Buying a Home as an Investment

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PropertyGuru DataSense, the data, analytics and solutions arm of PropertyGuru, recently shared a property market update highlighting residential trends in Q1 2021. It revealed that residential property transactions had dropped by 44.7% year-on-year (YoY) compared to Q1 2020 before the spread of Covid-19 caused an economic downturn.

Conversely, 80% of correspondents who took part in PropertyGuru’s Malaysia Consumer Sentiment Study H2 2021 said they were still on the lookout for properties despite the prolonged pandemic. From this, 45% of correspondents cited investment as their reason to purchase a home.

To help revive the property market, the government is currently offering incentives such as extending the Homeownership Campaign and exemption of Real Property Gains Tax.

Top 3 highest appreciated areas for Q1 2021

In general, mature areas with ready amenities like healthcare, schools and public transport will likely enjoy good capital appreciation.

Property Advisor’s analysis of residential transactions carried out in Q1 2021 revealed that the top three areas with the highest YoY appreciation from Q1 2020 to Q1 2021 are Puchong, Kajang and Ipoh, which saw an increase of 38.68%, 36.36% and 30.32% in median prices respectively.

Puchong saw the highest YoY increase from Q1 2020 to Q1 2021.

Puchong is a matured and well-developed region with all the amenities needed to be a self-sufficient township.

“Over the years, property prices in Puchong have increased marginally. The majority of the landed residential schemes can ensure steady capital value growth in the long run,” said Amy Wong, Savills Malaysia’s director of research and consultancy.

In Kajang, the railway station is the principal rail station and functions as the interchange for the mass rapid transit (MRT) Sungai Buloh-Kajang Line, Seremban Line and KTM Electric Train Service (ETS).

Kajang’s property value is further boosted by its education and medical centres and lower cost of living compared with the town areas, explained Regina Ng, senior real estate negotiator from The Roof Realty Sdn Bhd.

Ipoh, the state capital of Perak, is a popular domestic tourist attraction known for its delicious food. Besides being an excellent place to set up a homestay or AirBnb, it appeals to the older generation. The traffic is less congested than in other big cities, making it ideal for retirement.

Accessibility is a major factor determining a property’s value. Photo by nik radzi on Unsplash

Once the West Coast Expressway opens, towns like Klebang and Tambun will enjoy better accessibility, leading to expected improvement in property demand in areas along the highway, making them ideal investment locations.

Despite the pandemic, Shah Alam, Cheras and Klang have also witnessed positive growth in their median prices. In East Malaysia, Kuching saw the highest appreciation of 27.27% YoY from Q1 2020 to Q1 2021.

How the Homeownership Campaign (HOC) aids investment

The Homeownership Campaign was first introduced from 1 January 2019 to 30 June 2019. It was later brought back under the Pemerkasa aid package, and extended until 31 December 2021.

There is no limit to the number of houses one can purchase under the Homeownership Campaign. To qualify, one must ensure that their Sales and Purchase Agreements are stamped between 1 June 2020 and 31 December 2021. This applies to all residential properties ranging from RM300,001 to RM2.5 million.

Aside from encouraging those who do not yet own property to purchase their first home, the Homeownership Campaign helps investors who already own residential properties as it lifts the 70% margin of financing limit applicable for the third housing loan onwards for properties valued at RM600,000 and above.

Some financial institutions help investors diversify their portfolios by offering financing terms from as high as 90% + 5% p.a. for the first three homes.

How do I finance my home?

Before committing to a property purchase, you should check your debt-to-service ratio (DSR). This is the ratio of total debt to one’s household income. It is calculated by dividing your nett income with your total monthly commitments and future mortgage loan.

Your DSR will help you determine which financial institution’s offer you should consider taking up a loan from as different financial institutions have different DSR requirements. This is important as their mortgage products vary in terms of interest rates and flexibility.

With the Overnight Policy Rate currently at an all-time low of 1.75%, it is recommended to take a housing loan now. Or take a flexible loan*, where you can put additional money into your loan account to reduce the interest on your principal amount. If you require the excess funds, you can easily withdraw them from your account.

It is important to remember that all investments, including property investments, come with risks. A profitable sale can sometimes take months or years to happen. If you need cash in a hurry, you may find yourself in a bind.

Another point to consider is the upkeep of investment properties. Although you may not be staying at your property, you will still need to keep the place looking presentable for potential tenants or buyers. This means you will need to continuously invest in its upkeep.  

A good way of saving is making sure that you get the best housing loan package. Do your research: survey the market, make inquiries, list down the pros and cons of each housing loan package before deciding on which to take up.

One housing loan offer that you should consider is Alliance Bank. The bank is now offering loan rates as low as 2.9% p.a. for all home buyers, whether your first, second or third purchase.

*Note: As flexible loan products vary across different banks, it is recommended that you check with the bank to better understand the features available.

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