When it comes to evergreen real estate debates, the topic of Freehold vs Leasehold is always going to be one of top on the list and a never ending one.
A Freehold property is always the preferred choice compared to a leasehold property.
This is a mindset or “story” that has been passed down from our grandfather’s generation and has remained deeply ingrained among the current generation, particularly among the baby boomers and the Gen X.
Does Freehold really mean Freehold?
Most would consider a property with a freehold tenure is where you have the right to ownership of a property until the end of time, allowing you to pass your property to your next of kin.
Taman Desa in Old Klang Road was an unassumingly quiet, mature and relatively laid-back neighborhood back in the early 90s. Developments in Taman Desa began way back in the early 70s by Faber Group Berhad, with the first batch of houses being completed around the mid 70s. Since the turn of the new millennium, it has grown much in stature and has come under the radar of investors and genuine home-buyers alike. Along with nearby locations such as Taman Seputeh, and Bangsar South, it has been enjoying tremendous capital appreciation over the years, performing well above market average. (By the way, Taman Desa is under the Seputeh parliamentary constituency)Even today with the current negative market sentiment, the prices there are generally still holding up very well. For many years until about the early 2000s, it has been an underrated and often overlooked location mainly because many were concerned by the notorious traffic jams along Old Klang road. In the past, one could only access Taman Desa via Jalan Desa Off Old Klang Road or an alternative access route passing through Taman Bukit Desa, also via Old Klang Road. Later down the road, which was around the mid to late 90s, the extension of Jalan Desa Bakti to the East-West Link Highway created a new major access route to Taman Desa. That was definitely a turning point for Taman Desa. This new access also spurred the development of the adjacent Taman Danau Desa. When Desa Waterpark was built, yet another access road was created from the Kuala Lumpur-Seremban highway. In the present day, you'll be hard-pressed to find a neighborhood in Klang Valley that can rival the connectivity and accessibility of Taman Desa. People have woken up to the fact that this little suburb tucked between KL and PJ and 5 highways have massive real estate upside. Granted, most of the houses are old and worn out but you'll hardly go wrong owning a piece of landed real estate here. To put this into perspective, 2 storey intermediate terrace houses here were transacted at about 6xxK in 2010 but has now shot up to an average asking price of about to 1.3 to 1.4 million, a rate which is easily more than double in the span of just 6 years. I know a house along Jalan Desa Bakti that was transacted at an exact sum of RM600k in 2010 and was just given an offer price of 1.4 million in October 2016 but was outright rejected by the owner. This is occurring while market sentiment has been negative for about 2 years now, imagine the potential asking price when the property market return to recovery or upward trend, which I forsee will happen from 2020 to 2023 at the latest. (The landed houses at Taman Bukit Desa tend to be a tad lower in price because they are of leasehold status, whereas the houses at the "heart" of Taman Desa are of freehold status) As with all investments, due diligence is of utmost importance. Just because I'm raving endlessly about Taman Desa or Bangsar South in my previous post, it does not mean you can buy any property in these areas without doing any homework, sit on it and expect it to make you good returns. Hence, it's vital to engage in a reliable real estate adviser who can help to speed up your investment decision process and empower you along the way. Hint hint :)
Parts of Taman Desa Inner Circle
The Soon To Be Demolished Desa Water Park
There is hardly anymore land for development at Taman Desa, just some pockets of lands here and there. There is a small plot of land next to OBD Garden Tower and also a bigger parcel after passing Taman Desa Medical Center. Recently, Aset Kayamas acquired the leasehold land of Desa Water Park and its surrounding area from DBKL and it will go undergo massive redevelopment in the near future. Skyworld also has a parcel in Taman Danau Desa but till today there is no further news from them .....read more athttp://propertythinktank.my/index.php/2016/11/22/taman-desa-a-real-estate-and-food-haven/
I recently reconnected with a friend whom I've not seen for quite a while. She told me she was looking to buy a place for her own stay, with a view that the property can appreciate over time as well. Her preferred locations include Taman Desa in Old Klang Road and Bukit Ceylon. I suggested to her that she should consider some other areas like Bangsar South since she is working in KL Sentral. I attempted to propose to her this particular project there, a service residence, which has a total density of about 700 units. She responded by saying 700 units is too high of a density and because of that she doesn't see it as something that is great from the investment standpoint. While I accepted the fact that she is more or less decided that Bangsar South is not the place she would consider for her own stay, I couldn't help but to offer her a different perspective with regards on how she should not merely evaluate the investment potential of a property just by the sheer number of units that she deemed was too many to her liking.
