Landlord and Tenant #3: Fire insurance - notification on change of tenants

This has always being neglected by property owners. Under the fire insurance terms and condition, you as a property owners are obliged to submit changes to the tenancies to your insurers promptly.

That is to say that you will be paying different premium for the fire insurance. For example, if you have a carpentry as your tenant, you will be paying tariff at approximately 0.7% whereas a storeroom carries a tariff of approximately 0.2%. Yes, higher risk's tenant will cost you as a owner to pay higher premium. By paying the sufficient premium to your insurers, then only you will be able to avoid any disputes in the case of claims against fire.

From now onwards, do inform your insurers whenever there is a change in your tenants.

Landlord and Tenant #2: How many of you actually read through your tenancy agreement before signing?

I'm very surprised to hear that many people never actually read through the tenancy agreement before signing it, be it professionals or some people from corporate background.

Both landlord and tenant normally have many issues to be agreed upon, and in many instances, the issues are agreed upon verbally at initial stage. Please make sure these terms and conditions are duely noted and worded properly in the tenancy agreement to avoid any future disputes.

To my knowledge, there are some so-called "standard" tenancy agreement in distribution in the market, which to me are nothing more than a plate of "rojak" full of variety mix of unrelevant contents. You can find standard Sale & Purchase Agreement when buying new property from developer like Schedule G and Schedule H as noted by the Housing Development Control Act. But there are no such thing as "standard" tenancy agreement as per se.

For each and every tenancy agreement you come across, please always read through thoroughly every clauses to see that both of you are in agreement and to safeguard both parties interests equitably.

Real Estate Tips #13: Changes in house design over the past 10 years

Some of you might find this interesting, here's some of the changes:

(1) Single carporch to twin or even triple carporch
- Most families now own more than one cars, in order to cater to these needs, all developers now opt to build more spacious carporch.

(2)Traditional kitchen to Wet & Dry kitchen
- Many would use the dry kitchen for display purpose, where the actual cooking is done in wet kitchen.

(3)Cement/parquet flooring to tiled/timber strips flooring
- Many finds cement/parquet floorings to be difficult to maintain. Most developers have now switched to using ceramic tiles or timber strips for the floor to enhance the look and to enable easier maintenance on the floor.

(4)Open drainage to covered drainage system
- The streetscape have become much more neat using the covered drainage system though i am still feeling rather skeptical on the long term maintenance of these system.

(5)Hanging cable to underground cable
- Also to make the streetscape looks more pleasant, many developers have also started to use underground cable rather than to let the cables hanging all around the housing estates posts.

(6)More toilets/washrooms
- To add more privacy and conveniency to the occupants, some innovative developers have added more toilets to the house. For a double storey terrace house, it used to have only 3 toilets, 2 in the first floor, 1 in the groundfloor. We now see some 4 rooms houses came with 4 attached toilets.

(7)Gated and guarded community
- A new concept living style which capitalise on the security and sense of community. Some even provides clubhouse with facilities such as swimming pool, tennis court and etc, which you can only find in condomiums previously.

(8)Streetscape
- Besides the underground cable and covered drainage, the developer now place more emphasis on the "make-up" on the streetscape, e.g. with more greenery , lakes and parks.

(9)More accessories
- Things like ceiling height wall tiles, auto-gates points, tiled carporch and tinted windows, aluminium framed doors and windows have also given to the house buyers by some developers.

(10)Roofing system
- Cool-roof system which are meant to maintain and lower room temperature as compared to the conventional ones, in view of reducing power consumption.

(11) Sheer wall
- A new technique in constructing walls which enables more space created within the house.

(12) Higher floor to ceiling height
- To enable better ventilation

(13) Wider main entrance gate
- To allow easier car access

(14) Columnless carporch
- To allow full utilisation of the carporch

Developers are no longer selling house, they are now selling lifestyles.

Property Auction #4: I've bought a house at an auction fair by the bank, but they cancel the deal 2 months later! Can they do that?

This was the question posted to us by one of our client who bought a single storey terrace house at Taman Desa Jaya, during a property auction fair conducted by the bank. For those of you who have read my previous articles on property auction before, you all knew this is what we called a Laca case, i.e. properties without individual titles issued.

