While the stocks markets are not doing too good and the fixed deposit in the bank does not yield the expected return, people are always on the look for better alternatives to park their Moola $$ for better return.
There are growing trend of investment in UK/ Australia student accommodation property being extensively marketing in Malaysia. I will just call it a student pod here since it is typically a single room (without hall & kitchen) just sufficient for a bed and study desk, nothing more.
1. Typical Marketing Pitches
Selling price from £45,000
>8% net yield p.a.
3-5 years rental guarantee
NO stamp duty, rental income tax and capital gain tax
Few units left!!!!!
Does this sound familiar?
Student pods are usually marketed with attractive pitches such as high return and guaranteed yield to attract investors. Questions to be pondered: (1.) If the entry cost is low and the return is so attractive, why are the local investors not buying it? Why do they even need to market the student accommodation property to overseas investors so far from home? Doesn’t it sound fishy? (2.) Do you even need to advertise so badly with more than quarter page of the newspaper or organise a seminar/ expo if just few units are left?
2. Abandon projects
According to various sources, there have been various cases that abandoned projects and developers failed to deliver the promises guaranteed yield. Always remember - the profile, financial and credibility of the property developer and the track record of its past projects are important to evaluate the worthiness of the investment in student accommodation.
3. Do the maths!
The selling price may seems to be low by itself, but don’t forget you are investing in a student pod which the general size range from 120 sqft – 200 sqft. Doing the maths itself by dividing the selling price over the floor area, the price you are paying are most likely higher than the apartment/ condo in your neighborhood. It’s overpriced! Guess what, most of the time, investors are actually subsidising the guaranteed rent by paying an inflated price for the unit they secure.
4. What happens after the guaranteed period?
How can you sell something if it is sold overpriced to you? Most likely you will just sell it at a loss. Also, the real market rental return are usually much lower than the guaranteed return after the guaranteed period. Besides, there are limited exit strategy as resale value usually fall after the guarantee return run out and student pod typically difficult in attracting buyers. So what if you can’t find a buyer? Guess, you will just need to hold for more than 10 years to break-even. Worst case, what if the student pod you owned is vacant?
5. Financing
The salesperson will tell you that the investment amount is so low that the banks usually do not offer loan for investment in student pod. Think about it, is the risk of the investment in student pod too high that the bank will not like to offer financing? What’s next? You must either be cash rich or the salesperson may suggest you to take up a personal finance or borrow from your family & friends dan lain-lain. This sounds so silly, personal financing interest rate will cost you more than 10% which is above the guaranteed return of 9%. Furthermore, relationships with family & friends are priceless. Does it worth the risk of breaking the relationship bond?
Please note over here, I’m talking about student pod also known as Asrama to Malaysian. There are of course people making money with student accommodation by investing in apartments and renting out the bedrooms, but managing it will be troublesome.
Investment that look and sound attractive, with smooth-talking salespeople, slick websites or sophisticated brochures and prospectuses, can still be a scam or crappy deals. The return may always seems attractive but may not commensurate the risk.
Be a smart investor, don’t be impulsive. THINK before you invest, don't let GREED lure you into investment scams or crappy deals!
If you or your family & friends do have some experiences in any investment scheme either genuine, scam or abandoned projects, I would like to hear from you! You are most welcome to comment (which will be moderated) or message me through the contact form at the bottom of my page, I will try my very best to reply every message.
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