5 Benefits of Investing In Real Estate In Malaysia
First-time home buyers stand to benefit from investing in high-rise residences.Many people are aware there are benefits to investing in property. For first-time buyers, it is worth revisiting the pros of investing in the property market in Malaysia, specifically high-rise residences.
Here are five key reasons to invest in real estate.
1. Rental income By renting out your unit, you are able to receive passive income in the form of rent. This income is useful to pay off your mortgage, thereby reducing or eliminating the cost of funding your property investments.
Rental income is also leverageable, meaning it is recognised by bankers as a legitimate source of income, which will be taken into consideration when it comes to more loans in the future.
2. Tax advantages
While you do have to declare rental income in your tax return, the amount takes into account deductible expenses such as interest on the mortgage, fire insurance premium, quit rent and assessment, and others.
So, if you are a young property investor who finances 90% of your property with a mortgage, it is likely you will record a small rental loss from the investment property and, therefore, will not have to pay anything in terms of taxes.
3. Boost to net worth
Let’s say you have RM50,000 in cash and intend to invest in a ready-built apartment unit in Bandar A.
The median price of apartments is RM500 per sq ft (psf). The apartment you are looking at is 800 sq ft with a market valuation of RM400,000, but the seller offers it to you for RM360,000, which is RM450 psf.
You place a 10% down payment of RM36,000, pay RM14,000 in transaction costs, and borrow RM324,000 in mortgage with monthly installments of RM1,247.
Investing in a property that is below or on par with the median price of a location can boost your net worth. In this scenario, you had an initial net worth of RM50,000. After the transaction, you have a property valued at RM400,000 with a liability of RM324,000, giving you RM76,000 in property equity, thus increasing your net worth by 52%.
4. Future capital appreciation
Assume your property appreciates at 2% per annum from its market valuation of RM400,000. By year 10, it would be worth RM487,598 or RM609 psf.
In the meantime, you would reduce your outstanding mortgage to RM262,945.
Thus, your property equity or net worth by year 10 would be RM224,653.
This only applies to properties priced below or on par with the median price of similar properties in a good township. If, for instance, you bought a property in Bandar A at RM1,000 psf, you would likely experience a fall in price after 10 years as the median price would not have appreciated to RM1,000 psf in that time.
5. Reduction of debt
Debt is a form of capital for real-estate investors and can be interest-free. If you were to pay RM1,247 a month in mortgage instalments, 60% – or around RM750 – would be interest payable to the bank.