After two months signing the contract of sale, and he has signed the loan agreement,and he has started doing the renovation (i would not advise this though) he suddenly got a call from the bank saying that the case need to be withdrawn. Apparently, the lawyer who's incharged of this property for the bank has made a blunder, i.e. this should be a non-laca case, simply because the individual titles has already being issued and registered under previous owner. As a result, the "correct" and "legal" way of disposing this property has to be done through Highcourt , and not by the bank themself. Therefore, the bank has to withdraw this case and re-auction the property through highcourt procedure.

So, in the end of the day, not only this purchaser will lose all his legal fees, he's also going to lose his renovation.

Two lessons we've learnt from this case:
(1) Never start renovating the house before the completion of the conveyancing procedure of your property
(2) When you want to bid for a laca property, and you already knew the titles have been issued, please do a land title search on it. If you find the previous owner's name has already being registered , then voice your doubt to the auctioneer, because this should be a non-laca case instead of a laca ones.

Landlord and Tenant #1: My tenant doesn't pay utility bills!

I've rented a firstfloor office in Taman Molek to a tenant, after a almost a year, the landlord came back to me and inform me that the tenant has owed electricity bills over RM2000, which has way exceeded the utility deposit paid to the owner. Tenaga Nasional Berhad has also sent out warning letter few times indicating that they are going to disconnect the electricity supply.

Later i found out, the tenant didn't really owe anything. What happened here was that, the TNB meter is inside the building, not visible to the TNB people whenever they came to inspect the meter reading, and the tenant is hardly around. As a result, TNB put in an estimated figures every month, which comes to about RM500 usage per month.

I've gone to the tenant's office, and took down the actualy meter reading, then verify the figures with TNB. TNB officers immediately re-adjusted the bills according to the actual readings.

Few tips for those of you having the same scenario, i.e. where your TNB meter is not visible to the TNB people, just write down the current meter reading for say every 2 weeks on a piece of paper plus the date, and paste it on the front door. It's simple, isn't it?

One word of advice for all landlords, please always collect the paid utility bills from your tenant at least every two months, and keep track on your tenant's payment to avoid any unnecessary arguments later.

For your information, one of my client's tenant owed over RM80,000 of water bills over a period of 6 months!

Real Estate Tips #12: Property Investment - Property Management

The long awaited Common Property (Building & Maintenance) Bill has been passed in December 2006. Once this specific law is introduced, developers and owners are expected to form a joint management committee to manage and maintain the common properties. This will give owners a say in how the common properties will be managed. Owners will get to see more transparency in the made up of their contributions towards the management fund & reserve funds for major repairs.

Henceforth, you as a property investor are now in better position to maintain and enhance the value of your property through joint-management with the development even when the individual titles have not yet issued.

I do not want to name any here, but please be aware that many stratified properties are having lousy or poor management nowadays. This will have direct effect on the market rental and the capital value of the property you invested.

Real Estate Tips #11: Property Investment - Tenantability

Say you are a property investor, and you are given by your Registered Estate Agent the following properties for consideration:

Option 1:
Alex has got a double storey shopoffice at Jalan Dedap, Taman Johor Jaya selling at RM400,000 with rental income RM2000 per month, i.e. 6%p.a. return. All shops on the same row are fully tenanted. From your survey, you are told that tenants are always on queue for this row of shops.

Option 2:
Brian has got a double storey shopoffice at Jalan Rosmerah, Taman Johor Jaya selling at RM400,000 with rental income RM2000 per month, i.e. 6%p.a. return. There are a total of 3 units of shops located on the same row are still empty. You know that there are always empty units along the same row of shops from your survey.

My advise would be:
The above 2 properties are having the same rate of return, i.e. 6%p.a. However, should Option 1 becomes empty, it will be immediately taken up by another tenant, whilst the same may not happen to Option 2. Under the same scenario, even if Option 2 is fetching a slightly higher rate of return, say 6.5%p.a. , I would still advise the client to consider more on Option 1 due to its better tenantability.

Question arises here, how would you know a property's tenantability is good or not? Firstly, check out if there are empty units around close vicinity. It would be the fastest indication. Then, go to the nearest shops around to talk to the locals on the tenantability history at the vicinity.

Always speak to the locals/neighbours on the surrounding development and history before you buy a property for investment.

