Over a long time of observing and interviewing many established developers, high-profile bankers, ultra-high net-worth investors, successful entrepreneurs and private equity firms, I would like to share with you a market proven real estate investment strategy that I call Property Investment Life Cycle or PILC.
With the skyrocketing house prices since 2010 in Malaysia, common investors have stampeded into property investment to ride the wave of fortune. Indeed, property investment is always one of the favorite options for high net-worth individuals to preserve their wealth and is arguably the safest asset class of all.
Delving into the fundamentals of property, I noticed that PILC is very similar to the human life cycle – people are born, grow up, age, and cease living. It makes no difference when it comes to property development and the property investment cycle. By adding value to a property according to different stages of its life cycle, investors can enjoy continuous profit regardless of the market condition.
Property Investment Life Cycle
The following are the six key stages in PILC and how you can reap significant return in these stages:
1. Land Acquisition
Buying land is usually significantly less costly while it is undeveloped compared to land that has usable construction structure. To put it clearly, the land is the raw material of any property development. Thus the saying – the best investment on earth is earth. Land is always a scarce resource as it is non-produce-able.
Hence, developers are constantly on the lookout to increase their land banks. Acquiring the right type of land such as agriculture, industrial, residential, commercial, and many more with the right size of density, plot ratio, type of usage and development, individual unit size will ultimately decide the potential value of the land.
Getting a housing or any loan in Malaysia? Worth a read Housing Loan In Malaysia: What Is Debt Service Ratio (DSR) And How To Calculate DSR?
2. Development
Where property is “born” – this is the real crown jewel among the six stages as it contributes the biggest profit-making ratio within a short period in the PILC. Traditionally, developers acquire a parcel of land (or sometimes have a joint-venture with the land owner) and build multiple units on the same title.
Upon construction completion, the developers will market the end units to the public at a premium. Due to the high barrier of entry, huge capital and expertise involved, only large corporations and conglomerates are able to participate in this lucrative segment. However, by deploying the joint-development strategy a common investor can now invest together and earn like a developer as well.
3. Management
With an eye to enjoying constant property value appreciation, good property management always plays a pivotal role. Once a property is constructed, it needs both building management and tenants’ management to keep it in top-notch condition and attract quality tenants.
However, for some common investors, management is a nightmare in the journey of property investment while for an experienced investor, there are a lot of hidden gems in managing a property.
On the other hand, some special purpose property management strategies are able to reap high profit margin compared to the ordinary property investment. For example, Airbnb, co-working spaces, commercial car parks, student hostels, short stay accommodations are some proven strategies in property management.
4. Renovation
Renovation is like adding the soul into the body. It grants new functionality and enhances the appearance of a property. This strategy is one of the investors’ favourite as it can drive high profit within a short period of time.
In fact, there are many buildings in disrepair due to negligence of the owners. To shake the dust off the owner’s feet, they are willing to let go the property at a discounted price. By picking up these properties, you will attain profit by renovating the property and reselling it to the market at a better price.
5. Refurbishment
When an ageing property, especially heritage buildings in some countries, is occupied over some years, it may experience rundown, be severely damaged and may not be in liveable condition anymore. The deterioration of the abandoned building sometimes go beyond renovation works. This type of building requires a large fund for refurbishment.
Due to the reason that some property owners do not have the financial capacity to refurbish the building, these buildings can be purchased much lower than the market value. It can then be refurbished to a new design, providing new life to the historical building.
6. Redevelopment
When experiencing special events e.g. natural disasters such as an earthquake, volcanic eruption, fire, or change of market demand, the accelerated depreciation of the property value makes redevelopment a sensible decision.
Through redevelopment, existing buildings are fully or partially demolished and a new building is constructed. At this final stage of the PILC strategy, the said piece of land is given a new life to meet the local demand and thus boost the value of the property.
As mentioned in one of the famous quotes of The Art of War by Sun Tzu:
If you know your enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.
In short, if you plan to invest in any country, you need to understand its background including its economy, politics, risks and other important considerations that may ease your forthcoming investing journey.
What we invest in our time defines who we are.
About the Author
Max Shangkar is group CEO of Max Capital Management Holding Ltd and an expert in global project management consultancy. He is also the author of the best-selling book Investment Strategies for Global Real Estate.
He propounded the market-proven investment strategies of Property Investment Life Cycle and Business Investment Life Cycle that educated over 6,000 Global Investment Community members to invest in property projects and businesses in over 10 countries.
