By Lee Yan Li

Secondary property market is crowded with immense potential and abundant opportunities, if only investors pay attention to it.

The government has been implementing legislation and policies to monitor the primary housing market, but there is hardly any active effort to regulate or keep watch on the secondary market, and it is not hard to understand why.

Compare to the primary market which records impressive growth for the past few years, the secondary market is more or less out of the limelight.

In an exclusive interview with StarProperty, Wealth Dragons co-founder Vincent Wong said the investors' lack of market knowledge and the initiative to acquire it are part of the reasons the potential of secondary market is overlooked.

In this economy, secondary market presents an alternative way of property investment, especially for investors that are willing to adapt to the market.

For Wong, opportunity presents itself when more and more people are said to face difficulties in paying the mortgages.

"They are the people you want to deal with. The developers will inflate the price of the property and give you a discount.

In the secondary market, you can evaluate the true value of the asset and negotiate a true discount with the owner," he added.

Capitalising on his investment experience in the UK property market, Wong cited deal flipping as an example of an alternative way to invest in the property market of Malaysia.

However, he said deal flipping is not something new in Malaysia, as Malaysian investors have been flipping properties before the completion of the development to make money.

"This is one of the reasons that caused the boom in Malaysian market. The deal flipping didn't require money at all, it was just legal work. But now it's increasingly difficult because of Real Property Gains Tax and the difficulty of securing financing," noted Wong.

He said investors could instead do deal flipping with an "option" in which investors will not be buying the property, but instead acquiring the controlling rights of the property.

Through contract exchange in the secondary market, investors can design a deal to control the contract with some sort of exclusivity. With options, investors gain the exclusivity of the properties for a certain period of time without buying the properties.

Wong said in an "option" contract, the investors have the freedom to decide against exercising their rights to buy the properties, and they can also choose to assign the contract to a third party. As the sales haven't gone through, the investors will not need to pay property gains tax.

He also stressed that there are differences between a deal maker and a property agent.

By definition, a property agent requires a license and is an entity that does large scale marketing for investors or retail buyers.

Wong advocated an inner circle of professional investors, who have to be part of a deal maker's network that negotiates deals and transaction in private.

The upside is, there is more collective bargaining power in a network, but one has to make sure he or she is in the right circle of investors with trustworthy partners.

In Wong's opinion, Malaysia has a much more speculative market than UK, in which more people are investing in the property market without proper knowledge.

He said speculating is buying at full or above market value, which is often found in boom markets like in Malaysia. The buyers bet on the assumption that the properties will go up in value to make money.

In contrast, investing is making money as the investors buy the property. In other words, investors tend to buy assets that are below the market value.

According to Wong, the lack of education (in property market), oversupply of property and crowd mentality are all factors of a speculative market in Malaysia.

He said all property markets experience a boom-bust cycle, but Malaysia and UK are currently in different stages of the cycle.

"The speculative fever in UK can be traced to 2001 to 2008, and it was very short spanned," said Wong.

He noted that the market boom in UK was due to an ease of securing financing, which could be partly credited to UK's "Buy to let Mortgages" scheme. The scheme allowed the borrowers to secure mortgages for buying properties to let, irrespective of their earnings.

As a result, more developers were building high rise buildings despite a traditional preference for landed properties in UK, and more people started to become investors.

"They all got in quickly, and they lost money very quickly," said Wong.

In Malaysia, Wong believed that people are rushing to invest in the primary market because new developments are often well equipped and investors will need to spend little effort on the investment.

Moreover, investors mostly tolerate paying above the market value for a new development, because they think they would be compensated by capital appreciation, and the house prices will go up indefinitely.

Wong recounted a problematic incident last year, in which he overheard a conversation between two investors.

The first investor asked: "How much above the market value do you think is reasonable to get in (to the primary market)?"
The second investor answered: "It doesn't mattered as long as whatever price they asked for, they give us a discount."
In Wong's opinion, the investors were talking about a "bubble" instead of investing, and if everyone in that conference held the same opinion, it would be a problem.

"People learn when they lose money. Until then, they still hope they will make their money back," said Wong.
However, he also noted there are differences in buying a property for living and for investment.

"A house to live in is more of a liability, while investment is putting money into your pocket," said Wong.

Wong stated that the secondary market offers predictable outcome, as one can often find homeowners who are struggling to pay their mortgage and will be willing to give a genuine discount in exchange of a quick sell and a predictable outcome.

Besides introducing the concept of lease options, which is about controlling assets rather than buying assets, Wong also suggested that there are other ways in which one can control a property in the secondary market.

"Every home has a seller, this all part of deal making," he noted.

Vincent Wong will be presenting at the Wealth Conference organized by WMA at Connexion@Nexus, Bangsar South, Kuala Lumpur on July 31.

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