Real Estate Tips #10: Glossary - Overhang property

We all know that from the property report from Valuation Department that Johor has got the most overhang properties. How do we know a property is considered overhang or not?

Definition:

Overhang - Property completed with Certicate of Fitness (now Certificate of Completion and Compliance) remain unsold for more than 9 months.

Are there any real estate terminology that you wish me to further explain? Drop me a mail.

Real Estate Tips #9: Property Investment - General Buying Guide

What are the top three most important factors in property investment? Many used to say, "location, location, location!". This is no longer true, I'm not saying otherwise, but there are actually more things to look at other than location. There are four (4) main factors which i would normally advise my client in property investment:

(1) Location
Things to look at may include accessibilty, visibility, road level, carparkings, pedestrian flows and etc.

(2) Rate of Return
You should be looking at minimum 6%p.a. as a general guide. Please refer to Real Estate Tips #8 on how to calculate Rate of Return.

(3) Tenantability
If the property become vacant, how long will it take to rent it out again?

(4) Property Management
A poor property manager will result in a decreasing in capital value and the rental of your property in long run.

I shall explore further with the above factors with you all stages by stages. Before i end here, do let me highlight to you the paramount rule on property investment, i.e.

"BUY ONLY THOSE PROPERTIES YOU ARE FAMILIAR WITH!"

Real Estate Tips #8: How do you calculate rate of return on property?

By international standard, all property investors should be looking at minimum 6% yearly return when it comes to property investment. Here's how you calculate the rate of return:

Rate of return = Net Annual Rental / Price

Scenario 1. Double Storey Shop House at Taman Johor Jaya
Monthly Rental: RM2000
Price: RM400,000

Therefore,
Rate of return = (RM2000 x 12) / RM400,000
= 0.06 or 6%p.a.

Remarks: Attractive investment.

Scenario 2. 8th Floor Office Suite at City Plaza
Monthly Rental: RM4400
Price: RM600,000
Maintenance Fees (monthly): RM1900

Therefore,
Rate of return = (RM4400 - RM1900) x 12 / RM600,000
= 0.05 or 5%p.a.

Remarks: Less attractive investment.

Let me share with you a rule of thumb i often use without having the hassle of going through the above calculation.

Whenever you see the price, take off the last two digits, if the monthly net rental is at least half of this new figure, then rest assured, as you are getting minimum 6%.

Take scenario 1 for example, the price is RM400,000, after taking out the last 2 digits will be RM4,000, and the monthly net rental is RM2000, which is exactly half of RM4,000, there you are, you have a rate of return of 6%p.a. Try it out with other numbers yourself and verify with the formulae given above using calculators to see if it works.

I've provided you the above the simplest model on rate of return calculation, but please also note that rate of return is only ONE OF THE MANY FACTORS that should taken into consideration when it comes to property investment. I shall share with you in near future on other factors affecting property invesment decision making process.

Property Auction #3: Is auction property always "cheap"?

Before auction, the bank will always engage a registered valuer to value the property as at Open Market Value (OMV) and also Forced Sale Value. As a rule of thumb and a rough guide, a Forced Sale value is normally 10% to 15% lower than OMV.

The first auction will normally start using the OMV as the reserve price, in other words, the auctioneer will first attempt to sell the property using open market value, if unsold, then only the price will start going down. In the case of Laca cases (i.e. properties without individual titles ), the reserve price is going down almost every month by approximately 5% to 10% from previous auction.

Low pricing is normally the major attract for auction properties, however, other issues such as condition of the property, previous owings and vacant possession should also be taken into consideration whenever you want to bid at the auction. Please also refer to my previous articles on Property Auction.

Real Estate Tips #7: Penalties on the illegal brokers

For those without licence, but who's acting or holding oneself out to the public as an estate agent, has already commited an offence under the Valuers, Appraisers and Estate Agents Act 1981, as provided under Section 22.

22C(1) No person shall unless he is a registered estate agent and has been issued with an authority to practice under section 16-

It is an offence under the Act for any person to act in contravention of Section 22C(1) set out ealier which exposes such a person to a fine not exceeding RM25,000 or imprisonment of three (3) years and a penalty of RM500 perday for so long as the offence continues.

If you are one of the illegal estate agents stated above, think twice before you continue to commit the same offences simply because, you will be caught!