Why land investing?
• Raw land is a limited resource; even in Malaysia where land is abundant; not all are suitable for development due to geographical constraints. The only way to ‘create’ land is to embark on reclamation, which is complicated and costly to undertake.
• The country’s population is only going to go up – According to the Department of Statistics, Malaysia’s population stood at 31.2 million in 2016 and by 2040, this figure is expected to grow by 33% to 41.5 million. As population increases so does the demand for housing.
• Property developers are constantly on the hunt for the next best area to build a township or strata development. Depending on your land’s location and its proximity to the development site, its value has the potential to increase exponentially. Take the Jalan Tun Razak area in KLCC – land there was going for roughly RM50 per sq ft in 1996. In 2015, Affin Bank Bhd purchased 1.25 acres of land in the Tun Razak Exchange (TRX) for RM4,700 per sq ft in 2015; that is a 9300% jump in less than 20 years.
• Because land is a tangible asset, it circumvents fraudulent behaviour. Investors can carry out the necessary background checks and asset evaluation themselves.
• Individual investors can latch onto the potential of low entry costs as well as the leveraging power that land investment presents. While some amount of money is required, contrary to what most people believe, investors need not fund for 100% of the purchase price. For instance, I I bought a plot of bungalow land (residential use) in Country Heights, Damansara for RM200 per sq ft in 2011. I obtained a 90% loan financing from the bank – the land value is now easily worth RM500 per sq ft.
• Land requires much less if not negligible maintenance as compared to other property classes such as condominiums or office lots. There are no tenants to look after, maintenance to worry about, etc – It just sits there and well, behave!
With the local property marketing bottoming out, is now a good time to invest in land?
There is no good or bad time – you buy land and wait, you do not wait to buy land.
The best upside to land is how resilient it is; even in economic downturns, its value will not experience any significant drop or stagnation.
Prices might see a temporary dip between 10-20%. But when it comes to appreciation, it’s a different story – ‘it’s a case of when it rain, it pours”.
What can landowners do to obtain the best returns from their investment?
The best exit strategy for land investors is to purchase land to sell it off for commercial or residential development. Nevertheless, considering the current economic climate, it is much more strategic to have a joint venture deal with developers.
Developers enter into an agreement with landowners where the owners retain ownership of the plot while the former erect a building (homes, offices, etc) and offer a few property units as compensation to the owner.
This profit sharing agreement could see owners receiving real estate of their own or cash considerations in staggered payments or maybe even both. Developers, on the other hand get to save on term loan costs, i.e. bank’s interest payments; making it a win win for both parties.
This JV arrangement is gaining popularity in Malaysia – On the back of an economic slowdown, both parties are more willing to explore such creative endeavours. Owners are able to utilise and reap the rewards from their asset whereas developers are able to cut down on development costs while capturing current consumers’ demand.