The Density Debate
Although it is generally true that a high rise residential property with a higher density would likely mean lower potential for the property's capital appreciation, there is an even more important factor one should consider before dismissing the property altogether This is how I would look at it. I don't think one should look at a project and disregard it just because it has 700 units or even more than 1000 units. The more important question one should ask is this: What is the ratio of commercial units to residential units in the area?
Looking at the entire Bangsar South masterplan, I would say the ratio is easily at least 6 to 4. There are a total of 22 blocks of Horizon 1 and Horizon 2 towers. Add in Vertical 1 and 2 and the upcoming 2 blocks of Vertical 3 towers into the mix, you have like a total of 26 office towers there. (I have not included KL Gateway office towers and three 4 stars hotels, with one hotel currently in the pipeline) Compare that to the total number of residential units in Bangsar South, which is definitely less than 4000 units. (I've included all current and upcoming developments as well: KL Gateway, SouthView, Novum and The Estate.) While I do not know the exact total number of office units in Bangsar South, I do know that these offices can accommodate up to 45,000 employees. Anyway you can see from the masterplan that the number of office towers far outnumber the residential blocks. A source told me that The Horizons are about 90% fully occupied while Verticals is like close to 60% occupied. Let's just be very conservative and say the number of employees are currently at 20k. Estimated current number of 20k employees VS less than future total of 4000 residential units. From this alone we can deduce that there is more than enough demand to supply to not just to that 700 units service residence alone but to the rest of the current and upcoming residential units in Bangsar South too!
The "Bangsar South" Factor!
Having loads of Grade A great looking offices doesn't mean anything if there are no tenants, especially quality ones. Mind you all these offices are all Grade A GBI certified buildings and Bangsar South is an MSC status Cybercenter. Many MNCs and GLCs has moved into Bangsar in recent years because office rental rates here are comparatively lower than those in KL Sentral and also KLCC (both also MSC cybercenters) You may say that I-City and Cyberjaya are also MSC status townships and rental rates there are even lower than Bangsar South but they are quite a distance away from the city center whereas Bangsar South is still within striking distance from the city center, literally speaking. I'm sure many employees would prefer to work in Bangsar South than other cyber cities like I-City and Cyberjaya. Hence many employers would prefer Bangsar South as an office location for the sake of their employees' convenience, thus striking just the right balance between rental costs and connectivity.
Quality Tenants!!!
Some of the corporate tenants that have moved into Bangsar South include GLCs such as CTOS (who just moved in early 2016), MEPS, PNS, Touch n Go, Takaful Ihklas, IT Division of Petronas and MNCs such as British Telecom (BT), F-secure, Xerox, Brandt International and PropertyGuru etc. Even more astounding is the fact that these offices are pretty much within walking from virtually all of the condos and upcoming services residences in the area. There are myriads of FnB outlets, chic cafes, banks, 2 LRT stations and also an AEON Big supermarket nearby, no driving is required as well, a fantastic proposition for the young and ambitious corporate professionals who are always pressed for time. Hence, Bangsar South is designed to be so pedestrian-friendly in such a way that it allows you to leave your car at home, encouraging cost effectiveness by less use of petrol & a stress-free lifestyle. All these simply translates into not only increased working population within Bangsar South but more importantly higher quality tenants for the residential units there too. Another advantage is that the rental rates psf wise for residential units in Bangsar South in general is also cheaper than KL Sentral and KLCC area too.As such, Bangsar South's residential captive tenants is not limited to just the working population in Bangsar South but KL Sentral, KLCC and the future KL Eco City/Midvalley City as well! They can opt to stay in Bangsar South and yet are just 3 LRT stations away from their offices in KL Sentral and a couple more from the KLCC LRT Station. In the future when KL Eco City and the link bridge connecting to Gardens and Midvalley are completed, Bangsar South would become an even more attractive place to stay due its unparalleled connectivity and convenience. (The Hukum Abdullah station which will serve the KL Eco City/Mid Valley City hub is just one station away from Bangsar South Kerinchi station!) Also it's 90% confirm that MRT3 Circle Line will have an interchange station in KL Eco City. When this is materialized, you can go to A LOT of places in Klang Valley from most of these condos/service residences in Bangsar South just by foot! Because of this, I think the area has fantastic Airbnb/short term rental potential too! Many expatriates I know prefer walking than driving! So Bangsar South is ideal for them in that sense, and there is already a thriving expats community in Bangsar South and it is definitely still growing too, for reasons which I mentioned above! Therefore, it's no surprise why Bangsar South have shot up from less than RM300psf back in 2005 to about RM1k psf today in 2016. Despite that, I'm pretty bullish that its psf rates will continue to appreciate much further down the years and even decades to come. In short,MNCs and GLCs moving in > increased job opportunities > highly skilled labour force > increased number of quality tenants > higher rental yields > value of your property increase!
