# Property investment? Certainly NOT low risk and low returns.

I guess I needed to reiterate this important point. Someone told me that property investment returns are low even if the property price could rise by 5 percent. He said most of his stocks gives him a dividend yield of 6 percent or higher. No offence, he is a guru when it comes to buying, keeping, selling and profiting from his stock investments. However, when property prices rise by 3 percent, the return on investment is NOT 3 percent yeah. Return on investment is based on your invested amount. It is certainly not based on the property price. In other words, property investment is certainly not low risk = low returns. Simply buying without evaluating? That’s high risk…

When we bought a property for own stay, do we get returns? Of course. Anyway, if we resort to renting versus buying, then the rental we pay is pretty substantial. Even at RM1,000 per month for example. Calculation: RM1,000 x 12 months x 5 years = RM60,000. How many of us prefer to give away RM60,000 to a stranger? Well, that’s what we are doing when we rent a place for 5 years yeah. By the way, it’s true. Renting today is cheaper than paying a mortgage because of the current market condition. Owners are thus renting their units at a ‘loss’ seemingly.

Well, let’s look at demand for properties instead. Malaysia remains a young country (media age 29) This meant that demand for properties are going to continue for quite some time more. Definitely all the way till when my kids are starting their careers in something like 15-18 years later? At least. Assuming the growth in property prices is just following the typical inflation rate of 3%, a property will still double in price when we retire. (Yes, financial crisis etc are also calculated inside the average of 3 percent per annum). By the way, actual property price increase for periods of 1990 – 2016 was 6.5%. Data from NAPIC in the image. Source is: housingwatch.my which is a website by Bank Negara Malaysia.

Now let’s look at the ACTUAL return on investment. Assuming we paid 10% for downpayment of a RM500,000 home, that’s RM50,000. When we retire, the home becomes RM1 million. By the way, that RM1 million home when we retire may actually be worth just RM500,000 once we put in the rate of inflation of 3% per annum yeah. However, please tell me, how many of us could save RM1,000,000 without buying a property? If the answer is yes, I could, then by all means skip the property yeah. Start saving.

Using a super simple calculation of RM500,000 (gain in property price) divided by RM50,000 (downpayment) divided by 30 (years). That’s a simple return of 30% per annum.

Low risk = low returns? When it’s said to represent property investment, think again yeah. I know some people love stocks, I love it too. I continue to hold a good amount in stocks. I also know some prefers the stability from unit trust. I have enough unit trust to qualify me in some ‘gold’ status in a unit trust company. Thus, I think I can be objective enough yeah.

Important Note: Property Investment is NOT for everyone because it is so slow….. Stock market is by far faster yeah. By the way, there’s no need to debate which investment is the best. The best investment is simply the one that we are most interested in. Whatever that may be, put our full attention into it, do due diligence and I think the return on investment at the end of the day / year / years will be above average versus those who did nothing. Happy investing and following.

<Featured Image is courtesy of Stock Photos from violetkaipa>

updated and revised on 16 September 2019

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