Property flipping

  It is no question as into how would people keep their value of money. The clue of it is in this quote: "Everyone wants a piece of property. It's the only sure investment. It can never depreciate like a car or a washing machine. Land will double it's value in 10 years.In Less than that. Land is going up every day" 
So smart people will "preserve" the value of money in properties i.e land.

  There is no doubt about it that successful people would keep the value of money by investing it in a property be it residential or commercial. While some people would "use" real estate as a "get rich quick" scheme whereby flipping property would ensure fast money (usually within the period of 3 years).  This is more lucrative in the yesteryears before cooling measures were introduced. Today I am going to talk about the pros and Cons of flipping a property. Let us take a look at some statistic about flipping condos in Malaysia

Lets take the new Zenith Kelana Jaya for example
Launching date: End of 2010
The completion date : August 2013

Built up: 710sqft (taking the lowest as a benchmark)
Launching price : 324,150

Pricing as of December 2013: Asking price RM470,000
Percentage of return: 44% within 4 months after completion date

Pricing as of April 2014: Asking price Rm500,000
Percentage of return (first owner) : 54% (8 months)
Percentage of return (after subsales in dec): 6.4% (4 months)

* All prices are based on Iproperty asking prices
* Assume DIBS is in place for this project. Therefore instalment payment only start from the date of completion.
* All computation are based on simple calculation and have yet to take other expenses i.e loan interest, stamping duty, RPGT into consideration.

With only minimal down payment of 10% and all instalment payment are only made after completion with previous incentives like DIBS in place coupled with low RPGT rate it is no wonder why flipping would seem so attractive.

However with cooling measure that had been introduced by the government i.e no more DIBS and increased in RPGT rate, investor should be more aware on the pros and cons of flipping.

Pros
1. Less Risky
   As mentioned above, the pricing of the property is expected to go up (seldom down) and this would have protected time value of money. As compared to other kind of investment like stock market which at times can be unpredictable.
2. High ROI
   The property flipper can make a higher return on investment as seen from the example above.

Cons
1. Liquidity
    Property in the market are considered as illiquid asset. For a whole process of finding buyer to sell your house can take up to 1 year. It might pose as a challenge if the money is needed quickly.

2. Unforeseen circumstances
    Sometimes, there are some of the situation which are out of our control mainly delays of the project. Sometimes situation like increased in BLR rate, net income in borrowing (Bank Loan article), Loan margin income and etc. After all is part of the business and a good buffer of time and money would be required.

3. Other Cost
    Transacting a property would definately incurred expenses like stamping duty, MOT fees, RPGT  penalty fees for early settlement and etc. Those cost have to be taken into consideration. However if those cost are calculated and managed well, a healthy profit margin is still possible.

That's all from me on property flipping, for personalised advice please do email me at jasminbong@reapfield.com . Do like my facebook page and subscribe for latest updates on property development in Klang Valley!!

Purchasing process for freehold

Based on Malaysia statistic the highest amount of transaction and value actually contributed by sub sales of residential property. A lot of people that are out there in the market does not know the on what they should do after they have chosen a property. This serve as a rough guild lines on what happen next for free hold property.

Freehold
The follow is a rough timeline for freehold property

So for those that had chosen their dream property, a booking fees of 3.5% (earnest deposit/ initial investment) shall be made. At that point of time, " agreement to purchase" should be signed. Upon signing the initial agreement to purchase, there is a timeline of 14 working days (roughly 3 weeks) for the buyer to seek the approval of loan or other relevant documents.

  After everything that had been approved, the buyer would require to to settle the balance of the fees. Both the buyer and the seller would be signing on the sales and purchase agreement. After which the process would be passed over to the lawyer. Generally the Vacant Possession (VP) is will be given within the period of 3 months when the house has been fully paid to the seller.

  In the event that the buyer is unable to make full settlement, a buffer of 1 month can be given. However the penalty will be charged 8% per annum daily.

 The above is just a rough guild lines on the processes that would take place in the event that the buyer were to purchase a house.

  Do visit my facebook page www.facebook.com/serikembanganren  for timely updates on development in Malaysia. For a personalised market analysis of your property, please do email me at jasminbong@reapfield.com on the type of property with your contact number. I will get back to you the soonest possible.