Oversupply Concerns
There maybe concerns of oversupply of office and residential units in the longer term with the upcoming KL Ecocity, (which will also consists of primarily grade A office buildings), Bandar Malaysia and TRX. However, KL Eco City is definitely going to be more premiumly priced than Bangsar South.Viia Residences which is the 2nd service residence launched in KL Eco City was launched at RM16xx psf just about 2 months back. None of the current or completed residential projects in Bangsar South is anywhere near this level psf wise. Would you bet Bandar Malaysia and TRX to be priced lower than Bangsar South when they launch their phase 1 projects? Do you see where I'm getting at? On a more macro level, the upcoming mega developments such as HSR, Bandar Malaysia, TRX, KL118, plus all the way down to Malaysia's Vision Valley in Seremban/Nilai/Port Dickson are definitely as a whole going to be pulling the center of gravity of KLCC area more to the south as these developments come into being and become mature the next 2 to 3 decades. It's no secret that the southern corridor of Greater KL is heating up, with Bangsar South as one of the first major beneficiaries alongside areas such as Old Klang Road/Taman Desa. Perhaps you may still not agree with me that a service residence with a density of more than 700 units in Bangsar South is a good choice for investment and you may prefer to park and grow money somewhere else. After all, there is no absolute right or wrong in such scenario. However, what we do have is some data, facts and figures that can help to mitigate risks as much as possible when it comes making the right investment decision. Anyhow, this post is meant to stimulate discussion as to how we should not run into quick conclusions when evaluating the investment potential of a so called high density residential project. We need to consider other elements that could be even more critical when determining the upside (or downside) of a new development.
Please visit www.propertythinktank.my for more real estate content. To stay updated on Malaysian real estate affairs, do follow me on my fb page here!
Chris Seah is a real estate consultant who
helps buyers and sellers in and around Kuala Lumpur, Malaysia. He is also very much involved in new projects in Klang Valley where he markets new developments ranging from public listed developers to smaller but
branded boutique developers. He can be contacted at 019 781 8878.
Homestay, or short term rental business on
home-sharing sites like
Airbnb and iBilik, has been on rapid rise in Malaysia for the past 2 years. Short
term rental is a popular choice not only to foreign tourist but among
Malaysians as well, be it for business,
leisure or even special events among friends. Not surprisingly, KL ranks as one
of the spots in Malaysia for tourists arrivals and many have ride on the
bandwagon of converting their properties into vacation friendly homes to serve
their guests, given the fact that the real estate market is not in the best of
times and rental yield has been declining or stagnant for the most part.
When done right,
Airbnb or short term rentals can actually be more profitable than traditional
leasing, so it definitely makes financial sense. However, for those of you
folks out there thinking of buying properties in KL to capitalize on this home-sharing
craze, there are some important insider tips. factors and considerations you need to look
into:
1) Location: Central Vs Suburban
As the old adage goes: location location, location: the backbone, soul and core of any property investment. This couldn't be truer when it comes to short term rental property. Location is even more
crucial on Airbnb than traditional investing because tourists are looking to
stay in the most popular places to see the best of the best. Understandably, they want to be near to tourist hotspots and where connectivity is seamless. As such, if your property is near landmarks such KLCC, huge malls like Mid valley or popular food streets like Petaling Street, Jalan Alor and Changkat Bukit Bintang, then the chances of your property to perform well is higher. Also, some guest and business travelers
prefer to cook themselves and eat out less often. Is there a supermarket or
grocery store nearby the property? Are they near to any convention centers?
