Consider this example deal for Parz, a sleek and modern condominium in Subang Jaya. It features amenities such as a gym, botanic garden, jogging paths, sky bar, jacuzzi, and more. Basically, it’s made for young working adults and students.

The original price is about RM450,000 for a 475 sq ft unit but the developer is offering a special rebate of 8% for a promotional period.

Instead of the usual 10% downpayment, a small booking fee of RM9,000 (2% of the original price) is imposed to own a unit. The remaining 90%, is funded with a mortgage.

The developer is also bearing the cost of all legal and transaction fees. So, all it takes to own this condominium is an initial RM9,000.

This is how many new property projects are being promoted and why they appeal to young working adults and first-time property buyers. Thus, it is important to consider these four factors before you decide to book a unit.

Is the developer’s rebate genuinely a discount?

The 8% rebate for the unit works up to a tempting RM36,000. However, as an investor, ignore this discount and consider the netted price per sq ft which is RM414,000 (RM450,000 – RM36,000).

At 475 sq ft, the netted price per sq ft is RM871.58. Now, compare this figure with other condominiums in Subang Jaya via the brickz.my website. There is sure to be one that costs less than RM500 per sq ft.

You can still buy a 1,000 sq ft condominium at around RM430,000. So, its price per sq ft is RM430, which is half of Parz’s.

Or, you can say that the price offered is not a genuine discount but a mark-up of 100% from the average price of a decent-sized condominium here. This renders the RM36,000 “rebate” false.

Will the property appreciate in price?

It’s difficult to believe there will be buyers willing to pay as much as RM500,000, RM600,000 or more for a Parz unit.

When you buy your Parz unit, you place only RM9,000 in deposit. To you, the condominium is affordable. Once you have the keys, you’ll need to find a buyer willing to place a 10% deposit and around 5% in all legal and transaction costs to buy over the property.

So, if you’re trying to sell your Parz unit at RM600,000, the new buyer must have at least RM90,000 in initial capital outlay. Put yourself in their shoes. If you have RM90,000 to invest, would you buy a 475 sq ft unit or a 1,000 sq ft unit?

They might even consider purchasing landed property.

If you hold onto Parz for 10 years

Assume the average price per sq ft for a condominium here is RM430 and that it might appreciate by 50% in 10 years. This brings the price per sq ft to RM645.

This is still below your netted price per sq ft of RM871.58 for a Parz unit. Instead of appreciation, you will incur a capital loss instead.

If Parz reverts to the average price per sq ft of condominiums in Subang Jaya, at RM645 per sq ft, your Parz unit would be valued at RM306,375, which is below your netted purchase price of RM414,000.

So, your capital loss is RM107,625 over a 10-year period.

How much cash will you bleed every month?

Let’s say, the negotiator tells you that you may rent out a 475 sq ft unit at Parz for RM2,000 a month. Is that a true estimate? How do you find out if this is realistic?

This depends on the average income of young working adults in Subang Jaya and on the type of cars they drive.

If their monthly income is RM5,000 and they pay a car loan installment of RM1,000 a month, can they afford to rent your unit for RM2,000 a month?

Without a tenant, you could pay RM1,540 per month in mortgage installments, RM260 per month in service charges, sinking fees, quit rent and assessments. In total, your monthly cash outflow would be RM1,800.

If you do not possess a strong cash reserve, you could become desperate and rent it out at a low price, thus, incurring a loss.

10-year slave to the bank?

Here is the worst case scenario for a young property buyer.

They earn RM5,000 a month and pay RM1,000 a month in car loan installments. They then buy a 475 sq ft unit where the installment is RM1,540 a month. Their debt-service ratio is a little above 50%.

If they rent out their unit for RM1,000 a month, their debt-service ratio is 42.3%. These are pretty high numbers.

It would be hard to save after netting off their living expenses, car loan installments and property-related expenses.

With small savings, they’ll  continue to work and contribute 50% of their monthly income to the bank, but end up overwhelmed financially due to their car and property values depreciating over time.

So you see, hares don’t win the property game. Turtles do.

What seems to be a fast, discounted way to own a property could be a misleading and very slow method of building sustainable riches from real estate.

What seems to be a fantastic long-term investment could cause one to become a long-term slave to the bank.

So, it is better to get the financial basics right first. This means if you wish to buy a property costing RM450,000, but don’t have 25% of its cost in excess cash (RM112,500), boost your savings first before buying a property.

It may not be a flashy start but, like the turtle, you’re winning the race one step at a time.

This article first appeared in kclau.com

Ian Tai is a financial content machine, dividend investor and author of over 450 articles on finance featured in KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’, and ‘Small Cap Asia’ in Singapore. He is a regular host and presenter of a weekly financial webinar with KCLau.com.