Housing loan

When you first want to buy a house, what is the first thing that came in mind. What is the investment range that I have and I'm willing to spend to buy a house? How much would my bank loan approved? Considering the fact that to take bank take a stringent approach to approved on loan. Today I'm going to talk about some perspective in terms of bank loan.

Tenure on housing loan
On 5th July 2013, Bank Negara Malaysia ("BNM") announce that they had reduced the maximum tenure of bank loan to 30 years or up to 75 years old which ever is earlier. One of the reason for the reduction in the bank loan tenure is due to BNM effort to reduce the house hold debt that has been on the rise of Malaysia.

However the pricing of the house has not reduce (in fact is has seen to have increased over the period of time). In my opinion the prices of the house increased while the tenure period decreased would have impact to a higher repayment on a monthly basis.

If that is the case how much can I borrow?
A general guide line for housing loan is that a person can borrow up to 1/3 of the nett month salary (if couple it can be the combined income) x the number of years eligible to loan. Please refer to the following for an example of a general guide lines:-

Salary per month (combined): RM9,000 per month nett (nett of KWSP and monthly tax deduction)
Age : 30 Years old
Mortgage terms: 30 years or up to 75 years old which ever is lower therefore maximum would be 30 years.
Rough amount eligible to borrow:- (RM9,000/3) x 12 months x 30 years = RM1.08m

*please take note that this has yet to take your credibility into consideration.

In the event that you think you are unable to pay off 1/3 of nett then you can compute your housing loan amount based on the repayment you can pay. Please go to repayment section.

Total housing investment should be lower of the total amount of repayment that you can pay or 1/3 of nett salary.

Credibility
The calculation above is just a main guideline on how much the bank would approve. However the total amount above would have to based on your credibility. First and foremost if you want to check for your credibility, you can assess to Central Credit Reference Information System ("CCRIS").

CCRIS is a system that collects credit information on borrowers from financial institutions and supplies the information back to them. This is one of the sources of information used by financial institutions to help them establish a view of the credit histories of potential or current borrowers. It is not a blacklist system as perceived by some people. The information that would take into consideration are your promptness of your payment, number of properties, cars that you have.

*To check on it, you have to personally go to BNM building (in KL) and put in your ic with thumbprint to print out your CCRIS report.

Generally, the better your credibility the lower your interest rate would be and the easier your loan would be approved

Interest rate and loan agreement
 Just the rule of thumb, interest rate are calculated based on Based Lending Rate (BLR)- Spread. As of 2014, the BLR is maintained at 6.6% and the spread would depend on the bank individually. The spread in general would range from 2% to 2.6% depending on the credibility, the total amount borrowed and the locked in period.

In the loan agreement there would be terms and condition i.e the payment terms, the locked in period, early repayment penalty and etc. I would advise that you read through your loan agreement as penalties for early repayment, change in rates due to late repayment i.e if payment had been delayed, the interest rate might change from BLR -2.2% to BLR+1%. This is to ensure that you do not receive surprises when different situation happen. (sometimes penalty might not be worth for early repayment).

Please note that if the interest rate in your bank loan agreement is BLR-2.2% it is actually a floating rate whereby BLR might increased or decreased depending on the decision of the government.

Total amount that you can borrow
Generally you can borrow up to 90% of the 2 property purchased (as long as is under your name) and subsequent property maximum amount to be borrow is 70% (depending on your credibility).

Point: If you are a couple, if you plan to purchase a lot of properties for investment purpose (and if finances allows it) then put individual name so that a total of 4 properties eligible for 90% loan.

Repayment
Here comes the part whereby you need to commit yourselves monthly to pay for the property. Generally if the interest rate at BLR-2.2%= 4.4% i'll do a simple calculation with a property of 100,000 (any more you can just do a simple multiplication on the amount of your dream house) would be about RM500 per month. So with the assumption that you were to purchase about RM500k house, your rough monthly repayment would be Rm500x5= Rm2,500.

Please note that this is just a general computation and does not reflect the actual repayment. Please get a repayment schedule from your bank.

