Buying Vacant Land To Make Money: Genius Or Idiot?

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If you’re expecting the continuation of the Abandoned Properties Series by my childhood nemesis turned mega property tycoon “Shallow” Cal (click here and here if you’ve missed the first two parts), well, tough luck – he just called to say that instead of writing the next article, he would be busy “attending to some private matters overseas this weekend”. Let’s all thank him for his significant contributions to GoodPlace so far, have him in our collective prayers, and hope that he recovers quickly from his sex change operations in Bangkok this Saturday.

Nevertheless, as the flamboyant Freddie Mercury liked to say, the show must go on.

Let’s face it – the Malaysia property market now is as dead as a piece of friggin’ fried chicken. Whoever who thinks he can make money flipping a KLCC condo, for example, is either smoking grass or as hopelessly delusional as a Bernie Sanders fanboy.

Given the zombie-like state of the property market tight now, those savvy investor-type folks that I know are looking further left-field for opportunities to make money. And those opportunities include areas which are generally overlooked by most people – like abandoned properties and vacant land.

All jokes aside, I seriously don’t know if Calvin is coming back to finish off the Abandoned Properties Series that he had started. Anyhow, to keep things going, this week we will discuss about another type of property investment which is quite rarely talked about anywhere: investing in vacant land.

Vacant Land Investment: The Basics

Investing in land sounds pretty simple in theory:- you buy an empty tract of land, and you figure out what to do with it to make money. Of course, the devil is in the details, and in this guide today we’ll give you a taste of what’s required for you to make money with vacant land.

So where can you buy vacant land? The most common story that I hear is that vacant land is usually inherited. For example, the seller’s great grandfather could have been one of those Kapitan Yap Ah Loy types who owned tin mines before World War Two. Now that he has inherited those vast swathes of land, he has got two options if he wants to make some moolah: (1) to sell the land “wholesale”, or (2) to build houses on the land and sell those houses on a piecemeal basis. Naturally, option (1) is always desirable especially if the seller is not an experienced developer.

The Big Question: Why?

Because buying property is so sacrosanct among Malaysians, most of us rarely take a step back and ask ourselves: why the heck do we buy property? One GoodPlace reader once told me that he bought a condo just because he was swayed by the developer CEO’s flashy, Lambo-driving and model-shagging lifestyle. “Maybe I thought I could be somewhat like him if I would just buy this penthouse he was selling,” he quipped. Surely enough, he got royally shagged by the banks instead when he failed to service his $9,000 a month repayments.

Of course, savvy buyers would already figure out their exit strategies even before they dare to dream of driving Lambos and shagging models. You’ve got to know why you’re buying a property, and importantly, how you’re gonna make money from that piece of property. You don’t buy some vacant land in your wife’s hometown in Chemor just to impress your father-in-law. You’ve got to know what to do with that piece of land after you buy it. And since it’s vacant, you’re not going to get any rental cash from it in the shorter term at least. As such, you’d better have some pretty stellar holding power especially when it’s probably as illiquid as it gets as an asset class.

Back To Basics: Efficient Market Economics

I’m a believer in the Efficient Market Hypothesis – which states that in a stock market, its efficiency means that the price of a stock will always incorporate all available information, which means that it’s impossible to consistently “beat the market” over time. However, I observed that this hypothesis holds true generally in markets where assets are liquid – in particular, stock markets where shares are bought and sold frequently with little or no ‘friction’.

As such, for a market which is as illiquid as property, the inefficiency is more pronounced which means that there’s always pockets of opportunity to make money which exist for a given window time given a particular locality – until the market “finds out” about that gap and proceeds to close it. For something like vacant land, the degree of (il)liquidity is even higher – it then logically follows that there’s even more opportunities to make money. This is further compounded by the fact that vacant land generally attracts less attention especially from two-bit investor wannabes – which means that there’s less competition for the money.

