4 Smart Tips to Identify Profitable Property Investment in Malaysia

Malaysia’s property market has been an attractive and popular investment choice, with different regions and strategies offering solid returns over the years. However, like any investment, property comes with its risks.

That’s why it’s crucial to identify the key success factors that signal a strong investment opportunity. This will help you minimise risks and make smarter decisions. Here are four smart tips to remember when scouting for your next profitable property investment in Malaysia.

Prioritising property location

Property location is a critical factor that can greatly impact potential returns and risks. To align your investment with the right location, you must look beyond what’s trending or popular.

Here are key elements to consider when evaluating the investment potential of a property location:

Infrastructure

To invest in rental properties, target areas with established or planned infrastructure easily accessible to tenants. Locations connected to strong transportation networks are more desirable due to the convenience they offer residents. For example, the recently announced MRT3 Circle Line will greatly increase the property values surrounding the stations.

Mature locations

Mature locations are attractive due to established amenities, making them ideal for tenants and resulting in higher rental yields. However, due to their premium status, they typically have higher capital requirements. Moreover, these locations typically also have higher population density resulting in traffic congestion.

Developing areas with planned infrastructure

For lower upfront investment and long-term growth, consider developing areas with planned infrastructure such as highways, public transport, schools, and industrial or office hubs. These are strong indicators of potential growth.

However, you will need to take into account sudden changes in government infrastructure plans that can affect property prices. One example is the High Speed Rail (HSR) project between Singapore and Kuala Lumpur.

When the government announced the HSR project was cancelled on 1st January, 2021, property prices dropped between 6.4% - 6.6% within an 8km boundary of anticipated HSR stations. In 2023, when the government announced the project would resume, property analysts expect a greater demand for properties in the areas surrounding the HSR stations.

Researching property vacancy rates

Once you've narrowed down a few location options for your property investment, it’s highly advisable to consult real estate experts about the property vacancy rates in those areas.

The property vacancy rate is the percentage of unoccupied rental housing units at a given time. It's a key indicator of the health of a rental market, and a high or low vacancy rate can significantly impact your investment strategy.

Evaluating property quality & market value

Once you’ve identified a strategic property location with a favorable residential vacancy rate, the next step is to evaluate the property’s quality in relation to its market value.

When selecting a property, always compare its purchase price to the market value of similar properties in the area. If the price is significantly lower than the market average, it might seem like an attractive deal, but there could be underlying reasons for the reduced price especially for subsale properties. This could include less desirable locations such as close proximity to garbage bins, right beside a busy highway or hidden costs such as broken wiring and piping.

To avoid unexpected pitfalls, it’s crucial to get a property evaluation done by registered professionals with the Board of Valuers, Appraisers, and Estate Agents & Property Managers (BOVAEP) in Malaysia.

The valuer will assess various factors including:

• Location
• Property size and layout
• Property condition
• Market demand and supply
• Economic factors affecting property values

The cost of property evaluation in Malaysia is regulated and is calculated based on the property's market value. Below is a breakdown of the typical fees:

Evaluating ROI using the 80% cash flow rule

Finally, it's important to evaluate how much return on investment (ROI)  you might expect. You can apply the 80% cash flow rule, which suggests that your rental property's cash flow should cover at least 80% of your monthly loan instalment.

Here’s an example calculation for a RM400,000 property with a monthly loan instalment of RM1,700.

1. Multiply the monthly loan instalment (RM1,700) by 80% (or 0.80):
   RM1,700 x 0.80 = RM1,360
2. According to the 80% guideline, for the investment to be worthwhile, you would want to charge as close as possible to RM1,360 in monthly rent.

Tip: It is worth noting that other property owners may not follow this rule and could charge lower rental rates in your area. This can leave you choosing between accepting a loss to remain competitive or risk your property staying vacant. However, it may be beneficial to remember this guideline before deciding.

Conclusion

Investing in property can sometimes feel like a gamble, but it doesn’t have to be. By keeping these key factors in mind—such as property location, vacancy rates, property quality, and ROI evaluation—you'll be equipped to make smarter, more informed decisions.

With a clear strategy and thorough evaluation, you can reduce risks and increase your chances of finding a profitable property investment in Malaysia that aligns with your financial goals. It would be a good idea to check your loan eligibility beforehand as well to ensure you are financially eligible to purchase your ideal investment property.

💡 The information provided above is purely for educational purposes.