10 Essential Must-Know Strategies in Property

Management & Mortgage Leveraging

by Adrian Un

10 Most Important Techniques When Investing in Property

1) Perform due diligence on all stakeholders
1. Developer

Things to look up for when buying primary property from developer (under construction):

- Track record in property construction/ past experience in property development

- Their financial: cash flow

- How to know this information? Call and ask your respective bank- sometimes friendly bankers will
reveal and tell you the reason(s) not financing that project

- Reasons:

● Director may have pending legal sue against him/her

● Blacklisted (can be checked at ​
http://www.kpkt.gov.my/​
)

- Who are the banks that finance this project.

2. Lawyer

- When buying sub-sale properties, be selective on who/ which lawyer that you appoint

- Banks do not like to engage with lawyer without expertise

- Criteria to look for a lawyer before engage a lawyer to act on your behalf

● are they partnership or sole proprietor

● partnership: banks will actually agree
● sole proprietor: maybe banks will not allow the lawyer to act on your behalf on loan
agreement

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 ● partnership: be in existence for more than 3 years; the partners themselves should have at
least 5 years’ experience, each one of them preferably; professional indemnity should be
minimum one million

3. Real Estate Agents

- Registered agents

- When you issue a deposit, one of the most common practices by illegal agents is that, the agent asks
you to issue cheque to personal account instead of company account

- Reason? Charge 6% GST- waived and they are gone with your money. Don’t fall for this.

4. Vendors

- Vendor=seller

- Sub-sale property

- No opportunity to meet vendor; lawyer/bank will call you

- Before the agreement is signed, know the IC no. and name of the vendor

- Ask your lawyer to do a search on vendor to find out whether there is bankruptcy summons against
him or legal sue against him

- The last thing you want is to buy a property from a bankrupt , you will not be able to get hold of your
property

2) Investigate the demographics of chosen location

Population size

● southern part of Kuala Lumpur is generating a lot of interests; a lot of migration, people from
different suburban, a lot of infrastructure and transportation etc attracts certain population

Age group

● certain location generally preferred by certain age group

● example: Damansara Perdana attracts certain segment of age group; if you ask a youngster to
buy a property at SS2, PJ, they probably won’t be interested: old neighbourhood, nothing sexy

Income level

● income per capita of the population in a certain area is critical

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 ● example: estimate the income of someone staying in Taman Medan, near Old Klang road;
their income per capita is generally medium-low to low

3) Determine accessibility
- Critical

- Accessibility will increase human traffic to a certain place

- Human traffic- population grows- a lot of demand & supply

- Example: Can see but cannot reach?

● Menara KLH Condo Puchong

● PJCC
● Merchant Square
● Kelana Jaya

4) LRT and MRT means differently to different population target segment

- 40% of our middle income class has to invest in area where the connectivity will lower down the
transportation cost

- Extension of LRT and MRT will boost areas within 800 metres- booster for your neighbourhood

5) Check surrounding chosen location for upcoming launches

- How much the existing building? How much are they selling? –to find out whether you are paying
above the market or below

- Any upcoming launches that will potentially block the view- can ask the developer

6) Check for negative marketability factor (MF)

- Marketability factor is a term coined by bank with cooperation from valuers

- Banks are very concern if you are going to buy property that has a MF lower than 6 (on a scale
between 1-10) - your property is not favorable by the bank

- Before you get your loan approved, banks usually will call the valuer to find out the MF

Example: the MF of KLCC area ranges between 8-10, good MF; buying property in Batang Kali or Sabak
Bernam, MF less than 5

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1. Close proximity to graveyard, rubbish dump, sewerage pond, highly polluted industrial area,
landfills

2. Flood-prone area

3. Located on hill slopes or close to hill slope of landslide area

4. New village type of houses (e.g. semi-permanent house- wooden, half brick half wooden)

5. Non-conformity of building/ land use. Residential property used as commercial

6. Properties used for temple, church, storage yards or illegal activities

7. Properties with visible physical/ structural defects

8. Properties where bank has experienced aborted auctions due to poor marketability

9. Close proximity to petrol station, abattoir area, animal breeding farm

10. Bungalows that are individually built and valued above RM10mill in non-prime location

7) Where to buy/buying sub-sale?

- Where to buy?

● Have you tried exploring your own neighbourhood?

● No one knows your neighbourhood better than yourself
● Why don’t you consider it as your property investment location
● Consider your existing neighbourhood before you actually look else where

- When buying sub-sale, perform:

1. Land search to check title

2. Speak to the immediate neighbour to find out reason for sale by vendor

8) Be cautions on Guaranteed Rental Returns (GRR) Scheme

- “If it sounds too good to be TRUE then it probably IS.”

