{"id":29483,"date":"2017-05-09T11:27:10","date_gmt":"2017-05-09T03:27:10","guid":{"rendered":"https:\/\/www.imoney.my\/articles\/?p=29483"},"modified":"2024-02-02T15:28:08","modified_gmt":"2024-02-02T07:28:08","slug":"still-make-sense-buy-let-2017","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/still-make-sense-buy-let-2017","title":{"rendered":"Does It Still Make Sense To Buy To Let In 2017?"},"content":{"rendered":"

Although the property market has somewhat been subdued in recent years, property prices are still inching up, albeit in a slower pace.<\/p>\n

According to Global Property Guide<\/a><\/em>, terraced houses saw a 5.6% (4% inflation-adjusted) increase in their average prices in the third quarter of 2016, while condominiums and other high-rise residential building rose by 6.6% year-on-year (5.1% inflation adjusted) in the same period.<\/p>\n

Property market remains a popular investment in the country, despite the expected sluggish growth in 2017, due to concerns about the slowing economy and the ringgit’s weak performance, among others.<\/p>\n

Properties are the most common fixed assets to be invested in. With property, there are two main potential ways to make a return:<\/p>\n\n\n\n\n\t\n\n\t
Rent<\/center><\/th>
Selling for a profit<\/center><\/th>\n<\/tr>\n<\/thead>\n
Earn an income by letting out property to tenants.<\/center><\/td>
Buy a property and later sell it at a higher price.<\/center><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

Though various cooling measures have been implemented by the Government to curb property speculations, or more commonly known as \u201cproperty flipping\u201d, the property investment market is still a good option for investment.<\/p>\n

In Budget 2017<\/a>, the Finance Minister Datuk Seri Najib Razak announced that effective January 1, 2018, stamp duty for property priced above RM1 million will increase from 3% to 4%. This move is to further dampen property flipping activities.<\/p>\n

However, if you are looking to invest in properties above RM1 million, it would make sense to make your purchase before the end of 2017 to save some cost on stamp duty.<\/p>\n

Despite the economy, buy-to-let investors still chase after the same things in their property investment \u2013 good rental yield and capital growth. If you are wondering if it\u2019s still worth your money to be a buy-to-let investor amidst the current sluggish property market, you need to consider the following factors.<\/p>\n

<\/span>1. Find the right target market<\/strong><\/span><\/h2>\n

For the past few years, all everyone could talk about was affordable housing. However, not everyone is looking to buy.<\/p>\n

Young families who are still moving around a lot and has yet to settle in one location may not be too keen to purchase, even if the property is affordable. How about college students who move to the capital city to pursue their education? They will likely rent a room or an apartment for then ext three to four years.<\/p>\n

Global Property Guide reported that condominiums of 120 square metre have gross returns of 4.5%, compared to 8% two years ago.<\/p>\n

For those who are still keen on buy-to-let<\/a>, they really have to do their research well in the location, target market and the property type to determine the best return for your money.<\/p>\n

<\/span>2. Calculating the potential rental yield<\/strong><\/span><\/h2>\n

What is rental yield? Rental yield per annum is the percentage return based on rental income from the property after deducting the costs incurred to maintain the property versus the total purchase price of the property.<\/p>\n

What about capital gain? Capital gain is the gain or loss incurred after selling the property. In short, you will only get the capital gain when you sell your property.<\/p>\n

To determine whether your property is making money from the rental you are collecting is more than just comparing the rental amount with your monthly instalment. There are a lot of other costs involved in owning a property that you must take into consideration.<\/p>\n

If you have decided to target expatriate professionals, and have narrowed down the location to Mont Kiara, a 672-square-foot condominium unit at Verve Suites, Mont Kiara is currently selling at RM750,000. The market rental rate is RM2,800 for a fully furnished unit.<\/p>\n

Some of the property cost<\/a> that may be incurred in a year are the maintenance fee (RM0.33 per square foot), assessment tax, quit rent and mortgage insurance. Let\u2019s assume that the cost of maintaining the unit runs up to RM3,500 a year.<\/p>\n

The net rental yield for this property is calculated as such:<\/p>\n

Net rental yield<\/div>
=[(Monthly rental x Number of months in a year) \u2013 Annual cost of maintenance] \u00f7 Purchase price] x 100
\n= [(RM2,800 x 12) \u2013 RM3,500] \u00f7 RM750,000) x 100
\n= 4.01% per annum<\/b><\/div><\/div>\n

When you throw in mortgage, you will need to add in your annual interest. Here\u2019s how you calculate your rental yield, assuming you are getting a fixed rate home loan for 35 years at 4.60% with a 90% margin of finance. Your loan instalment for the first year is RM38,832.<\/p>\n

Net rental yield<\/div>
= [Annual rental – Annual cost of maintenance – total instalment paid] \/ Selling Price x 100
\n= (RM33,600 – RM3,500 – RM38,832)\/RM750,000 x 100
\n= – 1.16% per annum<\/b><\/div><\/div>\n

Based on the calculation above, the property is really promising for a buy-to-let investment. The monthly repayment for the mortgage at RM3,236 is more than what you are getting for your rental. If you put your money into a fixed deposit account with an interest rate of 4.15%, you can probably get higher return than putting it into the property.<\/p>\n

By calculating your rental yield, it will give you a better idea on whether it makes sense to purchase the property as a buy-to-let investment.<\/p>\n

<\/span>3. Other costs<\/strong><\/span><\/h2>\n

There are other costs involved in owning a property, even if you are not staying in the property itself.<\/p>\n

Property tax<\/strong><\/p>\n\n\n\n\n\t\n\t
Assessment tax<\/td>
  • Flat rate 6%<\/li>
    \n
  • Payable in two instalments<\/li>
    \n
  • Based on annual rental value of the property<\/li><\/td>\n<\/tr>\n
    • Quit rent<\/td>
  • Payable once a year for landed property<\/li>
    \n
  • Rate of RM0.035 per square foot per annum<\/li><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

    Rental Income tax<\/strong><\/p>\n