Your target short term tenants cold be business travelers as well.
Proximity to
public transportation and the general connectivity of the location is another
very important consideration. Ideally, they should be within walking distance. Take
transportation hub KL Sentral. For example, according to airbnb, Brickfields is
one of the city neighborhoodsi n the world that experienced the biggest boom in interest from travelers in 2015 – a whopping 1200%!
Also, do your
research on upcoming developments as well as you would want to invest for the
future. With
the KL 118 tower, Bukit Bintang City Centre, Tun Razak Exchange, the centre of
gravity is very likely to shift from KLCC to the Bukit Bintang/Pudu belt as
years go by. The iconic projects will undoubtedly draw massive amounts of
tourists and business travellers there in the future. Therefore, you might want to look into investing
into secondary properties or new launches around that vicinity at current
prices, given the potential upside when the area matures as those iconic projects
are completed in the coming years. Bandar Malaysia and HSR is expected
have big impact on surrounding areas like Old Klang Road and Bangsar South as
well. Other considerations include the
redevelopment of Kampung Baru with the upcoming M101 Skywheel and the future
MRT lines 1, 2 and 3.
2) Managing Yourself vs Letting Others Do It
Short-term
rental industry is potentially a lucrative investment/business. However, you
need to take into account that like any business, professionalism and prompt
service is absolutely crucial. First of all, you need to decide whether you
want to manage your property(s) hands on or let management agencies to do it
for you.
Just
so you have better idea, if you intend to do it yourself, expect to spend a
significant amount of your time managing reservations, and ensuring that things
are prepared for your guest. You need to ensure having towels washed, the
property cleaned, someone present to open the door and possibly a welcome
basket ready. Communication with guests
is vital and you need to be responsive when they have questions.
Also,
unexpected issues may arise eg: guests may lock themselves out or lost their
keys, air conditioning and certain bathroom facilities not working. Also,
occasionally you might come across guest(s) who is a little difficult and
fussy, but yet you have to be courteous at all times and try to fulfill their
requests (within reason of course), else you risk an unfavorable review from
them on your listings.
It
might seem pretty manageable if you only have 1 unit. However, once you start
to have 3 or more units, things aren’t that fun anymore. It’s going to feel
like you’re the hotel business. Thankfully, there are a number of companies
that support Airbnb hosts in managing the property if you want to free yourself
from all the hassles.
These
guys can handle everything
from checking in and checking out your guests, property listing, cleaning, linen and keys management, communication with
guest or standalone services. They are like your all in one solution for short term rental bizThey include Guest Ready (who just started operations in Malaysia in August 2016, as one of the 1st6 countries globally,
proving that homesharing is definitely thriving in KL), RoomFilla and Lazy Host.
Most importantly, they help you to
maximize the exposure of your property not just on airbnb but also other
similar sites like HomeAway, Flipkey, Wimdu and Booking.com and coordinate bookings of all those sites for you. It is also
in their interest to maximize returns
for you since they take a percentage cut
of your rental income (if you decide to take that package). Guess what? It
would be wise for you to choose to buy properties in good areas too as they
only cover prime and selected areas for now.
3) Facilities: Any Wow Factor?
This alone can
sometimes be the tipping point that tilts your guests in deciding on whether to
rent you or your competitor’s loft, even when the location of your property is
not actually as strategic or tourist destinations are not exactly within
walking distance.
Verve Suites Mount Kiara by BKP is one prime example. It is
renowned for its award winning man made man roof top beach with its outdoor
infinity pool. Aside from the fact that
Mount Kiara is a distinguished andtourist-friendly neighborhood, it is still somewhat of a drive away from
major landmarks and tourists hotspots. Also, there are so many condos/service
residences in Mount Kiara that are vying for guests. However, its luxurious
facilities make all the difference. I understand that many guests return again
because they enjoyed their stay in Verve Suites immensely.
Another case in
point is Regalia Residence in Sultan Ismail, it’s not exactly in the
1st tier of KLCC area, in fact I don’t consider it as KLCC area at
all, yet its infinity pool with its spectacular view of the KLCC+ KL Tower skyline
is a mega game changer. Regalia has
become a resounding success for many of its airbnb hosts and it can be largely
attributed to this reason.
