Are you trying to decide between making an investment in a unit or a house? Well take a step back, because there are a few key factors that you should consider first.
In some locations, a house may be a better option, in others an apartment may reap better gains. So to make the most of your hard-earned money, you really need to do your research before you invest in either type of property.
Comparing apartments and houses as a property investor is like comparing banking stocks and medical stocks as a share investor. It is all dependent of the state of the market, whether that be the property market or the stock market.
But when it comes to property, somehow people get sidetracked by the fact that property is a tangible asset, one that we can see and touch.
What’s important is for the investor to not focus on the property itself but instead to focus on the market. What actually grows is the economy. A property itself is a static commodity; it’s the market around it that grows.
Here are the top three considerations to check off before you begin to weigh up which property type to go for:
1. Economics: Assessing economic drivers in detail will lead you to narrowing down the right property market. What is happening in a particular market? What drives the economy? Does that particular industry have staying power? Which towns and cities have the potential to create jobs in the future?
2. Supply and demand: Check the investment statistics of your chosen market. How many houses are there and how many apartments are available? How many houses and apartments will be available in the future? Because property investment is a long-term decision, don’t just look at what’s being built, but also at what’s been approved. There may be an undersupply now, but if a planned community has been approved, that may mean an oversupply of apartments or houses in the future.
3. Affordability: As an investor your objective is to make money. To do that you need to buy properties that are in-demand. And the number one driver of competition? Price. Contrary to popular belief, demand for highly desirable, high-end suburbs is not as high as the more “meat-and-potatoes” type suburbs.
If you refer to these key factors when considering a property investment, you’ll then be in a position to weigh up which property type to choose.
Once you’ve reached that stage, there are certain risks and advantages you need to know.
Investing in Apartments
Apartments offer an affordable entry point into the market, in locations that may be beyond an investor’s budget if they were looking at houses.
Highly sought-after (inner-city) locations are more attractive to tenants; offering higher rental yields and investment security. The potentially lower price point may also allow an investor to build up a diversified portfolio quickly.
Another advantage of investing in an apartment in a strata scheme is that insurance, maintenance and upkeep are provided by the building management team.
If you own a house, all maintenance issues are your responsibility, whereas the maintenance and care of an apartment building and its surrounds are the responsibility of the building management team.
To avoid big complexes with features that tenants are drawn to, like lifts and swimming pools, because they will force the maintenance fees up considerably. These are the features that when need replacing cost a fortune.
The specific size of the building is important, but it changes depending on the location. In Air Itam for instance, a complex with 200 apartment units is not considered big, but in George Town, that would be considered a monstrosity due to the shortage of lands.
Try not to get too caught up on whether or not the property has a balcony or a courtyard – that doesn’t necessarily make it a bad investment. If there is no demand in the market for those features, then it’s not important.
Investing in Houses
When it comes to houses, you have to pay 100% of the insurance and 100% of the maintenance and upkeep fees. Every single thing that happens to the house is your responsibility.
If you own a house, all maintenance issues are your responsibility.
Our clients had instances where they have had to fork out money for a roof. When those things are needed for an apartment, you get the benefit of economy of scale.
(With an apartment) you’re paying maintenance fees in lieu of the general maintenance and insurance outside you’re apartment. That’s probably a comparable cost.
One advantage to keep in mind when considering a house, is the value of land.
Land appreciates over time, so even if all you can afford is an outer suburb house – it could be a wise choice, provided you have assessed the supply and demand, affordability and economic factors outlined earlier.
So you’ve looked at the pros and cons of investing in houses and apartments, and you might be ready to dive in, but is there a right time to buy a particular style of property?
Apartments vs Houses in Today’s Market
The answer to this question is always the same. There’s not so much a good time, as a good market.
It’s important for the investor to refer to economic drivers and affordability. This will lead to a particular market. Then look at the supply and demand for apartments and houses in that market.
It is true, however, that as a nation Malaysia is building (and buying) more apartments than ever before, particularly in Penang and Kuala Lumpur.
But some of the regional locations (i.e. Alor Setar in Kedah and Butterworth of Penang) are actually building at the normal rates, and some have lower unemployment rates.
There’s a misconception that regional means risk. That’s just an assumption formed by naiveté from people who haven’t lived in a regional area.
House or Apartment?
Again, there’s a place for both houses and units in a property investment portfolio, depending on your circumstances. Houses in growing areas tend to experience higher capital growth than units or townhouses due to the land content.
The downside of this is that the rental yields compared to the value of the property are often lower than that of an apartment.
Also, a house versus an apartment in the same location is generally going to be more expensive, which means it will impact the investor’s ability to keep borrowing to acquire further investments.
Investors should “tread carefully” when considering buying a new apartment near capital cities due to oversupply issues, particularly in Penang and Kuala Lumpur.
New or Established?
Most advice around property purchasing indicates older houses or apartments have better potential for capital growth, however, it’s a case of horses for courses.
Established homes are generally more likely to have their own land, which can provide huge boosts in value. They also have better scope for negotiation on price, and further value can be added through renovation, subdivision or development.
But properties that are old will prevent you from claiming defect liability “warranty’ from the developers, and will attract lower rental yields and higher maintenance costs.
New properties, on the other hand, comes with defect liability “warranty” benefits and much lower legal fees if bought off-the-plan. When a new property is ready for key collection, the developers in Malaysia will provide a “warranty” in case of defects. This can help with balancing the cash flows of a property and in some cases, making the property cash flow positive.
Investors must ensure they thoroughly research their potential investments, particularly if the property is in a newer area with limited data on sales data and historical growth.
Whether you are buying, selling, or just plain interested in real estate,
connect with Penang Property Angel today for professional assistance.
