The Neighbourhood Effect in property investment
Think you’ve got your research for a potential property purchase down pat? MARK CHUA tells home buyers and investors why they should be especially vigilant in checking out the surrounding neighbourhood as well.
Why is it super important to take into account your neighbours and the surrounding neighbourhood when purchasing a residential property?
When it comes to property investment – we often talk about “scientific factors” like location, loan structuring, transportation boosters, infrastructure, pricing analysis and all these other sexy stuff. But hardly anyone talks about the “People” element.
In all humility, the phrase “Location, Location, Location” can be passe or overrated. Let us consider some of the premier leagues addresses within the Klang Valley conurbation. What is so great about Taman Tun Dr Ismail (TTDI)’s location? Many would not have guessed that this prime residential area was once a rubber estate plantation!
Similarly, the glamorous Bandar Utama (BU) use to be an oil palm estate and the upscale Desa Park City (DSP) had much humbler beginnings – the plot of land was previously a mining quarry.
My critiques will say – “Ahhh, Mark but what about all the important mantras like upcoming MRT stations and international schools or even great accessibility?”
My rebuttal is this – “Oh, you mean if you could, you would like to stay right at the doorstep of the One Utama shopping centre or near some commercial hub and suffer through daily traffic congestion when travelling to and from your neighbourhood? Also, if you are a middle or upper-class family with 2 cars in the household, would it matter if your home is near the LRT/MRT station? Public transportation may not actually command a premium for most affluent family occupiers.
Hence why I advise property seekers, be it owner occupiers or investors, the phrase “People, People, People” should be given precedence instead. Location does not determine the property’s destiny. Rather, it is the AFFLUENCE or WEALTH of its residents that determine its future capital appreciation.
The progressive incomes and wealth of your neighbours will support the increase in your property’s value. Consider the areas mentioned above; TTDI, BU and DSP – and you may see some truth in what I advocate. Hence, I tend to place an emphasis on the “People” element when seeking for a property to invest in.
Do you have any lessons to share with us from your experience as a property investor?
Don’t get me wrong – aspects like infrastructure, schools and good roads are important, but these are “by-andby” factors to me. With all due respect, would you buy into an area which has great infrastructure but its population/ tenant demographic is conquered by blue-collar workers? Do you think this will bode well for your property’s longterm capital appreciation?
Why do you think properties in hotspots like Bangsar have rock solid prices and the values continue to witness robust growth? The rich get richer because they employ their resources more efficiently and they are hardly affected by economic calamities. And you can bet they have no qualms putting down a few million ringgit for a property in an affluent area. The rich love staying with the rich and they want to be associated with well-to-do neighbours.
What are your top tips for investors/ home buyers when carrying out their due diligence?
Make no mistake, I am not telling everyone to only invest in high-end areas like Bangsar and Mont Kiara. Rather, aspiring purchasers should be savvy enough to select areas with RISING affluence and household incomes.
Also, do not be overly distracted by ‘boosters’ such as malls, hospitals, etc and infrastructure plays without first studying the population’s demographics and overall financial prosperity.
Some guidelines or questions for one to ponder on with regards to the “People” element are:
• Is your target area one with a higher percentage of owner occupiers?
• Do they take pride in their homes?
• Do you see new owners buying over properties and renovating their new homes?
• Do they have monthly household incomes of at least RM 10,000?
• Do they have a great Residents Association (RA) or any other form of neighbourhood watch? Do the residents build great rapport with the local authorities and police to enhance security?
If your replies are favourable, it most probably means you have found an area with a demographic profile that is well poised towards economic prosperity. This will definitely be a boon for your property’s value and future growth.