When To Rent Or Sell A Property?

Other than the one you are currently occupying, are you currently owning any real estate properties but do not know what to do with it? Let us explore...You basically have three options, that is, rent, sell or hold. If you decide to rent it out, i congratulate you because you now have a passive income generating asset that gives you residual income until your lease expires. However, you need to take into consideration other operating expenses such as maintenance, service charges, loan installment (if any), assessment, real estate broker fees, taxes and other general upkeep expenses. After deducting all these expenses, your net income should determine whether your rental is in a positive or negative category, normally termed as positive or negative cash flow. Ideally, you should rent out the property which gives you positive cash flow. (On the flip side of the coin, you probably should not purchase a property that does not give you positive cash flow in rental yield, unless you are confident that the piece of property has good potential to generate an attractive capital return!) In addition, you should also watch out for the rental yield, versus the average return if you were to park the money in a low risk fixed income money instrument such as fixed deposits in a bank. For example, if interest rates with your fixed deposit is 3%, then you should look for net rental yield that more or less double that!

In the case the property could only generate negative cash flows and/or unattractive rental yield, it is probably better to dispose it off in the market since you could use the money to later purchase a piece of property that generates better cash flow or return.

What if you feel confident that this piece of property will generate good capital returns if you hold on to it? Well, you could always do so as long as you assess the probability of this to happen, taking into account the burden of holding cost. The worst to happen is if you get it all wrong and you end up holding on to a piece of property that does not generate any returns!

Fed The Saviour of the Day?

What a day, global markets came alive after US Federal Reserve decided to cut interest rates by 50 basis point (or half a percentage). This is an unexpected positive news from the Fed, given that the general consensus appeared to be a maximum rate cut of 25 basis point or stayed unchanged. To top up the icing on the cake, Fed also cut bank loan discount rates by another half a percentage! The Fed's decision, aimed at shielding the economy from a credit crunch as well as a slump in the housing sector, came about a month after it cut its discount rate in an emergency move to encourage banks to borrow directly from the central bank. US and global markets indeed reacted positively, with Dow rose 2.5%, Asia stockmarkets also rose between 1 - 4% with India Stock Exchange being the best performer with a 4.17% increase! (Interesting to note that China's Shanghai Index had not reacted positively to the news and had in fact fallen by half a percentage point. Perhaps a strong signal that China stocks are losing its steam after such a fanatic run).

As global investors welcome the latest development, there were mixed reactions from researchers to analysts. Some augur the move as a good one, while others felt that US Federal Reserve had overreacted. Perhaps the US Central Bank finally reckons that the housing subprime woes and credit crunch are causing a bigger damage to the overall economy, leading to a worse than expected job data, thus such drastic measures has to be taken. However, there is still a genuine threat on inflation, given the fact that crude oil price has again hit record level and is still threatening to rise further. Perhaps, it could also be a case of politics versus pragmatism....Nevertheless, the measure is indeed a strong dose of confidence across the business and investment community. However, it does not mean that we are now out of the woods (of the subprime and credit crunch). A lot will depend on how companies and financial institutions perform over the next few months.

Penang the Next Global Mega City?

Penang is a popular island state situated at the northern part of Malaysia. Commonly known as the Pearl of the Orient, Penang is vastly popular for its food (eg., Prawn mee, Assam Laksa, Lo Bak, etc) and a popular tourist destination offering nice beaches and holiday resorts. Penang is also home to many high tech multinational and local manufacturing companies. Its property prices is also one of the most expensive in the country due to scarcity of land. For many years, Penang development has been rather stuck in a stagnant image, due to some major relocation of high tech manufacturers from here to other lower cost destination partcularly China, and the perception that Kuala Lumpur is the better place to job opportunity and making money.

For the next foreseeable years ahead, I believe Penang's image is set to change dramatically given that there is now increasing influx of foreigners into Penang (it's nice to live, good infrastructure, friendly people, etc) and the real estate properties in the state are also increasingly gaining popularity and attractions from property developers and foreign investors. The major area fronting Gurney Drive ( a popular sea-side tourist spot) is also bursting with new commercial activities with the upcoming launching of up-market shopping mall, Gurney Paragon. Its neighbour, Gurney Plaza, was just acquired by Capitaland of Singapore a couple of months ago at around RM1,000 psf!

The latest unveiled is the launch of Penang Global City Center (PGCC), reminiscent of Kuala Lumpur City Center (KLCC) where the twin Petronas Tower is located. This is indeed the latest mega property project unveiled in Penang by the Prime Minister of Malaysia himself. The project spans over 257 acres of land located at the old Penang Turf Club. Ring any bell? For those who are familiar with the present KLCC site, it was also formerly the KL Turf Club! The project entails top-class hotel, retail, residential, international school, arts, medical tourism and exhibition centers, connecting with monorail service and designed by French and New York architects! Moreover, the zone will also be classified Multimedia Super Corridor which carries the MSC status, a benefit comes with tax and business incentives specially dedicated to ICT companies.

Judging by the great success and world class recognition enjoyed by KLCC and the positive spillover to the surrounding real estate property valuations where prices have skyrocketed, it is worthy to take note of this latest special property development. If all goes according to plan, i have no doubt that property and land prices surrounding PGCC will also escalate over the years ahead! This is also indeed a great opportunity to position Penang as the next potential global mega city of the world!

Malaysia's Budget 2008: Is it a Hype or Light At The End of Tunnel?

