Sometimes, we must not keep talking about just the good points, right? 🙂 Some friends asked me if property investment is the best investment above everything else. Let’s just say, it may the best for you and may not be the best for someone else. Perhaps it was best 20 years ago? Perhaps it may become even better 20 years later? (When bigger units become rare….?) Anyhow, I still like property investment because there’s a lot of case studies for us to look at; advanced property markets. Remember though to always diversify and not put all our eggs in one basket. That’s going to be very dangerous. Let’s talk a bit about the disadvantages yeah.
Fast money not possible. Whether it’s to sell or to buy, lots of time is needed. Freehold is slightly faster but even that would still be easily months unless we are a cash buyer which meant slightly over one month for example. In other words, even if the market has a demand for it and we intend to flip it for a profit, it will still take months before we can see the money.
Maintenance payments. The older the property, the higher the maintenance costs would be. Whether it’s landed or high-rise, when it starts ageing, get ready to pay for maintenance. Leaking ceilings do not happen only to high-rise properties yeah. Rewiring the whole house is still recommended when you buy a property of over 10 years because it’s very troublesome to do a few years after we moved in. This is the same for all pipings too. As usual, even if the property is empty or not rented out, the maintenance fees would still have to be paid for the high-rise while for the landed, all the taxes must be paid yeah.
High entry point. I would say anyone can start buying unit trust or even stocks in the share market when they start working. It’s usually a minimum of 10 percent downpayment or 30 percent if you are buying the third property. (No comments on experts telling you that downpayment is not needed….) For property, it is getting ever harder year after year because we expect to buy the same property with the ‘many years ago’ price, today. Think about it, if the property we buy does not increase in price at all after many years, I think it’s much better to rent.
Returns are very subjective. Assuming we bought a RM500,000 property 5 years ago for our own stay and today it’s worth RM550,000 it meant that the rise in price is only RM50,000 or less than 2 percent on a compounded basis. Assuming the inflation to be 3 percent per annum, we have lost money!? Haha. Well, if we did not buy that property, what would have been the rental that we have to pay? This is a gain. Other ‘losses’ include interest within the monthly mortgage payments too. So, this is the reason why some would argue very convincingly that it’s money losing when it comes to property and there are also people who tell you that they have gained a lot from property investments.
A few things are for sure. Lifestyle is changing which meant that perhaps smaller units can become the norm in future. With advancements in public transport, people may stay further away and stop driving? With GRAB becoming a huge influence, people may even choose to stay in smaller units within the city centre so as to be closer to their office. Urbanisation would continue to happen and cities would grow bigger in both population and the number of properties. A small percent of people would earn incomes within the top 5 percent of the country and would demand for lifestyle homes. One thing’s for sure even with all the disadvantages. People would still need a home to stay, whether they are buying or renting one. Just don’t but the wrong one. Happy thinking.
written on 13 March 2018
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