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Time for Out of the Box

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…because times are bad – the perennial quote these days.

By Ivan Tan

It is at this very point of our property journey where it’s no longer useful just lamenting about the bad weather. We have in a way brought it upon ourselves – the crazy schemes and the jaw dropping prices. Our mad rush motivated by greed at (most) times have fanned the prices forward, in direct opposite proportions to the size of the properties, inch by inch, square foot by square foot, Ringgit by Ringgit. Today we see more shoeboxes called homes, priced so high your parents’ hearts will skip a beat. This made us wonder if we’re styling after Hong Kong and Japan for the wrong reasons given our vast mass of land.

Is the government to be blamed? Are the developers at fault? How about the bulk gangs? And the authorities, aren’t they tasked to prevent things from going wrong? To be honest, everyone has a role to play including the estate agents, valuers, surveyors, banks, authorities, the media – yes even the media.

For me personally, I’d blame the Boleh spirit for going too far. It stirred the market into some sort of property gangland frenzy where your bargain is as good as your gun. By gun I meant your boldness to shoot beyond the law. Why? Because Malaysia is a place where the law is used to playing catch up. Case in point, SoHos made lawmakers looked like bozos before they found its place. Question: isn’t it funny then how SoHos entered the market when developers were required multiple approvals before launch?

More than one year now after the Mayan’s prediction failed and the blood moon season is in place, our market is abuzz with new questions. People today are asking if we’re facing the end of the good times, they’re asking if property apocalypse is imminent, can we still invest now? What can we buy?

Enter the new era of Property Malaysia. After one quarter of 2014, we face tightened bank lending, DIBS removal, increased RPGT, curb on bulk purchasers, Build-then-Sell in 2015 and the GST too…if Singapore and China’s cooling controls are of any measure, more roadblocks are definitely on the cards. This be the case, where then can you park your money?

We remember back when our high rise residences could yield 11 to 12% in rental, especially so when they are located in prime spots furnished with decent maintenance. Note: decent. Today unfortunately you may have to be contented with 5 to 7%, in fact as low as 3% too around the hottest spot of Malaysia – KLCC; certainly a far cry from its heyday. Where then really can you scout for something that still fetches double digits?

A Sweet Spot

Solidly built and can be yours at North Rosedale Park with three bedrooms in Michigan.

We go half way across the globe for this in a place called Michigan in the US. It presents a bright ray of hope for great returns from three palatable perspectives: rental yield, greenback’s potential, capital appreciation.

It is a collection of secondary properties undertaken by Real Time Investment to refurbish, get it tenanted, invite investors and fully manage thereafter. Investors can expect a guaranteed 12% rental yield too in the first two years.

Real Time Investment or RTI, headed by its Director Javier Valiente, is a specialist in this very niche practice. He leads his team into Michigan for the great opportunity that the city provides – readily available rental demand, a steady and growing urbanization, pull of the auto industry (GM, Ford, Chrysler), a growing technology and medical industries as well as a global top 20 University of Michigan.

“We believe that Michigan has more potential for upside than New York, Los Angeles, Atlanta or Miami,” Javier compares. “House prices in Michigan suffered a far more dramatic collapse than most others in the US and are now rebounding at a faster than average rate.”

What is great about this investment is that it is virtually a hassle free one where you as the investor need only understand the investment processes in the beginning and just sit back thereafter, relax and begin collecting rent. You will also receive full title of the property which secures your full legal ownership.

“Our properties are fully detached single-family homes with three to four bedrooms. They typically cost $55,000 to $75,000, depending on where they are located.” At this price, it is already less than half the cost to build a brand new home in the States.
“We select brick-cladded buildings which are in very good condition structurally. This keeps our investors’ maintenance bills to a minimum.”

RTI is selective where it adopts the top down approach by “targeting districts, neighborhoods, streets and then individual properties in that order. This way we ensure that our properties are in popular residential areas with strong housing demand.” This according to Javier goes back to the core of a property and that is location.

A decent double story home in Michigan with nice little yard in front.

Javier’s team is also on site to manage the properties from rent collection to repairs and maintenance. Should the tenant vacate or ends his tenancy prematurely, RTI proceed to seek a replacement immediately. According to him, the longest his company ever took to replace a tenant was about three weeks, which otherwise only require two weeks tops. This is possible because his outfit had already built a rental wait list over the years and yes, the 12% guarantee covers this replacement period.

More about your returns is this, “This is an exceptionally high yield, especially as investors can also benefit from house price appreciation, which was into double figures across our target markets in 2013.”

Whichever way you look at it, the proposition is sexy because no such thing ever existed within the stratosphere we breathe in, rare even if they did. For RTI, to ensure the guarantee remains intact and secured, funds matching the 12% is deposited into an Escrow first. Should the rental collection falls short, guess what? RTI makes up the difference.

“These types of return have been made possible by the housing market crash that occurred in the US from 2006 to 2010. While prices plunged by around 40% nationally the rental market remained at a similar level, meaning rental yields became unusually high. Now prices are rising quickly but remain well off 2006 levels.”

The good collection of properties in his stable is growing at a healthy pace and so are his fans as RTI make inroads into Singapore and Malaysia. Already there are enquiries from China and Sri Lanka.