For the newly announced Malaysia's Budget 2008, is it a hype or light at the end of tunnel? Well, depends on who you speak to, the answer varies. The politicians, as usual, will sing the tune in lauding Government's effort, making statements like far-sightedness, one of the best, etc. So, we should just discount most if not all of their views since their answers were commonly biased. What about people who are in business? Well, my immediate reaction is that they should be happy given the fact that corporate tax rate will be further reduced by 1% come 2009. (Bear in mind tax rate for 2007 and 2008 have already been reduced by 1% each, that is, 27% and 26% respectively). This is definitely a step forward at the right direction, from corporate Malaysia's selling point perspective, but taking a step back, we know that Malaysia is still far behind more advanced East Asian countries such as Hong Kong and Singapore where their respective corporate tax rates are in the mid teens!

What about ordinary people (or rakyat) like you and me? Well, the common reaction seems to be less happy, given the fact that the highly speculated personal income tax rate has not been reduced (despite cut in corporate tax rate). Bear in mind that for most working class people, it is also common to find people paying at the higher thresholds of the income tax rate, given the way it is currently structured. So with rising cost of living (especially food, petrol, electricity, etc), most people will be disappointed with Government's latest decision to keep rates. However, on the flip side of the coin, i see that there are actually good news for people in general. Firstly, Malaysians now can purchase a new home by withdrawal from the EPF (Employee Provident Fund) on a monthly basis, which makes it now affordable for many to service their monthly mortgage installments. So, this is definitely a major plus point for the property sector in general, particularly the mid and lower segment of the property sector. This could well translate into increased property transactions and also better sales for the developers. In turn, it could also help resolve the property overhang (due to supply over demand) situation for the mid to low-end segment. Secondly, there is actually an indirect reduction in personal income tax, in the form of dividend income received from equity investments to be exempted from tax starting 2008. This is a good way to promote investments in high dividend yielding stocks, particularly those from good quality companies with sound management team.

Not to mention, the Government's effort on giving free education (up to secondary) and incentives for Research and Development initiatives are definitely a plus point, in improving education and creating the climate for Malaysian businesses to move up the value chain in order to become more competitive globally.

However, one of my biggest disappointment from this round is the lack of incentive given to promote REIT (Real Estate Investment Trust). As it stands currently, Malaysia's REIT sector is still trailing far behind countries like Hong Kong and Singapore. This is probably also reflected in its small size compared to these countries. The current tax regime relative to these countries are too high relative to these countries, rendering it less competitive in the region.

Last but not least, it is worthy to note that Malaysia has created tax incentives in attracting foreign talent into Malaysia in developing its Islamic financial markets and the country's goal to make Malaysia a Global Islamic financial hub. Given that Malaysia has lost the initiative to be the regional (conventional) financial hub, it certainly stands a better chance now to become a global Islamic financial hub but much more will need to be done. However, it is somewhat peculiar as some argued that such talents are born and brat in Malaysia, and as a matter of fact, Malaysia is the one losing her own talent to other countries who wish to develop their own Islamic markets on a daily basis! As such, such incentive may not serve the whole objective of retaining Malaysia's own talent.

In a nutshell, the latest Budget may not have served everyone's needs (and I think it will never ever be!) but there are certainly light at the end of tunnel.

Past Week's Economic Food For Thought

Some interesting extracts for the past one week which i thought could be of interest to some..

Quote of the week:

Federal Reserve Chairman Ben Bernanke, said the "Fed continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets. Further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected. The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets. He also made clear he won't rescue investors from bad decisions."

• US consumer spending rose by 0.4% in July, double the June increase.
• The US GDP was revised up to 4.0% annual rate of growth in 2Q07, from 3.4% estimated
  previously. (This is interesting, given the current subprime housing woes in US and its likely impact on economy! This is clearly a sign that US Government think the subprime issue will not pose a great danger to the overall economy...Time will tell if this holds true but i have my doubts)
  
• US construction spending unexpectedly fell in July by the most since January
• US mortgage application volume increased 1.3% in the past week.
• The US economy will slow sharply this year and fall behind growth rates in most of the
  world, according to forecasts in a U.N. report. Woes in the housing market will drag US
  GDP for 2007 to a modest 2% growth, compared with 3.3% last year. For the first time
  since 2001, both the European Union, at 2.8%, and Japan, 2.3%, are predicted to have
  higher GDP growth than the US. China, at 10.5%, and India, 8.5%, should experience
  economic growth rates similar to the last three years, the report said.
  
• China ordered banks to put aside more money as reserves for the seventh time this year to cool lending and investment after inflation accelerated to a 10-year high.

Back in Malaysia, the key event to watch will be the announcement of Budget 2008 this afternoon. It is widely speculated that there is a likelihood of personal income tax cut and more incentives for property sector for the benefit of general public (not just the high-end segment but across the board). This could also well be the last budget tabling before the calling of the next general election!

A Frantic Week!

What a frantic week! Last Friday i finally moved into my new home and took me almost a good whole day to move the stuff from old to new. I was quite thankful that my movers were very much helpful and they managed to move the things without damaging a single item. I also appreciate the fact that they did this on a public holiday so everything appeared to be calm and in order.

Sadly, after much deliberation and "pressure" from my wife, I had to give away my favourite 3 feet long fish tank, which i had kept for more than 5 years! Some relates fish tank to "feng shui", but really for me, watching fish "roaming" around in the fish tank and displaying its respective behaviour really gives me a great relaxing moment and a great way to relief stress. The reason we had to give it away was due to the fact that we could not find a suitable spot to house the tank.

So, it is time to unpack and get things sorted out in the right order! I could not believe it actually took me 2 days just to organize the kitchen alone! As at now, sadly, much of my study and bedrooms are still in a mess! It didn't help the fact that myself and my wife had to travel to Singapore to attend a special seminar presented by the many acclaimed world's number 1 success coach, Anthony Robbins. I have heard much good things about him and his world famous coaching workshop "Unleash the Power Within". Indeed, meeting him for the first time was truly a mind-blowing encounter! For those who would like to attend his workshop, i would strongly recommend it!