November 2, 2018
I was conducting my usual Handling Objections Better workshop for another developer sales team today and this question popped up. Given a choice, would I buy into a hotspot or an emerging one? Actually, it really depends on what we intend to do with the property that we are buying. If we are looking at rental income, hotspots would be much better than an emerging one. For one, it is definitely easier to rent the units out, whether they are commercial or residential units. I have a friend who tells me that he buys only commercial units which he knows he could rent out almost immediately; within one month of taking the keys. He does not mind the higher than usual prices because he reasoned that the capital appreciation over the next few years would more than make up for the low / negative rental yields currently. He has been right thus far.
As for emerging hotspots, I think this is suitable for first-time home buyers. Three reasons; it’s usually cheaper to buy (bigger-sized too), there’s usually already some amenities and many big brand names are already there which meant that the future will be bright. Else, all these branded developers will also have a bleak future there too. Reminder, there may not be a hypermarket yet but there’s definitely already a thriving mini-market. There may be just one bank operating there currently and for fast food restaurants, it may not yet have a McDonalds. It may have a nice budget hotel but definitely no 4-star branded hotel for example. Yea, all these differences meant that the price has to be lower than the hotspots of today; where everything is already within reach within the neighbourhood itself.
My second property was in an emerging hotspot as well. I bought it in 2007. There were no bank, no fast food restaurant and no hypermarket. In fact the shops were not even fully open! However, it is within 10 minutes from the airport, it is only 15 minutes from the second bridge, it has a few restaurants which were all doing well and there were many branded developers who has bought land within the area. In other words, all these developers saw its potential too. Anyway, if I was wrong, then all these branded developers have also gotten it wrong too…I bought one condo with 2 car parks for RM247,000. Today, the same area has bank branch, fast food restaurants (KFC and McDonalds) and the shops are all fully open with many nurseries too. The price today? RM600,000 or higher. I sold mine at RM640k 4 years ago. (coz I have an extra car park I bought for just RM10k…)
The advice is not to overthink about which is better because there is no such thing as a perfect property at the lowest price. If it’s perfect, the price is surely at the peak. If it’s not at the peak, it’s surely not perfect. Here’s that earlier article. We view the unit, we drive around the area and we get to know all the developments nearby. The gut feel from all these actual observations would usually be right. If it’s wrong, we just need to stay there longer. 🙂 By the way, it’s very important that the area is full of big name developers too. Happy buying.
written on 1 Nov 2018
Next suggested article: Finance Minister says 10 percent reduction in property price not too much