Landed property or apartment, this is the question always surround property investment scene or homebuyers. It is also the most common asked question. Landed property usually has a piece of own land in the front entrance while apartment building has no land for the house owner. Some says apartment is inconvenient because it is high rise and far away from car park. Some argues that landed property is not as safe as apartment because it is easier to access. Some might also say that maintenance of apartment is higher. There are some truths to these statements but these are not all of the truth. Depend on what do you want in return. Let us look at it one by one from perspective of property investor.
Note: In Malaysian term, apartment and condominium is usually high rise with more than 10 stories tall, while landed house as it implies, has a piece of land and it is usually 1 to 3 story tall only.
Freedom of land – Landed property is usually associated with owning a land and the freedom to do anything you want at anytime on your own land. However as investor, through capital appreciation or rental income, you need to think if these factors could contribute to the rate of return? Probably this is best explained in the third point.
Not an ideal rental property – Landed property is always higher in price and monthly installment. For a decent terrace house in a good area can cost up to half a million – take Bandar Puteri as example (a township name in Malaysia). The monthly installment could be as high as RM2.5K. In order to generate positive cash flow, you need to at least rent out in RM3K. Probably you do not think this is too much if the tenant has family and children and they need bigger space to live in. But do you think they would rather rent the place instead of buying it on their own? Again, a small family will opt for smaller living space such as an apartment or condominium with 3-bedroom that only cost them around RM1.5k per month.
Note: RM stands for Ringgit Malaysia, mean Malaysian currency.
Landed properties tend to appreciate more in long term – this is not new, if your grandparents owned some land back since 60s, you would have seen the price gone up a few hundred times from the time they bought it. Same as landed property, as the land get scarcer, and population grows, the land price will go up as well. The faster the population grows, the faster the appreciation. In contrast, apartment or condominium unit does not appreciate as much as land properties simply because the "land" is divided into so many smaller parcels. The appreciation, if any, is simply spread out to all the unit owners. Another factor probably has to do with land reuse cost. More cost is involved in reusing the land with apartment built on compared with landed property that is usually 2-3 storys tall.
Since landed properties have always being associated with higher capital appreciation, it is also very common being used in flipping. For example the landed terrace house in Bandar Puteri (township name) was sold at RM350K + 4 years ago pre-constructed has recently appreciated to nearly RM600k. Without factoring in the other cost, we see a whopping 72% capital appreciation. The costs are anything involved during the time you purchased the property until it is sold off, which includes total installment paid plus interest, cost of rectification not covered by developer, furnishing and improvement, legal fees, middle man charges, other processing fee, etc .
Low entry cost for apartment compare to landed property – It's easier for people to make decision if the entry cost is low. For rental property, usually the tenant will need to come out with 1 month of rental deposit, 1 month advance rental and 3 months of utility deposit. If an apartment's rental cost is RM1.5k, then the initial cost tenant needs to come up is around RM1.5K x 2 + 750 (Let say 3 months utility deposit is roughly half month rental) = RM3.75K. However for landed property, tenant is required to come up to around RM3K x 2 + 1.5k (Let say 3 months utility deposit is roughly half month rental) = RM 7.5K as initial entry cost. In this case, an apartment's initial entry cost is only half of the landed.
Visible maintenance cost for apartment – Usually maintenance cost of apartment is proportion to the size of the unit. The larger the apartment unit, the higher the maintenance cost. Depending on variety of facilities provided and the quality, usually maintenance cost per square feet is around 15 to 20 cents, which is RM150 to RM200 for a 1000sqf unit. Landed property owner does not pay maintenance cost but they do need to pay for whatever exterior maintenances required such as paintings, roof repair, ducts, lawn mowing and miscellaneous efforts to keep the surrounding in proper condition. However, with some due diligent, maintenance of a landed property can be much lower than of apartments'.
Security problem – one of the reason people like apartment or condominium is because of security. For a very basic apartment there are two tiers of security system at minimum; one is the apartment compound fencing with electronic gate and security guard post and another is the security enforced entrance to the elevator area. Since apartment consists of many units in a building block it makes it harder for targeted attack or robbery. If apartment is high rise building, it will be quite rare for casual break-ins as well. In contrast, landed property owners need to invest quite amount of money into home security system such as auto gate, alarm system, window / door grill, etc. Even fully equipped, landed property still risk higher possibility of casual / targeted break-ins and robbery. However apartment security is not fool-proof as well, one example lies in security personnel being not scrutinized enough or too lenient to stranger visitors.
Property life expectancy – A well built landed property can last for twenty to thirty years or more without a question, however due to young age of Malaysia and shallow high rise living experience, no one can tell exactly how long can an apartment or condominium will last . In common sense, the value of apartment building will start to depreciate only after certain age, this usually happens when the building is deemed unsafe to live in.