From previous Ultimate dream home
article, it seems that most of us prefer to settle on landed property. As some suggest, most of us like the feeling of having ‘own land’; for our kids to play together with some gardening too.
But, it is wise to only consider landed property for your next purchase?
Before you answer that question, let’s remind ourselves the advantages of high-rise properties.
Compared to landed properties, the selling price for condo or apartment is normally cheaper than the landed properties on the same location. For example, double-storey terrace house in Mutiara Damansara cost about RM600k compared to nearby condo which cost about 25% less for the same build-up area; although the maintenance fee for high rise properties can be slightly higher than regular security fees in landed properties.
For RM600k terrace house, assuming you pay 20% down-payment (RM120k) with the balance to be paid for 30 years (6% interest), you’ll end-up with RM2.8k monthly mortgage payment.
However, for the same build-up, you only have to pay RM2.1k instead if you decided to buy nearby condo (20% down-payment). Since most condo is having 30-40% less build-up area compared to double-storey terrace house, your monthly payment for condo can be reduced to RM1.3k very easily (after 20% down-payment).
That’s more than half discount compared to landed properties!
After 10-15 years down the road, your family member grow bigger and makes you want to ‘upgrade’ for a bigger house, which then you might have to consider selling/rent out your existing house.
Case 1: You’ve bought the landed properties
Since landed properties can easily fetch double in price (depend on strategic location), you can sell your existing terrace house for RM1.2 million and then buy semi-d at RM2 million.
After paying the balanced loan, you’ll gain about RM17k which you plan to use that ‘gain’ to fund your next purchase of RM2 million. Therefore, other than paying RM200k for the down-payment, you pay only RM183k from your own pocket. And after that, your monthly payment will be about RM10.8k per month for another 30 years!
Regular terrace house can be difficult to rent out because the increase in price can easily out-paced the increase in rental cost. From my personal observation, most terrace house can suffer negative rental income for 10-20 years.
Meaning, monthly loan payment is higher than the monthly rental.
This can happen when the developer tend to over-charge their new house in the beginning. As a consumer, you won’t notice the over-price part because these developer did a great job in justifying their initial selling price by
- having nice-looking interior design that makes you unconsciously say “wow, cantiknya!” to your spouse,
- promising you that the area will be having rapid development in the next 12 months (which mostly takes 5-15 years to be matured)
- guaranteeing you that the property will yield 5% rental yield when it completed
…all these, despite the fact that, there are very-very far away from the area of demand. Just ask yourself, which one you prefer:
- pay additional RM200-500 rental per month for the same housing area but nice interior design, or
- save that RM200-500 per month to get your dream home faster?
Therefore, rather than renting your landed properties, it can be a better idea by just selling them to fund your next house. Unless that property has settled its loan…
Case 2: You’ve bought the condo will smaller build-up
Condo or apartment price doesn’t increase as much as landed properties over time. Reason being, there can be ample of condominiums around which results to lack of ‘scarcity factor’ that landed properties have.
Having said that, one good thing about high-rise property is that, the cost to rent a condo or apartment can increase quite steadily over time. On strategic location, the rental cost can increase 5-10% per year.
Assuming the initial rental cost is RM1.5k, in the next 10 years it can increase to RM3k per month. After paying the RM1.3k loan, you can still get RM1.8k income in months to come. If you were to buy the same semi-d mentioned before, you are literally paying RM9k only per month.
Considering these two situations, we are looking for strategic condo/apartment to start with. If you know any property that’s strategic & valuable price, pls let us know!
Going back to the nature of high-rise properties, they can give good rental income in the long run for various reasons. The most obvious reason is the nature of the tenant itself. Normally these tenants are willing to rent because they worked in the surrounding area.
To save on transportation cost, they opt for nearby properties as close as possible. And most of the time, the high-rise properties surround these so called strategic locations build to be tenanted.
While renting the properties, they are actually saving some money to buy their own properties later on. In other words, landlord is actually helping them with affordable temporary shelter before they can afford to buy their own home.
As there are more and more “orang kampung” want to come over to KL for jobs, the number of immigrants will increase over time and the cycle will keep on going. As long as the properties are in strategic location (putra, kl area, facility etc), there’ll always be interested tenant if the landlord can offer the right price.
And as long as there are interested tenants, you can make money out of them as long as possible…
How about you? Do you prefer case #1 or #2?
Or just buy the first house and never pindah2?
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