but getting the same/similar rental yield as another property at outskirt with much more smaller loan, I will go for the later for sure even if it is a RM 100,000 property. There are certainly opportunities out there during this challenging time. Just like stock market, there are winners and losers during bull market and bear market. Places in city centre would become saturated and home buyers are now considering places further away from the city. Very simple, tighter bank loan, rocketed property price in the city and better quality of life (with the improving infrastructure) are among the reasonable factors.
Rawang (north), Port Klang (west) and Seremban (south) in Malaysia have tremendous development recently. Good take-up rate has shown in Semenyih and Seremban lately, time has CHANGED! A more suitable mantra now should be “AFFORDABLE, AFFORDABLE and AFFORDABLE!” There are about 100,000 people commuting back and forth between outskirt cities and city centre everyday. They are adapting the travelling distance and this shows a new trend during challenging time. This can become better with more and more train stations being built to connect to areas like Kajang, Cheras, Sg. Buloh and etc. We can sometimes look into some LOW/MEDIUM cost landed properties in mature area at the outskirt especially if the rental yield is more than 5%. For beginner, this costs you lesser down payment, smaller loan and better liquidity when you want to sell it. Here are some factors that you need to consider when buying a property in 2017:
1) Affordable price
3) Good rental yield
5) Lower price (smaller loan)
6) Good liquidity (in demand, easy to dispose especially price is affordable)
7) Foresee better infrastructure in future (optional)
I strongly believe that the trend now is to move outskirt for cheap, affordable and potential properties especially during challenging period. Well, this is solely my personal view and strategy to invest during bad time. We adjust our strategies from time to time. For now, AFFORDABLE and LIQUIDITY will allow you to save and wait for the best deal to come, who knows what will happen tomorrow. If you require an independent party (not representing real estate agency) to search/accompany/advice you in real estate investment, feel free to reach me here. Let’s make little impact today and in future by investing together! Happy hunting and investing!
What can we do to prevent getting a bad tenant? This depends on the strategy of the landlord. For example, a nicely designed and decorated unit will target/suit higher profile’s tenant. This can’t guarantee a good tenant but we can reduce the risk in getting a bad one instead as the entry rental will be higher compared to a standard unit from the same building. Of course, the drawback is the amount of money you need to fork out in advance to design and renovate the unit.
What Can We Do To Avoid Bad Tenants?
(1) a photocopy of the tenant’s Identity Card
(2) a business card to validate, know more about his/her profession and employment status
(3) face-to-face meeting and effective communication
(4) a good tenancy agreement
(5) larger deposits for nicely renovated unit
(6) documented tenant’s emergency contact and second address
Here are all the tips that I have practiced before. We all wish to rent our properties to good and responsible tenants, thus, we should never compromise on lesser deposits payment!
It’s a nightmare when bad tenant conquered our property! Installment is awaiting us but we are not collecting positive return as expected. To the best of my knowledge, we should not enforce our right to reclaim our property when our tenants in common have not paid for two to three consecutive months. YES, although tenancy agreement allows us to do so but landlord is prohibited from evicting tenant or recover possession without a court order. Now, what are the landlord rights?
How to Evict a Tenant?
(1) Issue eviction notice
(2) Claim double rental
(3) File eviction notice against tenant in court, which may cost you RM7,000-RM25,000 and a duration of 3-6 months for the eviction process depending on the situation.
Besides, if the tenant left the demised premises without informing landlord or not reachable after trying a few practical attempts, landlord might want to lodge a police report and break the lock with the presence of police officer and other independent witnesses. It’s not advisable to shut off utility supply without given any notice period as landlord can be sued for damages of electrical/electronics or any related events that happen on the tenant due to the arranged cut-off. I haven’t encountered any better “self-help” solutions in handling this issue besides those measures discussed here. Another effective and fastest way is to take the lost and compensate the tenant in order to “check-him-out” as soon as possible. This doesn’t make sense but it is the fastest way I have tried so far to check-out the tenant. There are ways to prevent bad tenant, you can get some ideas here.