Cashing in on heritage buildings

WHILE most wage-earners commonly dream of the day that they can escape from their humdrum life by reaping the rewards of their investments, few dare to take the plunge into the world of business.

Most latent entrepreneurs usually think of the food and beverage business as potentially lucrative. This is simply because they pride themselves on knowing good food.

But it is the real estate industry that can conceivably bring in the big bucks. Usually, however, one must be prepared for the long-haul to realise the eventual gains.

That being said, market conditions in the real estate sector, occasionally throw up opportunities to make money both in the short-term and long-term.

Prominent: Heritage buildings located at street intersections are impressive and should be given attention.

But prompt decisions are required.

Anyway, this is a cautionary tale for all those salaried workers who think they can hack it in business. Hope springs eternal for many people.

A friend who has always been quite entrepreneurial throughout his adult life, recently relocated from Kuala Lumpur to reside in Penang or rather George Town, to be precise. To be closer to the property hotspot it seems.

Already in his 40s, this bold, daring and ambitious chap had worked in the beauty industry and later invested his earnings in the F&B industry.

After cashing in from a management buy-out scheme of his former company, he invested more money in his F&B ventures with outlets in KL, Malacca and Penang.

Bustling Penang: Based on the trends of Unesco World Heritage Sites, property in the heritage zone of George Town will eventually increase 10 times in value compared to the price level in 2008 when it was declared such a site.

Killing two birds with one stone, he conceived an unconventional plan to sell beauty products in tandem with a chain of restaurants. He also roped in investors and partners.

Dead zone

Suffice to say, the local market wasn’t ready for such an unconventional business concept.

First of all, the premises were all located at leading malls, except for the one in KL where the complex was considered by many to be a dead zone even though it was near Suria KLCC. But the initial offer of free rent was too good to resist.

Eventually, he had to pull out from each of the locations due to dwindling sales, even as the rental rates spiralled up.

Leasing agents of leading malls, especially in KL and Penang, are notoriously ruthless and demanding.

You could be a faithful tenant paying your rent diligently for years, but with the first sign of cash flow trouble, there’s no mercy for you.

My entrepreneur friend, could only vacate the premises at the end of his lease or else pay a hefty penalty for quitting early.

The hapless chap and his increasingly estranged partners had to bear the tear-down costs and return the premises back to its bare condition.

He also had to find a warehouse to store all his accumulated equipment because the re-sale value of kitchen equipment and restaurant furniture is probably about 10% of its original costs when you offer them to the big second-hand dealers.

In the end, he was left with only one F&B outlet in George Town and that’s because his remaining business partner owns the premises.

Come to think of it, the principle of owning your own business premises is a sound one, should circumstances allow you the opportunity.

Unesco

While my friend’s remaining restaurant business is only doing so-so, the pre-war shophouse property — bought in 2008 — has soared so much in value that the two partners have hatched another brilliant business plan.

If they liquidate and sell this property now, the unlocked value is more than enough to recover their investments in this venture and afford them to buy and hold other similar properties.

And with the other business partner being a Penangite and in the construction industry, there were many possibilities in buying, renovating and re-selling such properties. Even without doing anything to the property, they could still make money.

They are so convinced about the property market in Penang that they have pooled their remaining resources and gone ahead to purchase more old buildings.

Their gung-ho spirit was fuelled by a lecture given by an expert from Unesco who had remarked that, judging by the rise in property value of Unesco World Heritage Sites in other countries, the tendency is for prices to rise 10-fold.

So far, George Town “heritage” properties have generally increased five-fold since 2008.

That is why my friend has relocated to Penang, because market conditions are still favourable to make money on the short-term and long-term basis.

His rationale is, “Why carry on with the F&B business when you can make money in one property deal, more than all the profits you will ever make from a restaurant. Furthermore, you don’t have to deal with staff problems.”

And how much can an astute property investor make? That depends on how much the purchase price, location and your prospective buyer’s eagerness.

An unrenovated property within the heritage and buffer zones bought at around RM1mil today, can be resold for 30% more within six to 12 months, to buyers who believe prices could still rise further.

What other business can give you that kind of return on investment? And that’s only a conservative estimate. Even if you pay the real property gains tax, there’s still good profit.

The only drawback is your holding power and whether you have the appetite to take risks in a market situation that you may not be familiar with. And there’s no telling when such conditions will cease or continue to be favourable.

Reneging

By the way, for the uninitiated buyer of old shophouses in Penang, one of the most annoying and trying of circumstances, is that the owner or joint-owners can never come to an agreement on the price.

Such owners — usually elderly — are notoriously fickle in their decisions. No sooner have you agreed on the price, they will renege on it and ask for more.

A well-known couple from KL complained to me that the owner of two adjoining shophouses located on Malay Street changed the asking price three times, after each time they agreed to his demand.

By the fourth time, the couple walked away utterly disgusted.

Another friend had to resort to legal action against the owners to ensure they stuck to the original selling price.

But there’s always hope. And persistence will eventually pay off, like my friend’s case.

With his cache of old buildings, he can already make RM1mil within a year, if he sells the properties now.

Spiteful sale

Speaking of Penang property and favourable conditions, a long-time expat resident there told me that sometimes even prime property in the most exclusive location can be bought at a bargain.

He was referring to the case of a well-to-do, married couple living on the hillside of an upscale part of the island.

The house has beautiful views of the sea with specially built glass doors all around the house.

What was once a dream home became a wreck when the wife suspected the husband of philandering.

One day, she wore all her diamond rings and scratched all the glass panes with them. She then took a hammer and smashed the imported marble flooring.

The house was wrecked and was put to the market as part of the divorce settlement. And to spite the soon to be ex-wife, the husband accepted the lowest offer.

So, opportunities can spring up at the most unlikely places.

U Thant

Meanwhile, in the exclusive U Thant enclave of Kuala Lumpur, the wife of a prominent resident there, complained that the neighbourhood is being ruined by the construction of apartment blocks.

Next to her property that spans over two acres at the fringe of the Royal Selangor Golf Club will be a development that will have 16 apartment units.

With the demand for ultra, exclusive homes at an “affordable” cost in prime neighbourhoods, such projects are bound to proliferate.

Despite the height restriction of new buildings in the area, traffic density will be a foreseeable concern as more residents move in.

And with the residences of top diplomats located in the area, security can become another issue. And people who can afford to buy into U Thant may not necessarily be from the cultured set.

Anyone who runs a successful car accessories shop can afford RM3mil-RM4mil for a nice apartment there. - The Star