Property Market Investment Outlook in 2012

Up-cycle at tail end

Steep increase for Malaysia property sector in the past 3 years is expected to sputter to a halt. It is just not possible for the prices to go up, up and away until kingdom come. Subdued, stable and plateau are the words to describe property prices in 2012.

OSK Research Sdn Bhd said developers were rushing to capture any remaining upside before the sentiment for such properties turns sour.

High end developers such as SP Setia and Mah Sing are beginning to  to tap into the high demand by first-time young buyers by shifting gears into more affordable mass-market housing segment

OSK maintained a “neutral” call on the property sector, on the fact that property counters tend to under perform or market perform when sentiments weaken.

Rental yield 6 to 8 percent no longer achievable

International Real Estate Federation of Malaysia Malaysia  president said the glut in high rise condos are due to lesser multinational companies entering the market to purchase the units now.

A recent report by property consultancy CB Richard Ellis notes that the average asking monthly rental rates of luxury condominiums, during the first half of 2011, in Bangsar and Mont Kiara were RM3.29 and RM3.13 per sq ft respectively.

The report points out that rental rates in the three main condo markets (Kuala Lumpur City Centre (KLCC), Bangsar and Mont Kiara) on a per sq ft basis had declined since 2007, reflecting weaker demand for rental units coupled with increased investment

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Short term gain, long term pain

Those who are looking at swifter returns on their investments would be asking about the potential increase in value for such units within the next three years, as they want to “flip” their purchases.

A bank-backed property analyst explained that presently, there is a huge gap between the prices of recently launched properties and secondary market units.

“Recently launched properties offer better BLR (base lending rate) spread. Many property developers offer 10:90 schemes, and also absorb entry costs such as the stamp duties.”

However, he says within the next two years, it would be difficult to “flip” recently launched properties that were bought at above RM500,000 – depending on unit size and location.

“I am not hopeful about “flipping” such units and getting a 20% price upside within two years. Buyers also need to pay exit costs like real property gains tax (RGPT). You may end up with the same returns that real estate investment trusts (REITs) provide presently, which is about 6% to 7% annually.


So perhaps, investors would do better in buying REITs in the current climate?

CB Richard Ellis executive director Paul Khong said the benefits of investing in REITs include their high liquidity, annual dividends ranging from 6% to 8% per annum and potential capital gain if prices increase.

“The quantum of investment can be small. For example, 1,000 shares in CMMT (CapitaMalls Malaysia Trust) would cost you RM1,440 and some brokerage fee. CMMT was listed (in July 2010) at RM980 per 1,000 shares. If you had invested on day one, you would have made more than 50% gain – both capital value and dividends. REIT values are largely more stable and the dividends are usually very consistent.”

HwangDBS Investment Management Bhd equities head Gan Eng Peng concurs and notes that REITs tend to be well diversified, and property fund managers have advantages over individual landlords in terms of attracting tenants as they have “a larger network, reputation and backing behind them.”

“Also, the REIT property fund manager would have done the homework to ensure the property is a good investment and that the tenancy process is also sorted,” he said.

“REITs are considered a defensive play within the equity asset class. Its performance moves in tandem with economic growth and business cycle.”


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