Therefore, before
investing in any properties whether in the subsale market or buying directly
from the developer, it would be wise to see if the residence offers any unique facilities
and features not so commonly found in other properties, giving you that extra
edge over your competitors.
4) Legality : Important!
In USA, cities
like New York and San Francisco (where airbnb was founded), current laws
in those cities only allow a permanent resident to sublet their property for
less than 30 days and 90 days respectively, and then only if they're still
residing at the property.
Closer to home in Singapore, it is currently illegal for private and
public home-owners to lease their properties for less than six months (unless
the owners stay there as well) else those who break the rules can be fined up
to $200,000 and jailed for up to a year.
At the time of
writing of this article, the short term rental industry has not yet been regulated
in Malaysia, airbnb is still allowed in KL, unlike Penang, where authorities
seems to be stricter over there. However, some resistance is starting to
surface.Bodies like Malaysia Budget Hotel Association are aggressively calling on the government to
regulate short term rental business. I personally feel when this happens it’s
actually a good thing. The regulations will actually serve to increase the
exposure of airbnb and other short term rental sites among Malaysians, many who
travel within the country for business, leisure and wedding party trips.
If you want to be
really safe, it could be a better bet to buy a property under commercial title
for the purpose of your short term rental business. This would definitely minimize any risk of
future restrictions that may be imposed once regulations do actually come into
place, as more restrictions would most likely be placed on residential titled
buildings and less on commercial titled buildings. Moreover, many commercial
titled service residences these days are protected by Housing Development Act (HDA), which means that owners pay utility
bills and yearly assessment fees at residential rates instead of commercial
rates. Also, some residential condos have their own rules & regulations and
may not allow airbnb, so it’s best to do your own homework and due diligence
before taking the leap.
Nonetheless, I feel that going
forward, it’s not in the interest of the government to impose regulations
that are too stringent on residential titled buildings as it helps to stimulate
our economy and ease the burden of many owners by having their otherwise vacant
property by generate income from visitors and tourists. This is especially so
for KLCC area where the rental market has been very challenging for the last
couple of years. Airbnb is almost Godsent for these owners. Aside from that,
it’s a boost for the tourism industry too as tourists have more choices when it
comes to selecting their accommodations.
5) Costs: Watch Your Bottomline!
If you purchase a condo/service residence today based on current market prices in Klang Valley, you can count yourselves fortunate if you could even cover your mortgage payments + management fees, let alone attaining positive cash flow. But when it comes
to Airbnb investment property, positive cash-flow is of utmost priority. This is
more like hospitality business instead of a passive property investment that
relies on conventional rental. As such, you need
to take into consideration all the potential costs, from furnishings right down
to an internet connection. Typical monthly
investment costs include: mortgage payment, property tax, maintenance fees and
wifi. Other costs include Airbnb 3% Host Service Fee, tax (you might want to
incorporate your business if you want to run multiple units), property
management fees, cleaning fees (you can charge these fees on guests upon
booking, and can profit from the difference if you want!), utilities, and guest amenities (toiletries, welcome baskets etc) The expenses and
costs might seem daunting. However, if you or the management agency you appoint
do a good job in serving your guests, they can definitely be offset and you’ll
achieve a good positive nett cash flow from your properties. This is especially
so when you get many good reviews for your listings due to the positive
experiences you have given to your guests. I’ve seen that good reviews have
allowed some hosts to price their listings higher than other units within the
same condo/service residence and their occupancy rate is still as good as
before. So there you go, these
are some of the important considerations you have to take into account when purchasing
your property for homesharing purposes. Your properties do not necessarily have
to fulfill every single requirement and consideration that has been discussed.
So as long as the property long fulfill some of the aspects especially
costs, location and connectivity, then the property could be good to go!
Please visit www.propertythinktank.my for more real estate content. To stay updated on Malaysian real estate affairs, do follow me on my fb page here!
Chris Seah is a real estate consultant who
helps buyers and sellers in and around Kuala Lumpur, Malaysia. He is also very much involved in new projects in Klang Valley where he markets new developments ranging from public listed developers to smaller but
branded boutique developers. He can be contacted at 0197818878