A Strange Own

Through fractional ownership, it’s possible to own a piece of this luxury midtown Manhattan private residence by M Private Residences Orion.

On a different plane completely, we take a look at opportunity to own one or more properties with friends as well as strangers. Yes, you can legally co-own a property with people you don’t know in what the industry calls Fractional Ownership.

Typically, in a fractional scheme, the subject properties tend to be in the resort or luxury segment. Such properties while desirable never tended for long term ownership by single individuals unless you’re a royal Sheikh or another Dell or Gates in the top league. And for the same reason, the 5-star beachfront or ski mountain villa remain elusive.

But not to be confused with Time Sharing, where you only possess the privilege to utilize properties within the portfolio but never really owning it, when you enter into a Fractional Ownership contract, you are given a deed of ownership. This ownership is recorded in the local registry says Nick Copley, President of the SherpaReport, a guide to shared luxury property.

“Fractional ownership is a way for people to buy just the amount of vacation property that they will use. At the same time these homes are free from the traditional worries and costs of a single-family residence.”

According to Nick, such fractional properties can be found around the world.

“For instance in North America there are several hundred developments. They can be found in ski resorts such as Aspen and Vail in Colorado and Deer Valley, Utah. By beaches in Hawaii, Florida, Costa Rica and Bermuda. In cities such as London, New York, Paris and San Francisco and in leisure locations such as Tuscany and Scottsdale, Arizona.”

With fractionals, you’ll have the chance to sit here overlooking the Anguillan shoreline.

The entry cost however is not cheap. On the top end of private residences clubs, they can come in the hundreds of thousands of dollars for a share or counted weekly at almost US$70,000 per week although “prices for regular fractionals average about $20,000 per week in North America,” Nick points out.

“New fractional ownerships are generally bought from the developer. Resale fractionals are sold on the real estate markets by realtors.”

He went on to say that aside from individual ownerships, there are Fractional Ownership funds that buy in. This gives them a breadth of properties across different locations. Such funds operate anywhere between US$100,000 to over US$400,000 but the amount required depends largely on the attributes of the properties.

“The primary reason to buy in is the fully serviced, relaxing, vacations, especially when compared to owning a whole vacation home. With fractionals, a management company takes care of all the maintenance, repairs, insurance and taxes.”

Such convenience does come with a bit of a price other than the hefty bill to own. This is where Nick prefers to neutralize the subject as he enlightens, “Individual fractionals shouldn’t be viewed as a financial investment.

“Fractional ownership funds may offer a financial return, but none of them has started to sell off their homes, so it’s too early to tell.”

As the saying goes, there’s always a silver lining. And this silver lining could just be waiting for its time to head north again or perhaps east to where we’re at. Malaysians nevertheless would question the relevance of such US graded or European properties, especially when prices seem high for the fractional ownership. And did we mention no financing for Michigan while it may be limited financing for fractionals? Here’s where it gets interesting.

Box Out

Located in Warren of Macomb County, it’s where GM Technical Centre and Chrysler call home.

From our friend Javier’s properties, truth be told, his product is not new. In fact business has been good since 2008 and properties by RTI do present a return that trumps most you see in the market here now, even those in Singapore. Not that I’m against buying local properties, in fact I encourage that you do. But the point I’m trying to make here is that Javier’s offerings present a 12% guaranteed rental yield as a handsome reason. This coupled with having something in the US that will be well managed, and managed too by a seasoned hand, the money invested may very well appreciate another fold if the greenback decides to buck up.

“We believe there is strong potential for growth in the single-family housing market. As the US economy continues to strengthen and conventional mortgage financing becomes more readily available, prices should continue to rise, even if not at such a high level as they are rising at the moment,” and that’s a conservative forecast coming from Javier.

As for the fractional ownership, we can look at it from two varied perspectives. The first, if you have already exhausted all ideas to invest because you own a Tokyo condo, a Hong Kong penthouse and do not fancy a Shanghai villa anymore, then it’d a good idea to explore fractionals.

An evening by the Anguillan shoreline from the four bedroom villa in Jopsey Bay, British West Indies, part of the Equity Estates Anguilla.

“The North American market peaked in 2007, but then dropped significantly during the recession. It now seems to have stabilized, albeit at a much lower level,” Nick imparts.

Secondly, and this is more for the industry players such as the developers, banks and lawyers. If your products haven’t flown off the shelves like it did in the recent years, then you might want to consider adopting the fractional scheme. The trick to this game I believe rests on good planning, governance, implementation and the management of the ownership, and its contract. Buyers are as such offered another avenue to own something and conceptually different from what the market is already crowded with. The banks, lawyers, estate agents? This is potential revenue stream from the already tight market place. But you might ask “what about the legal framework?”

Good point. We know too well that the work around in Malaysia, and for that matter, any enterprising growing country is similar – the onus is on the player himself. Make a successful case out of it and the guys from Putrajaya to Parliament will hunt you down for your framework so that it can be presented as the blueprint for “their proposed framework” to pass it as law. Now if that’s not Malaysia Boleh!


For more information, visit www.realtimeinvestment.com and www.sherpareport.com