Evergreen Property Investment Strategies: Part Trois

GoodPlace Homes

I get asked pretty often about how I personally invest, and perhaps to the surprise of many people, property is not my top favourite when it comes to investing my money. I like putting in money into things that I can exert some degree of control over so that I can do something to make my money grow (instead of just sitting back and hope for the best a la stocks, bonds and mutual funds). For this reason, businesses are my favourite form of investment – especially those which I personally own. 😉

As far as I am concerned, property comes in close second after businesses as my preferred investment vehicle. Here’s my reasoning:- while price of property is pretty much dependent on external “market conditions” which cannot be controlled, I found that there’s always something I can do to improve its value no matter if it’s a bull or a bear market. We’ve already talked about a couple of these “evergreen property investment strategies” in the last two installments of this guide (check them out – here and here), and in this final installment today we are going to talk about a couple more.

 Conduct A Zombie Analysis

We have first mentioned about the “Zombie Analysis” during our interview with the notorious Miss X a couple of weeks ago (click here if you have missed it). Also known as the “spillover” effect, this analysis involves looking at areas where growth is already bursting at its seams, “spilling over” to adjacent areas. A good example of this phenomena is how the greater Segambut area is fast getting ‘engulfed’ into Mont Kiara.

The “Zombie” effect describes how prices of property in a hot growth area spreads outwards in a non-uniform, haphazard manner. On a macro level, townships like Kajang, Puchong, Rawang and Sungai Buloh can be seen as the spillover from Kuala Lumpur city and Petaling Jaya. On a smaller scale, the oft-mentioned Mont Kiara / Segambut is a good example, as well as the “Golden Triangle” between Puchong / Seri Kembangan / Puchong as well as the Bukit Jalil / Puchong / Old Klang Road corridor. By looking at how “growth centres” get saturated quickly one can predict where the next growth area is.

It’s important to note that while the “Zombie” effect is common, it’s not inevitable. For the spillover to happen, the following three criteria must be fulfilled:-

  1. Saturation criteria:- The spillover area must also have shortage of properties (otherwise the extra demand spilled over from the growth centre will just get absorbed, yielding minimal price increase).
  2. Connectivity criteria:- There are no connectivity problems between the growth centre and the spillover area (watch out for potential show stoppers like toll gates, chronic traffic jam conditions, etc).
  3. Demography criteria:- Difference in demographics in the inhabitants in both areas will make spillover difficult.

When the market turns bearish, there are ample opportunities to take stock and start to look for these Zombie spillover areas so that you can be early when the next growth wave hits.

 Look For Distressed Properties

Note that for a “Zombie” analysis to be meaningful, the growth has got to be spreading non-uniformly; otherwise it’s a pointless exercise since there’s growth everywhere! This is also why you’d probably want to do this analysis when the market turns somewhat bearish.

When the market is on the uptick, the typical strategy would be to seek out new launches in good locations, and exploit easy financing to buy in order to sell for a profit – it’s all about being “early”. When the market slows, these opportunities dry up quickly. Smarter investors would switch mode and instead focus on getting good bargains in the sub sale market; they will rely on creating value from buying on the cheap and then prepping up the properties for the next bull cycle (while generating cash from rentals in the meantime).

Like it or not, given the current condition of tightening financing conditions, slowing home buyer demand and general economic malaise, there will be some owners (mainly from the go-go era of DIBS and guaranteed yield) who will find themselves not being able to service their loans. We do foresee a flood of stock hitting the auction market, and it may be worthwhile to start familiarizing yourself with the mechanics of bidding for properties in the open market.

I absolutely loathe the act of preying on desperate owners, but just be aware that there are the ambulance-chaser kinds who would call up couples who are in the midst of breaking up their marriages to ask if they would sell their houses for cheap. Of course, I’m not here to judge. There are opportunities out there for those with cash to make offers to those who want to sell quickly, but there’s substantial risk involved so if this is the route you’re going to take, do your due diligence thoroughly.

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

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