- Check the exit clause offered by developer

Clause:

The developer has right to terminate the GRR Scheme by just giving you 2 weeks’ notice- little risky

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9) Buy in “NOTORIOUS” areas
- 24-hour business

- Double-parking

- Night life

Examples:

● Cheras
● Kuchai Lama
● Bandar Baru, Sri Petaling
● Seksyen 7, Shah Alam
● Taman Desa
● OUG

10) Rental On Investment (ROI)

- Be prepared for lower rental yield (between 4-4.5%) during this tenant’s market.

- Hope for capital values appreciation due to inflation and compounding rate of return (5-6%)

Understanding Forensics Mortgage

- helps you in loan approval process

Profiling of a Good Leverage Customer

Basic Guidelines for Pre-Approval
- Loan amount determined based on Property Purchase Price or Property Current Market Value?

● Property Current Market Value

● Want to buy a property worth RM1 million, real estate agent quote RM1.2 million
● Before you issue cheque, please call your bank and ask bank officer what is the estimated
market value of the property you are going to buy
● Don’t be surprised if the bank tell you price’s lower than what you have expected
● Implication: if you want to buy at 1 mill, your bank only value the property worth 900,000
● If you are asking a 90% loan, it is 90% based on market value (RM900k), not purchase price
● Hence you need to top up the difference of 10% from your own pocket

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- Sufficient income documents to support

● File it properly
● What your source of income
● Documents to justify

- Mortgage Debt- Total Debt Ratio <=70-80%

● DSR-Debt Service Ratio

● Your total debt outstanding in Malaysian banking system/your net income

- CRRIS <2; No CTOS

● Must not be 2 months late in your loan repayment

● No legal sue against you

- Property Purchased Not in Negative Listing

What Bankers Want?

It’s not how much you earn; it’s what you can prove!

- Make sure you have a good credit report

e.g. don’t apply for loans if you have huge outstanding credit cards, e.g Credit Limit RM10,000,
Outstanding RM8,000- Pare down below 80%

- Get your documents in order

- Don’t go on frenzy buying spree within a short time frame

- Avoid joint purchase with friends

- Don’t submit “make-over” income documents

● Banks share information with each other

- FDs/Unit Trust/Foreign Currency investments don’t guarantee approvals but it helps if your case is
borderline

- Don’t over leverage without rental income to substantiate

- Check & update your CCRIS record regularly

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 ● fresh graduates: apply for credit card first

- Clean CCRIS record may result in rejection (nothing to show in CCRIS is bad too)

- If business is established less than 2 years, don’t apply for mortgage because banks won’t lend to
you.

10 most important strategies on leveraging

1) Leverage based on your affordability

Net income

2) Perform stress test

At interest rate of 8%, can you still afford it?

How long can you hold without rental income?

3) Understanding Banks’ acceptance Debt Service Ratio (DSR)

What is Debt Service Ratio?

- Banks look at Debt Service Ratio to measure your ability to repay the loan granted

- Debt Service Ratio (DSR) = (Total Monthly Financial Commitment/Total Monthly Net Income) x 100%

- The lower the ratio, the higher your chances for loan approval

- Banks will total up your monthly instalments payable, as well as 5% of the total outstanding of your
credit cards when determining your DSR percentage

Banks acceptable Debt Service Ratio is:

- Net Income RM3,000 and below <60% DSR

- Net Income RM3,000 and above <85% DSR

4) 150% Debt Service Ratio (DSR)?

Prove liquid net worth above RM1 million

i.e. EPF/Savings/Current Account/FD/Shares/Unit Trust/Foreign Currency

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 ​​& subsequent properties?
5) 90% Margin of Financing (MOF) for 3rd

Guarantor Scheme

● assuming I have 4 properties, all got loans from bank, my wife has one loan under her name
● I would like to buy a new property, but I know I only qualify for 75%, so what do I do?
● I have strong income but my wife doesn’t, I can buy the property under my wife’s name and
the sale and purchase agreement under my wife’s name, loan application under her name as
well, and I can be a guarantor

6) Investing under Investment Holding Company (IHC)

- Investing Residential under Investment Holding Company (IHC)- 60% margin

- Investing Commercial under Investment Holding Company (IHC)- up to 90% margin

- If forming new partnerships, perform due diligence under new partner

7) Leveraging on CCRIS

Multiple submission to various banks simultaneously

Example: Investor bought 6 units

Bank A Bank B Bank C

Unit 1 & 2 Unit 3 & 4 Unit 5 & 6

CCRIS WILL REFLECT 3 APPLICATIONS INSTEAD OF 6 UNITS!

8) Do banks check CCRIS prior to disbursement?

