By FARA AISYAH / Pic by MUHD AMIN NAHARUL
High demands for properties, especially from overseas buyers, and lucrative returns from flipping homes have created a pro table venture for cash-rich property investors.
These investors, operating in a small group, will pull together their financial resources and make bulk purchases for properties from developers at a discounted price.
The group will seek buyers, especially from abroad, to buy these properties. Most of these property investors turn to China as one of their lucrative markets.
Chinese frenzy for properties abroad and the growing wealthy population made the world’s second-largest economy a haven for property owners.
Malaysia is an easy favourite. Besides the competitive prices compared to Singapore, Taiwan or Hong Kong, cultural closeness, language and local norms make Malaysia an easy selling point.
Malaysian Institute of Estate Agents past president Siva Shanker said that there are individual and group investors for bulk property purchases.
An individual investor would make bulk purchasing for himself. Rather, these group purchases are commonly related to property investment clubs (PICs).
He said these “property gurus” would create an investment group and convince the developer they could find buyers for the properties, but seek a sizeable discount from the offer price.
“They will then either sell the properties at a smaller discount and reap the profit,” he said.
Groups with a stronger financial muscle may keep these properties for a couple of years before flipping them with hefty profits.
However, bulk property purchases are not against the law. Some developers are happy to release these properties at a discount instead of keeping them in their unsold balance sheet.
With the present slowdown in the property market, opportunities are plenty for a profitable flip.
During the property market boom, such bulk purchases by these cash rich individuals are more rampant and the boast of the town among property investors.
A Risky Venture
Minister in the Prime Minister’s Department Datuk Seri Abdul Rahman Dahlan had previously voiced his concern about the trend of PICs when he was the urban wellbeing, housing and local government minister.
Abdul Rahman said that these groups purchased the properties at discounted prices from developers, held them for one to two years and sold them on the secondary market for a sizeable profit.
But like any investment, a property bubble is these investors’ worst nightmare. The current soft property market had somewhat softened the appetite for these property investors.
Siva said these groups risk losing money in the long run.
“Those who group-purchased property back two or three years ago are now stuck. The properties have been completed, but they are unable to flip it at the price they were promised.
“They can’t even rent the units at rates they were promised. And they have to serve the monthly payments,” he said.
The National House Buyers Association secretary general Chang Kim Loong said there are at least 30 PICs in the country.
He said the operators of such a club would negotiate as block purchasers with cash-strapped developers and bargain for a pre-launch block discount.
“It makes sense to the property developers who want to sell as many units as they can and attain the pre- requisite margin sales imposed by their banks or financial institutions prior to the drawing down of their bridging loans,” he said.
Chang said despite the various models employed by these PICs, the common method was to pool their financial resources and do bulk purchases into a project and exit together when prices rise, splitting the profits.
There are worries that these bulk purchases will create artificial demands for property and increase the prices for remaining units for a particular project.
“This short-term speculation is very bad for the market,” Siva said.