I have been asked this question by property investors. My reply is always ” What is your objective?” You have to be clear of what you hope to achieve.
Buying land and holding it for the long term is a good strategy. This is because land is limited( unless you create more habitable land through land reclamation). However, there are a few questions to ask yourself before you buy yourself a nice plot of land:
1) How will you finance the purchase of the property?
2) Do you have sufficient cash? If you are taking a bank loan, do bear in mind that for land purchases the margin of financing provided by banks is typically 70% or less This means that you have to have sufficient cash to pay the difference in addition to all closing costs.
3) Do you have sufficient cash flow to meet your monthly repayments? Bear in mind that if you can lease the land to someone you may be able to recoup some of your cash outflow. If the land is not leased out the market monthly negative cash flow may put a strain on your finances until such time it is sold with capital appreciation.
Leasing of land often results in lower returns compared to a building. A lot depends on the location and use of the land as well.
Buying a bungalow plot
My search for a suitable family home which met my criteria ended in vain. There was nothing that met my full requirements.Bear in mind I went house shopping with a list in hand. I knew what are the must have criteria and nice-to have features. No ambiguity there.After one year of house hunting I could not find my dream house. Should I settle for something that fills most of my requirements and renovate to have the rest? I did the math – it was just too expensive. So I did the next logical step and bought a plot of land and built my own house.
Firstly I had to find a suitable plot of land in a location that is good and familiar to me. I chose a piece of land that was slightly raised,facing east and close enough to Kuala Lumpur with good road connections and MRT in the future. I negotiated the price for a significant reduction because the market was soft and I understood that the pool of buyers in that location was still limited as the township was not fully developed and the margin of financing low.
Then there was the search for an architect.Through recommendations I found an architect to design my home. Time and energy was spent discussing my wish list for the house. A sizable garden and kitchen was a must. A swimming pool was optional but I later included one because it would provide good exercise and good feng shui. Besides, a pool party was on my list of nice- to- have items. Approval and building permit was duly sought.
Then there was the matter of financing the construction itself. A few tenders were received. The prices quoted were quite shocking and out of my budget. Even if I had the money for it, it seemed to me that I was being overcharge for what was to be a fairly simple house. After much looking around and negotiation, I found a decent contractor who was willing to reduce his margin of financing. An agreement was signed using a contract prepared by the Malaysian Institute of Architects. So began my experience in construction.My building contractor, an engineer himself, was competent and reliable.He knew his job. I didn’t. So I trusted him and the architect to do the needful.
When constructing, a house it is important to know what you want. Fickle mindedness leads to variance orders in the construction. Variance orders can be positive( costing more) or negative (costing less).So when construction costs deviate from the original,typically more, it is most likely due to the fact that property owners request changes that cost an additional sum.
However, if changes are necessary, making them as early as possible in the construction process will save time and money. If too many changes are made from the original, it is necessary to resubmit plans for reconsideration and approval.
The finishing for the house and the choice of accessories are purely personal. From imported marble to simple tiles, the choices are unlimited.Again bear in mind budget and practicality so as not to regret.
Other types of land
Land usage is clearly stated on the title – for agriculture, industrial,commercial,recreational etc. When buying these types of land, be mindful of what is needed to develop the land for specific use. Apart from capital,necessary permits have to to be obtained.
If the intention is to buy and hold, there should be no concerns beyond paying quit rent and assessment charges while waiting for a profitable sale. Your neighbours and local council would appreciate it if you kept the land clean and clear of overgrown bushes and mosquitoes.