The Edge Investment Forum on Real Estate 2018: Property investment is not for the passive investor

This article first appeared in City & Country, The Edge Malaysia Weekly, on April 16, 2018 - April 22, 2018.
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If you had heard Chris Tan, the founder and managing director of legal practice Chur Associates, talk at the recently concluded The Edge Investment Forum on Real Estate, you would have thought he was a motivational speaker. Indeed, he had the rapt attention of the more than 500 people at the forum, held at the Sunway Convention Centre on April 7, as he peppered his presentation with funny anecdotes.

But though he had his audience in stitches, Tan’s topic, “Caveat Emptor: What you should know before you invest in a challenging market”, was no laughing matter. He gave everyone food for thought and a clear message: Get off your butt and move it to invest in property with a specific purpose.

Earlier, Raphael Wong had shared his thoughts on millennial expectations, for example how they usually rent a unit that will give them an experience. Tan expanded on the fact, saying that an investor had to make his unit “sexy” to attract these potential tenants, who form the largest demographic group in Malaysia at present, and that to do so took a lot of thought and action.

“Property investment is no longer a passive game,” he asserted. “It can almost be a full-time job.”

 

Know your market

Tan could not stress enough the term “caveat emptor” or “buyer beware”. He said investors had to be aware of the market and specific about which properties they wished to invest in this year.

He first established the current property market situation and highlighted the present trend of people renting rather than owning property.

“It is a buyer’s market, which also means a tenant’s market or a user’s market,” he said. Tan referred to everyone in the convention centre as a buyer with the opportunity to make money from property investment.

“If you want to prosper in real estate, there are only two ways to do it — through rental yield or through property appreciation,” he said. “In the last 20 years, you could have ‘won’ in both these categories. But moving forward, you have to choose one.”

This assertive outlook resonated with the audience who agreed with Tan wholeheartedly but his next point cemented it. Tan highlighted that one could not “wait and see” any more but had to “walk and see”; to make something happen rather than wait for something to happen. In other words, be proactive.

However, he cautioned, “You must always buy within your means. Don’t listen to people saying buy affordable housing. What is affordable to you may not be affordable to others. Affordability is not an objective concept, it is subjective. You must know what is affordable to you.”

 

Tools of the trade

Tan emphasised the need for investors to ask a lot of questions and drill down to the core reasons for investing in property. He provided a list of questions to ponder, using the 5Ws and 1H system. What is the condition of the product? Is it under construction? Will it be delivered soon? Is it already built? How do you want to buy the property? Outright purchase? As an individual or collectively?

Tan also revealed a new system devised to help investors see if they can invest in the property they have their eye on. He called it the 5S system.

“The first S is Specific Purpose. You must know why you are buying a property. No 2, always do a Stress Test. Ask yourself, can I still pay for the property after six months of no income? We don’t know what is going to happen in the future.

“No 3 is Self Improvement. You need to have the latest information and what questions to ask. Don’t go and ask primary school questions like, leasehold or freehold? Does it matter?

“The next S is Speculation Control. Is the information you are getting to make an investment decision speculative or a real fact?

“And Shop Frequent. Look at different products and see what is the best offering you can get.”

Tan then moved on to reintroducing a tool he had shared at last year’s forum: the Buy, Sell, Use (rent) and Borrow tool which is loosely based on Robert Kiyosaki’s Rich Dad Poor Dad’s Cashflow Quadrant on wealth creation. Tan’s version looks at the four elements of property investment.

“There are only four things you can do with your property — buy, sell, use or rent or borrow. There are only two ways to earn money — through rental yield and property appreciation. The more you know about how to use your property, the better off you are,” he said.

 

Finding the resources

Besides knowing what to do with one’s property, Tan encouraged the audience to find out what resources were available to them to invest in property. He highlighted four specific areas.

The first is people, like team members, family, friends or fans, people who like you. “They could be your potential partner in investment or a potential user of your property,” he said.

The second is financial, be it money or money equivalent like credit terms or property charged to the bank for cash. Next is assets like real estate, plant, equipment or tools of trade; and existing business.

“Some will ask, ‘Chris, I am working, I don’t have an existing business’. You have business! The area that you work in is your business, so you look at your customers, suppliers — people who you build relationships with,” he said.

He then asked how many among the audience had utilised all the resources he had listed. Not surprisingly, no one raised a hand. In response, Tan gave everyone some homework. He asked them to draw four boxes and use them to determine which resources had been overlooked. Arranged in a cube, the boxes were titled “Use, Don’t use” on top and “Have, Don’t have” on the sides. The audience was asked to fill the boxes accordingly.

“Look at the category where you have the resources but don’t use them,” Tan said. “That is where you should look so you can buy more investment property and be a smarter investor.”

He also advised everyone to redefine the “have” resources from owning to controlling. “You don’t have to own the cow to control the milk,” he commented.

“You have to ask yourself what you are actually after. Remember the ‘have’ and ‘have not’ options? Sometimes, ‘have’ does not mean own, it only means control. So when I say, change the ‘have’ from own to control, what happens? You have more options.”

Before ending his talk, Tan advised the audience to never stop asking proactive questions that could lead to a better deal.

“Like Steve Jobs, always push back the boundaries and try your luck,” he said. “You have to ask questions to try your luck. Today, you have motivated sellers and so you can ask for more favourable terms like, can you pay the down payment over three months or ask for more rebate. The worst that could happen is they will say no.”

Most importantly, he stressed, improving one’s self is vital in property investment.

 

From the audience

When it was time for questions from the floor, the first was whether it was possible to renew the lease on a leasehold property before it expired.

“Yes,” said Tan. “Every district has its own policy and is not governed by law. Find out from your local authority about how soon you can do it. There are many instances where you can renew before the lease expires. I have done it before, so I am speaking from personal experience.”

The next question was: “Is it in compliance with the National Land code?”

“Land is a state matter. The state government has total authority over land matters and it is stated under the Federal Constitution,” Tan replied.

Another question was whether one could sell one of the allotted parking bays in a condominium to another resident.

“If the title is out, the car park is attached to the main parcel. In a strata title situation, you cannot carve out the parking space. If it is done, then it becomes a problem as it will no longer be an accessory parcel but the main. The simple answer is no. But if the strata title has not been done, you could still ‘influence’ the developer into doing it differently,” said Tan.

All in all, Tan’s key message was to not “wait and see” any more but to “walk and see” because property investment is not for the passive investor but the active.