The number of entries for the Malaysia Property Awards has been boosted by the many innovative new concepts being implemented in the Malaysian property sector and the construction boom over the last three to four years, read further.
The Malaysia government recently approved the concept of build-then-sell for housing development project. The build-then-sell concept is essentially a 10:90 concept whereby the house purchaser pay 10% of the purchase price first and then pay the remaining 90% of the purchase price upon the completion of the house with certificate of fitness issued.
The conventional sell-then-build require the purchaser to pay 10% of the purchase price upon the signing of the sale & purchase agreement and the remaining 90% is progressively paid to the developer in accordance with term of payment accoding to stages of construction as stipulated in the sale & purchase agreement. The developers are required to adopt the term of payment approved by the housing ministry for the remaining 90% of the purchase price. The house purchaser can pay the developer by cash or bank loan. In essence, in the sell-then-build, the house buyer part finance the developer in the construction of the project and the financial institution basically lend the money to the individual purchasers.
In the build-then-sell concept, the developers will not get to be financed by the purchasers like in the case of sell-then-build and therefore the developers will have to obtain more financing from the financial institution to finance the project up to the stage of completion.
In order for the build-then-sell concept to work, the bank will have to play a major role by providing the additional financing up to the stage of completion and this will inevitably increase the risk exposure of the financial institution. The bank normally will prefer to lend to individual purchasers in many smaller parcels instead of lending it all to the developer in one parcel.
Hence, for those companies that has just started to venture into the property development field where they do not have the necessary track record, it will be rather difficult for them to convince the bank to provide them with the financing to do it in the new build-then-sell way.
Fortunately the two concept will be allowed to run parallel otherwise many aspiring up-start developers will not be able to kick start their project.
There are many books in the market and many websites in the cyberspace that advocate the purchase of property with no money down. While it is possible to purchase property with no money down in many countries, it is rather difficult to do so in Malaysia as the maximum margin of financing offered by the financial institution for the purchase of residential property is 95% of the purchase price and the maximum margin of financing for purchase of land for development is only in the region of 60% to 80% depending on whether the borrower has track record or has good relationship and good standing with the financial institution.
Most often than not, those who intend to purchase a piece of land for development purposes need to fork out substantial amount of cash as down payment let alone to purchase with no money down.
However the developer can always strike a deal with land owner to jointly develop the land in a joint-venture deal where the land owner provide the land for development and the developer bear all other expenses in connection with the development of the land. Upon completion of development, the land owner is then compensated by the developer a certain percentage of the completed units which can range from 20% to 50% depending on the value of the land. In such a joint-venture development, the land owner is normally compensated a value higher than the amount that the land owner will get if he were to sell his land, thereby effectively sharing the profit of the developer.
The developer in effect sacrifice part of their profit to compensate the land owner but the developer is spared from forking out a lot of cash for down payment of the land as well as spared from paying holding cost of the land. As the units are only distributed to the land owner upon completion of the development, the developer effectively only pays the land owner upon completion of development. Therefore effectively buying land for development with no money down.
Among the many various types of businesses in the economy, property developer rank among the top in term of prestige and profitability. It is by no accident that corporation big or small are involved in property development. Doing business as a property developer can be profitable and lucrative and at personal level can be very rewarding. However, to be successful as a developer, it is important to play by certain rules and apply certain proven techniques. Through this article we shall share some of the tips to help you become a successful property developer. The very first step in any property development project should be to carry out market survey and research. A direct method is to check with real estate or property agents as to what types of property is most popular and in great demand as well as the average selling price of the respective properties. Market survey and research will also help you to identify the area that has development potential. The real estate or property agents will be able to tell you what type of consumer goes for what type of property and what is the current trends in the area you have identified. The information collected will enable you to ensure that the properties you intend to develop meet the demand of the market segment you are targeting.
After identifying the particular area that you intend to commence your development project, the next step is to source for a suitable piece of land for the intended development based on your budget and proposed size of your development. You will also be need to get important information or data by checking with local planning authorities and such data may include the zoning of the area that your proposed land fall within. The local authorities should be able to tell you whether your proposed development is inline with the overall master planning.
In addition, bearing in mind that your aim as a property developer is to buy land at a low price and sell the finished products (housing units) at high prices. A good buy will very much reduce the risk involved and hopefully will enable you to achieve the profit margin that you desire. The other aspect to consider is how much you will need to spend on purchase of the land and the building of the properties to achieve your desired selling price and then work out the necessary cash flow. Careful planning on the financial aspect will enable you clearly understand your financial need so that you will have time to apply for the necessary financing at the very early stage of the development project which will inevitably reduce the risk of you being caught off guard in any financial demand mid way through the project. It is also essential to have a good understanding of the practicalities and the steps involved in property development. Before buying, make very sure that you understand the building regulations that will affect how you will develop the property as well as the risk involved.. In conclusion, if you have carried out the market survey and research thoroughly and are targeting the right group of customers, if you buy well, if you manage your costs carefully and if you market the completed properties efficiently, you could make a lot of money as a property developer.