I have the privilege to learn about Malaysia's Bank Lelong (open auction) system over the whole of last week.
It was quite an eye-opener.
In bank lelong, the property is first launched at market value minus 10%. If there are no takers, the next lelong is at 3 months' time marked at last auction price minus 10%. This will go on until the property is sold. Some property lelong can go on for years.
Every malaysian new to property investment can buy one low-cost housing and limited to one. If he/she needs more, he/she needs to apply for permission. Usually, subsequent property purchase cannot be low-cost housing.
Due to limited space, I shall focus on low-cost housing first. When I get to normal property investment, I will then go into its details.
Low-cost Housing
Condition - The condition of some of these low-cost houses on lelong are so bad that no one is willing to bid for them.
Purchasers - Interestingly, there are 2 groups of low-cost housing purchasers - investors and normal first-time buyers.
Well ... Malaysia always boleh ...
Some of these investors can buy up to tens of such low-cost properties. I wonder how? But, the amount of money to be put up to improve the house is normally quite prohibitive. So even investors are also extremely cautious about buying the next one.
As for individual first-timers, they wouldn't dare to try as they usually don't have the cash to renovate the house after buying.
Rent - For properties that are on the bank lelong for a while, they are normally not rentable, even if the condition of the house is tip-top. It is only good for owner occupation.
Location - Location is everything. Many such lelong properties are in very good location. But, its current condition puts many people off.
Price - Some of the prices can go as low as RM16 psf in very good location (much better than Penang). While their neighbours are still try to get RM130 psf with good or reasonable house condition. Even some normal properties are going at RM7.5 psf in not too bad location.
Penang's chief minister has just sold a 105-acres land for RM240 psf. So since these properties are much better located than Penang's properties, it can't really go very wrong.
Normal sub-sale prices are marked at market value plus 33%.
Title - The title is good as it is the high court that allows such auctions to be carried out by the bank. Freehold.
Transaction - Normally full cash position is the safest. It takes 10% and 90% three months later. Bank forbids such financing as they fear the next purchaser of such ill-repute purchase.
Advice - Even my datuk partner advised me against such purchases.
Contradiction - Why then if the property is in good location, then it should rightfully be rentable. Although some of these properties are in very good location, its neighbourhood is still in general state of disrepair, hence causes the said property to be quite unwelcoming to the renting community. One has to wait for a while for these other properties in the neighbourhood to be in better shape, before the rental demand goes up. Therefore, property investment is never for the faint-hearted, but deep pockets.
Saleable - If the property is not rentable, usually it will not fetch a good price. One has to wait.
Utility - It is usual for such property to engage in some form of industry.
Conclusion
Don't let the physical look of the property deceives you. It has deceived even the best investors. See value where no one can appreciate. Don't be the herd but be the leader. Dare where no one dares. Even if it is a total loss. It is only RM16 psf for a very small piece of landed freehold property, i.e., 1k land = RM16k, 2k land = RM32k, 3k land = RM48k, 5k land = RM60k, 10k land = RM160k. What more if it is only RM7.5 psf?
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