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RM800k condo. RM2,000 rental. Even recovery cannot save you.

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The amount does not represent any particular condo yeah. Just an example after I was asked by an acquaintance if he should proceed with the purchase of a condo in a ‘hot’ area. He told me that the rental cannot cover the mortgage payment currently because of current negative situation. However, when the property market recovers, rental will go up and very soon he will have a positive return. Again, that anticipation that when property market recovers, everything will be just fine.

Remember many years ago when the anticipation was how much higher prices could continue rising? It was as if the sky was the limit. Then, everything stopped and the overall transaction numbers kept dropping year after year from 2013 all the way to 2017. Perhaps 2017 was the bottom, thus 2018 saw a super small positive change in the number of transactions. 2019 saw another increase with the support of Home Ownership Campaign (HOC).

Be pragmatic. If the rental cannot cover the mortgage payment, please do a little homework. Are there many other similar units with similar rental on offer? It’s quite easy to check these days, unlikely many years ago when nothing was online. If there are many other similar units and you want to increase your rental, you will just lose the tenant.

Be realistic. Why would the rental be going up? Is it because the development is suddenly very popular? If not, then please note that rental usually changes on a yearly basis and rental depends on all other similar units elsewhere and not just the development you bought. Plus, I have not heard of too many of ‘price suddenly go up’ kind of condo.

Be objective. Why are you buying? Is it for rental returns? If it is, then start by looking at the potential rental first before looking at the pricing of the unit. Is it for potential capital appreciation? Then, the next question is, could you hold? How long could you hold because pandemics such as COVID-19 can happen anytime, as what has happened.

Be long term. When is not as important as the Why. If it’s for your own home sweet home, then everyone is telling you that it’s a buyers’ market now. If you are a buyer, you have advantage. If you want to wait for the lowest possible rate before you buy, current rate is already the lowest within 10 years. It may go down further but if you have a property in hand, you will still enjoy this lower rate too.

Stop hoping that when the waves come back, it will lift all boats. The sinking boats will still sink. Stop thinking that Malaysian household income could rise suddenly. It will definitely be gradual and it will be slow. This is why property price will just have to follow instead of racing ahead. The days when property prices were low and when rental yields were even up to double digits have passed.

It can only come back when property prices have stayed stagnant for a couple of years to allow rental increment to catch up. Rental increment can only catch up if the salary increments also catch up. This is why job market is a key thing to watch. Even the inflation has gone to below zero currently. Inflation is negative growth So, is it still a buy? RM800k and RM2,000 rental is definitely NOT a buy. However, property market continue to provide opportunities if one is willing to watch and get ready to pounce when it comes.

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