It also follows that while there are not lots of investors are interested in vacant land, you can bet that those who are interested are usually big-time sharks that eat newcomers for breakfast. If you’re new to property, or if you haven’t build up your portfolio with “traditional” property like terrace houses, apartments or shop houses, steer clear.

Your Exit Strategy

The most common exit strategy when it comes to buying vacant land is to sell it off at a premium. Strangely, almost everyone who attempted to make money with vacant land seemed to harbour this “fantasy” of that hefty payday when a big-time developer like Ecoworld or UEM Sunrise or SP Setia to offer them gobs of cash. That, sadly, does not happen too often (if at all).

Why? The answer is pretty simple. Land banking is bread and butter for these players, and the tract of land that you found in Chemor – well, if it’s of any value, those big fellas would have bought it eons ago while you poo-pooed in your diapers. Unless you know something that they don’t, thinking that you can make money off the big boys is pretty foolhardy.

In Summary

Here’s the TLDR version for those who can’t be arsed to read all of the above:-

  1. If you’re new to the property game, don’t buy land.
  2. Since land is the most “illiquid” kind of property, it logically follows that opportunities to make money are most abundant.
  3. If you want to make money buying land, have a well thought-out exit strategy.
  4. Don’t buy land (or any kind of property) for the wrong reasons – like impressing your father-in-law.
  5. Vacant land investment is for the (very) long term. Short-term cash flow is minimal (usually zero). You better have some serious holding power unless the bank manager happens to be your father-in-law.
  6. The chances of a big developer buying the land from you later is comparable to that of Malaysia winning the World Cup.

In the next guide, we’ll explore more on how to make money with vacant land: especially on identifying good vs bad stock and some short-term monetization strategies while you take that long-term bet.

Truth be told: I’m not sure if this guide is going to come out next week because if Calvin comes back, I’ll give way to him for the third part in the  Abandoned Properties Series. Despite my differences with him (we’ve had more fallouts than Axl Rose had with Slash), he’s still the best in the business that he’s in, and we’ll all benefit from reading his insights. I got a feeling that he’ll be back, but I guess we’ll find out soon enough!

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

Comments

  1. I am staying at about 18km from Johor Bahru. The last property that I bought is about 20 years ago and I am out of touch on buying property.

    How about doing an article on not overpaying for a corner lot over an intermediate ds terrace house. It is for own stay. Example: the intermediate house plot size is 22 x75ft with built up area of 22 x 48 x2 for 2112sq ft price at RM480k. The corner lot is price at RM677k for same size of bulit up area with plot size at 40 x 75ft. It a mighty 141% pricer than the intermediate lot. Extra land is only 1300sq ft.

    My neighbour commented that 20 years ago corner lot only cost higher by 20% max. 3 months after launching all intermediate houses are sold but about 30% of corner lots remained unsold. Due to overpriced corner lot?.

    In this project there is no end lot without land. Using sub sale price for houses in Ecosetia as reference end lot without land is about RM40k higher than intermediate lot. So 677k – 40k = 157k for extra land of 1300sq ft!

    Good thing is the side of the corner lot faces almost to true east and the balcony wrap, from the whole 22ft front of the house, and side way until end of the house in a L shape. The front part of balcony is 22ft x 8ft and side wrapping balcony is 60ft x 4.5ft. I am not sure the costing of such a balcony to the developer. I presume it to be less than RM20k. Apparently this developer add this as built up area making the declared built up area as more than 2600 sq ft. If the side faces west I would not consider it even if it is cheaper by RM40k. Unlike years ago the layout of houses for sale on launching day is on a gaint soft board with lot numbers together with the price of each house. Houses on higher elevation would typically priced at 2 to 3% higher than standard unit and those near oxi pond could be up to 5% lower!.

    Nowdays most developer employ marketting agency and price of the lot number that caught your fancy is hidden in a file. Basically one have to sellect a few units before sitting down with the SA to get price quotation of each unit.

    TQ.

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