NO

- However, if you have a property that manage to get 90% where you shouldn’t be getting 90%, but
somehow you manage to get it and there is no disbursement for 2 years, some banks may actually
pull out your file and check, if they find out that you infringe their guideline, they may lower down
your margin of financing back to 70%

- Generally banks do not perform another CCRIS check after loan approval

9) Taking the First Step in Property Investment

For beginners, consider renting at first but make that investment in property

Don’t procrastinate

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10) Check on bank valuation

Check valuation estimation from your banker before you commit to purchase

DAY JOB

Stay with your day job

Banks need you to have regular income before they finance you

Be part of a community of outstanding property investors by learning “How To” Build Your Property
Empire

SkyBridge International Investment Club

✓ SkyBridge “How To” Seminar

✓ Early Bird Purchase Opportunities
✓ One-on-One Mentoring Sessions
✓ Members Only Closed Group on Facebook
✓ Property Investment Tour

▪ Lifetime Membership

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 ▪ One time payment
▪ NO annual renewal fee

For more information, please contact Katherine Chu Email: ​

katherinechu@skybridge.asia

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Q&A session

1. Is it true that if we buy a new project under construction, as long as that project didn’t get CF, our
name won’t appear on CCRIS?

- Not true

- Borrow loan from bank- name will appear on CCRIS when your loan has been approved and the loan
is disbursed

2. Some developers appoint lawyers to help buyers and give buyers good discount, what’s your view
on this?

- Encourage loan borrower to engage own lawyer because the lawyer that appointed by the developer
is not really acting on the interest of the loan borrower

- Especially those not well-known developers, lawyers are acting on the interest of developers

- It is up to you but for sub-sale property- the vendors/sellers ask you to use their lawyer, NO

- Engage your own lawyer for sub-sale property, you lawyer scrutinizes every single clause in contract
to make sure your rights and interest are perfected

3. Is Puchong a good place for investment- huge population with the new LRT station?

- It shows a lot of migration of population to Puchong

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- Has to be a little bit careful as far as the pricing is concerned

- If you are buying anything less than 550 or 600, for new property, it’s ok but

- If you pay more, it’s a little bit on high side. Why?

● Which one would you like best?

● Bukit Jalil or Puchong? General perception in the market right now: they will stay in Bukit Jalil
as compared to Puchong- Puchong perceived as old mining area, a lot of lands are leasehold,
they perceived Puchong as medium to medium-low income household whereas compared to
Bukit Jalil, you have a slightly up market, freehold land; the price in Bukit Kinrara and Bukit
Jalil, 500+-600 sq ft

- Good place to invest/stay: yes, provided you are paying the right price, extension of LRT commenced
operation by first quarter or second quarter of next year- address the issue of traffic jam and Puchong
is still a good bet but it depends, very far deep in Puchong may not be that ideal

4. Will rejection of credit cards application affects CCRIS report and subsequently affect housing loan
application?

- When your credit card is being rejected, there must be a reason why the application is being
rejected

- Reasons: outstanding balance you didn’t pay; you have 5 cards and only pay 5% minimum for every
card which is in line with the law or not something the bank look forward to in your loan application
process

- Need to know the reason of rejection

- Nothing to do with the number of cards that you have; number of cards got nothing to do with loan
approval

- It is not show in CCRIS that your application is being rejected

5. What’s your view about the office segment, like investment in office segment?

- Generally, office struggling to find tenants

- A very low occupancy rate of offices

- However, those grade A offices still doing very well, depends on location

- Examples: KL Sentral, Bangsar South where the prime offices are, they are enjoying above 90% of
occupancy rate

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- Need to find out where the offices are located

- For non-prime areas, the rentals are being pressured right now

- Apart from the golden triangle, KL Sentral, Bangsar South, Damansara Uptown, these locations are
doing reasonably well

6. Mix development: houses- 10 years ago already built, now there are some new developments like
official launching of new property, and the prices are higher than the current market prices of the old
unit. Is it a good choice to get the secondary unit rather than the newly launched one which is selling
more expensive?

- Depends on whether you buying for own occupation or buying for investment

- For own stay, sometimes you don’t mind paying premium

- For investment, if the new project is 10-15% higher than the existing one, you should be very
cautious because you may not get the rental than you want

- For own stay purpose, no problem

7. Can I finance GST?

No, you can’t.

8. If my DSR fails, what can I do?

- Accumulate liquid assets to prove to the bank, RM1 million and above, e.g. EPF, FD, unit trust

- Get another loan applicant, e.g. your wife, sibling, to be joint applicant that will help you- make sure
the person has no bad record and have the DSR

9. Robert Kiyosaki predicted that the property market will crash next year (2016), if that’s going to
happen, should we have the money saved now and buy property after the crash at discounted price?
What is the market timing?

- In my 22 years of property investment journey, I don’t listen to any forecast on down turn, crisis etc

- I only believe in one thing which my mentor has taught me, as long as you can afford to buy and pay
the instalment of the property, BUY!

- Market comes and goes, nobody knows what’s gonna happen

- Don’t over leverage yourself

- Understand the risk

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