Property Investment Musings

1. An interesting situation happened some time ago to a friend whom I know very well. He had the pleasure of purchasing a semi-detached house located at Horizon Hills in late 2011 for a then princely sum of RM900k.
   
   
2. Construction was in an advanced stage when he purchased and the house was promptly delivered by the developer around mid 2012. Armed with the keys to the property, he had a change of heart and decided to sell the unit although the original intention was for own occupation.
   
   
3. The main incentive for the change of plans was the rapid rise in prices for new launches, which was only due for completion some 2 years in future. He now had a property that was ready for occupation and was in high demand.
   
   
4. By October, a buyer was found for Rm1.35m and it so happened to be a foreigner who incidentally was a Privilege Banking customer of a UK based bank. In a matter of days, a loan amounting to 60% of purchase price was secured, with the bank accepting full valuation.
   
   
5. A Conditional Sales and Purchase Agreement (SPA) was signed because State consent was needed for transactions involving foreigners.
   
   
6. The buyer placed a deposit amounting to 10% of the purchase price and the SPA was drafted such that in the event State consent was not obtained, then the SPA will be terminated with full refund of any monies exchanged between both parties.
   
   
7. However, once consent was obtained, the SPA will thus become unconditional and all parties are bound by the contract entered into. Any termination by either party at this stage will incur damages that must be compensated to the aggrieved party.
   
   
8. Due to year end and the uncertainty of the impending General Elections, State approval got delayed longer than expected and was only obtained in early March 2013. By then, 5 months has gone by since the SPA was entered into.
   
   
9. In this short time, the purchaser’s financial situation has deteriorated due to unforeseen medical expenditure incurred by a family member. He was unable to raise the remaining 30% of the purchase price amounting to RM405k.
   
   
10. Since State consent was obtained, the buyer is now caught between forfeiting the initial 10% amounting to RM135k or come out with a further 30% to complete the purchase.
    
    
11. Sadly, he had to forfeit. The SPA was aborted and in the end, everyone involved in the process got paid except the buyer and the loan officer who processed the loan.
    
    
12. The lesson learned from this misadventure for the buyer can be summarised as follows :
13. -When big ticket items are involved, conclude it as fast as possible as a change in circumstance may lead to severe losses.
14. -Segregate funds carefully so as not to mix them up when entering into legally enforceable obligations. 
15. -Always keep an extra amount of funds just in case unexpected costs come up. One can never be too prudent when anticipating expenditure.
16. -Always be careful of local laws when dealing with overseas ventures.
17. -On top of the loss of deposit, there were abortive legal costs. The final loss might be financially crippling.
    
    
18. Back to the friend. He was now RM135k richer, less legal costs incurred, which incidentally was very insignificant as the bulk of charges was incurred on the purchasers side.
    
    
19. By then, property prices have raced even higher and he now decided to stay in it as per original intention. The only difference is, he now has an extra RM135k for the renovation budget.
    
    
20. Hence concludes the tale of the boomerang property.
    
    
21. Happy reading.