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Is Investing All of Your Money In Property Assets Wise?

If you are reading what many property consultants are currently discussing about the property market, you could likely come to a conclusion that now is the best time to buy.

From 2016, real estate prices in Malaysia continued to decline into the fourth quarter of 2017. This downtrend also continued in 2018. The declining trend seems to be consistent with prevailing market sentiments.

Uncertainties influence market sentiment, as in the prolonged issue of oversupply of units within the domestic property market or the current trade war between the US and China. Uncertainties revolving around the tensions between the two big economic  giants even seem to cause investors to shy away from Malaysia right now.

As these uncertainties fade, prices in real estate will rise again. According to Savills (Malaysia) Sdn Bhd — a global property consultancy firm — this would occur as soon as the second half of 2019.

Incidentally, more people are already taking increased loans for property purchases this year. During the first two months of 2018, data from Savills recorded some RM14 billion in housing loan applications that showed an increase of around RM1 billion in comparison to the same period last year.

So, within the span of about 10 months before the start of the second half of 2019, you might be thinking, “I had better dump all of my money in real estate while the prices are still hot”.

But wait! Is that a good idea?

We have a real case for you to consider before you turn your liquid money into bricks and mortar. Credit Counselling and Debt Management Agency – or more commonly known as Agensi Kaunseling dan Pengurusan Kredit (AKPK) – has helped hundreds of thousands of financially distressed individuals. Many of these cases involve unmanageable property loans. Here’s one very recent example:-

A couple came for counselling with AKPK. The husband had previously worked with an Oil & Gas company in Kuala Lumpur with a whopping salary of about RM30,000 per month but was recently retrenched.

He now drives for Grab with a take-home income of about RM4,000 per month. The wife currently works as an executive at a local bank in Kuala Lumpur and draws an income of RM7,000 per month.

During the previous property market boom, he had invested in four properties and rented them out for additional income. All of the properties were financed by a few banks amounting to some RM2.5 million with total instalments of RM12,000 per month.

After his retrenchment, he could no longer afford the instalments. He tried to sell off the houses but to no avail as all his potential buyers failed to get financing. He was feeling very stressed and worried that he would be adjudged bankrupt if the banks go to court. That would put an end to his chance of ever returning to the job market as an engineer. Finally, he came to AKPK for assistance.

He had a few options. He could let the banks auction off the properties or sell them off himself via private treaty for a price lower than market value. He could also negotiate with the banks for lower instalments by extending the tenure, during which time, AKPK could assist via its Debt Management Programme (DMP).

Under the DMP, AKPK managed to get the banks’ agreement to restructure the instalment plans. To the client’s relief, he is now only required to pay lower instalments for each of his four housing loans.

The couple’s joint income had proven to the banks that he has enough disposable income to pay the loans. However, for full financial recovery, the client was advised to continue working on selling off three of his properties while keeping the one the couple is currently living in by using his Employees Provident Fund (EPF) contributions to fund the housing loan. As the properties start being sold, the reduction in financial commitments would be reduced or stop his dependency altogether on his EPF funds.

Now, he’s doing just fine.

Don’t get us wrong. Investment in real estate is indeed good especially as an instrument to fund your retirement. The return on investment (ROI) is considered very stable and, depending on location, you could expect it to be always around 10%.

However, the risk of zero rental income is always there and unforeseen circumstances can happen anytime to jeopardise your investments. Like the engineer, you can end up selling off your properties at a lower price than the market value or worse still, end up being declared a bankrupt.

Invest wisely. AKPK has always stood by the principle of making prudent financial management a way of life. Remember to think about protecting your investments – no matter how busy you are in creating wealth. In planning your investment portfolio, look into these aspects:-

  1. Suitable insurance policies and products that can safeguard your investments.
  2. Ease of disposal during difficult times when considering the assets’ risk and return trade-off.
  3. Lastly, and most importantly – diversify your investments into a few asset types, and not just rely on property in order to mitigate risks. So, even when your property investment fails, you would still have investments in other assets that may appreciate at the same time.

Do you have any trouble with paying your home financing? Don’t wait until it’s too late. Call the POWER! AKPK Infoline at 03-2616 7766 today to inquire about our services. All of our services are FREE to individuals.

Alert:- AKPK has never appointed any third party or agent to represent AKPK and/ or render services on its behalf. Don’t be duped.

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