Part I : IPI - Inter-Property Index

Q.
I have different properties in different places. They generate different returns for me. How can I compare and contrast among them?

A.
24.06.2015 - Part II : Comparative index on property appreciation here.

No two properties are the same. This is a famous phrase by the property guru.

Why?

Because it is like two persons, they can never be entirely the same. Take for example, a house facing North is already different from his opposite neighbour who is facing South. Especially to some mystic belief of Feng Shui or tradition, some people would only settle with facing South, no matter how similar are the two unit of houses.

Even on the same facing, like two similar size of apartment facing the same direction, the block which has a better number or floor would be easier to sell.

Such ridiculous comparison can become even more out of proportion when some repair and maintenance had been carried out to the said properties.

Hence, the issue is no comparison is entirely fair in the right mind of the dynamically changing property market, so why is there an "Inter-Property Index"?

Objective: An index simple to use for inter comparison of property for easy investment decision.

Applicability: Investment appraisal and suitability for various property types through modifications.

It is difficult to cover every angle of a property as common bases are generally aimed at values which are objective and absolute, rather than suggestive, subjective and qualitative.

Thus, the common bases are like:

1. Price range; the higher the price the lower the score.
2. Size; the bigger the size the bigger the score.
3. Type of property; high for landed property, low on flats and shop apartments.
4. Connectivity; high for easy connectivity, low for poor accessibility from main road or city.
5. Parking; high on 2 parking lots and sheltered, low on no parking.
6. Renovation; high on extension and build in cabinet, low on no renovation or run down.

New or old is not considered in the index because the above Index is for secondary market - Secondary IPI. Modification can be done with Base No.6 taken out to be new properties - Primary IPI. This base can be replaced with attribute like 'Facing, direction' where the choice of units facing a better view fetch higher value than, say the units facing cemetery.

So, various bases are allocated points to reflect the high and low of the base chosen. Each attribute would be given a point, so as to reflect the scores per base. All the bases are aggregated together to have a total score.

That being the total score, it is multiplied by the local rental return factor (annual rental yield). This rental return factor is taken as an average of the rental return per year for similar type of unit in the same area. For example, the rental of a unit of apartment which costs 400k is 1,500 per month - 18k annually.

Maximum IPI = 60 x 18/400 = 2.7.

A similar property which costs 300k would be 60 x 18/300 = 3.6

And, a poor state of the same property which is smaller unit of the same block would have a score, say 45. The IPI would be:

45 x 18/400 = 2.0.

Hence, this is a predictive index to investment appraisal so that the best money is put into the best property. Of course, another two important information are time and locality, which segmentize the selection of properties. I would suggest the index be written as:

Total Score | Time in month/year | key Region, for example -

2.0 | 05/15 | KUL

I hope to design a good mix of properties to be able to produce a yearly index list.

I welcome your feedback on how to develop this Index for our future use. Feel free to email me or comment on this page as your opinion and criticism is important to me.

Proceed to Part II on TRIPI.

Ref:
Own account