Another method of calculating the home that you can afford can be based on your repayment amount. I.e total amount that you can make payment is say RM250 per month for a period of 30 years. Your computation would be based on the following:-
RM250 x 12= RM3,000
Total investment amount = RM3,000 / 0.5% (basis) = RM600,000

Basis of the general rough computation with interest rate of BLR -2.2%. (6.6%-2.2%) is as follows:-

Number of years	Basis
30	0.50%
20	0.60%
10	0.70%
5	1%

 Conclusion
Based on this article, please take note of the following:-

1. Do a simple calculation to know roughly how much bank loan you are eligible
2. To shop around bank to get the best spread
3. Check on your credibility to through CCRIS (BNM building)
4.  Read out all the terms and condition in your term loan agreement to be aware of penalties that might inquired of any non compliance. (read out any rights to change interest rate based on bank discretion)
5. List down the expenses you have and determine how much you can save per month.

Have fun on house hunting!!

My next post would be sales and purchase process timeline. Please like and follow my facebook page at www.facebook.com/serikembanganren for updates on Real Estate in Malaysia.

RPGT

A lot of people are currently having a cautious approach when purchasing property especially for investment purpose as the government declared an increased in the Real Property Gain Tax ("RPGT") in budget 2014. RPGT is a form of capital gain tax that is imposed on the disposal of property in Malaysia. It was suspended temporarily in 2008-2009 and reintroduced in 2010. In 2014, RPGT was increased for the 5th straight year since 2009.

RPGT rates
Historical rate on RPGT for all; individuals, foreigners and companies (except for the period of 2014) are as follows:-

	1995-       1997	2008-2009	2010	2011-       2012	2013	2014
1st year	30%	0%	5%	10%	15%	30%
2nd year	30%	0%	5%	10%	15%	30%
3rd year	20%	0%	5%	5%	10%	30%
4th year	15%	0%	5%	5%	10%	20%
5th year	5%	0%	5%	5%	10%	15%
6th year onward	0%	0%	0%	0%	0%	0%

2014 RPGT rate

The rate that for RPGT through out the years for different categories has remain the same until the budget for 2014 has been announced. Generally there had been an increased in the RPGT for each categories with different rate. The following is the rates as of 2014:-

Disposal	Indivduals
	Citizen	Non      Citizen	Companies
<=3 years	30%	30%	30%
<=4 years	20%	30%	20%
<=5 years	15%	30%	15%
>5 years	0%	5%	5%

Calculation for RPGT

 Generally, you would only be taxed on the positive net capital gaines which is disposal price less the purchase price. However Like tax computation, there are some allowable expenses that would not be calculated in. This is the same for the tax computation for RPGT. Deduction such as stamp duty, legal fees, advertisement charges and renovations (only certain type of renovation) is allowed to be added in to the cost (therefore the gap between the purchase price and selling price decreased). 

Selling price - [Cost of purchasing the house + additional cost (renovation, maintenance, legal fees, advertising cost (including agent fees) and etc)]= Taxable amount 

Taxable amount - (higher of 10k or 10% of taxable amount) x rate above= RPGT

Ps: Please keep those bill as prove. 

Exemption

This is the part that everyone would look into and try to see if there is anyway that they can have a better tax planning. However these tax exemption are only for residence and Permanent Residence (PR) and not applicable to foreigners. This are a few things that you can look into

1. RPGT exemption on gains from disposal of one residential property once in a lifetime to individuals (only applicable to residence only) . In other words every one got one chance to not be tax on the capital gain. (Please use this once in a lifetime opportunity wisely!! if the couple is married wife and husband each get one chance each. provided that the party have not elected to use this right) This right should be declared before selling the property.

2. Exemption on gains arising from the disposal of real property between family members. Please be cautious that only certain relationship applies.  PARENTS TO CHILDREN, HUSBAND TO WIFE AND GRANDPARENTS TO GRANDCHILDREN. However the tax might be require to be paid by the children (the child may inherent the ORIGINAL cost price of the house that the parents paid before and tax is "transferred" to the child). This is known as "no gain no loss" transaction.

The last exemption is applicable to foreigners as well as local and PR.

3. For all properties that has been sold, RPGT exemption of up to RM10k or 10% of the net gains (whichever is higher) from the disposal of real property by individuals.

Conclusion

In my opinion this RPGT in the long run is good in a sense that the property prices would be stabilised (as people would not make a quick buck out of the property market) and benefit genuine buyers. However prices of the property market would increased in 2014 as the seller now would have to take RPGT into consideration of the profit margin.

Please like my facebook page www.facebook.com/serikembanganren and follow to get updates on real estate information in Malaysia.