Investing in property is becoming a hot topic again. Markets around the world are rising, especially here in Australia.
It’s a strange phenomenon really, with so much negative impact on world economies, one could be forgiven for thinking property investing would not be a good place to place your funds right now.
But there are many factors at play, and one of the most powerful impacts is the very low interest rate environment. With money being so cheap, those that can are taking advantage of the low rates to pile into property.
Whether this is a sustained rise in prices or a false dawn, we will have to wait and see. However, as you know, we here at The Investor’s Way are not about short-term movements in markets. We are more interested in the long-term outcomes, and when it comes to property, it is great that people are becoming confident enough to get involved again.
So this week I want to look at something that is a little niche when it comes to property, but it is an important consideration when buying property, and that is Land Titles.
Why Land Titles Matter
If you want to make money through property investments, you have to learn about certain terminology and what they mean.
For instance, ‘land titles’ refers to who a piece of land belongs to. This is incredibly important when you consider buying a property, as you don’t actually become the landowner in most cases.
There are instances where you can buy a house and acquire the land around it, but this never happens in the case of investing in property developments. Houses and apartments are built on land that’s owned by someone else, meaning the owner of the land can put stipulations on who can buy the property.
A Malaysian Example for Clarity
The best way to make sense of this is to look at the Malaysian property market. This country does an excellent job of outlining the different land titles and what they mean for buyers.
In fact, one of the main property companies in Malaysia – PropertyGuru – has created a very interesting infographic on this topic.
It shows the main land titles in the country: Freehold, Leasehold, Bumi Lot, and Malay Reserved Land.
The type of land titles in each country will vary slightly, however freehold and leasehold are two that are reasonably common across the globe.
As you work your way through the graphic, you’ll see the characteristics of each one, giving more information on which land titles are best for investors.
In this instance, Freehold is seen as the most impressive, offering more benefits for property buyers. And that’s no surprise as it is the most common type of investment holding, especially in Australia, New Zealand, the USA, UK and Canada.
The whole infographic can be found below, and you can use it to expand your knowledge of property investments. Even if you don’t live in Malaysia or want to invest in property there, it does a great job of explaining the concept of land titles and why you should be aware of them before buying.
Infographic designed by: PropertyGuru Malaysia
The Impact of Land Titles to Your Growth
Knowing the type of land titles that are relevant to your investments is crucial to the growth profile of your investment.
The land titles can sometimes change, normally due to Government intervention, so knowing what you have helps to understand the risk profile and growth profile of your investment…
Why is that so?
Well because you can probably guess by now that when you buy an investment property, it is not the house on the property that is increasing in value. Like most physical assets, a house is more than likely reducing in value as it ages.
The thing that is driving the value increase of your property is the land. With increasing populations, there is more demand for somewhere to live, which means the supply of land becomes scarce, which pushes prices up.
So knowing the type of land title you are buying is important, because you want to be the owner of the land that the house sits on to be able to get that increase in value.
I read recently of a property owner in NSW who tried to sell his property for $12 million a few years ago. A sale didn’t eventuate so he took the property off the market. At the time he wasn’t in a rush and didn’t think much of it.
Unfortunately for him, the Government re-zoned the land around his property due to a new airport that was going to be built in the area and he now claims his property is worth $1 as nobody wants to be near an airport and the zoning of the land (the land title type) has made his property less attractive to potential owners.
Land titles matter!
Know the type of land that your investment property is attached to and understand the rights this provides you to make informed and intelligent decisions about your property.
Land titles are another reason to do your due diligence. Understand what is planned for the area you are buying in, understand the potential for growth and understand the risk of changes. While these won’t always be known, as long as you do the research, at least you will be informed with all the knowledge you can have at the time of purchasing.