The Straits Times | Mar 24, 2013
Investors need to be aware of the challenges of different micro-markets
A robust Malaysian economy supported by sound economic fundamentals sets the stage for a favourable property investment climate. The warming of ties between Singapore and Malaysia since the signing of the Points of Agreement in 2010 has led to more cross-border investments. In addition, several rounds of property cooling measures in Singapore have driven investors to overseas property markets.
On the back of stable employment and rising incomes, the country's gross domestic product (GDP) recorded a 5.6 per cent year-on-year increase in 2012, and appears on track to achieve a healthy growth of 4.5 per cent - 5.5 per cent projected by the Malaysia government - for 2013. Meanwhile, the gross national income per capita is moving towards the Economic Transformation Programme's (ETP) target of US$15,000 (S$18,700) by 2020.
While the broad macro-economic backdrop looks inviting, investors should be aware of the respective micro-markets, and understand the dynamics and challenges unique to each before making a decision.
As a gateway city and the main commercial and urban centre, which has also been identified as one of the 12 National Key Economic Areas under the ETP, Kuala Lumpur accounts for a third of the country's GDP.
The Tun Razak Exchange, the first phase of which is slated for completion in 2016, underscores the government's ambition to further develop Kuala Lumpur into a global financial and economic hub that will attract an upwardly mobile, cosmopolitan middle class with substantial spending power.
With the anticipated spike in business activity and the employment that it will create - supported by key ancillary factors such as the upcoming Klang Valley MRT and Singapore-Kuala Lumpur high-speed rail link - we envisage properties in Kuala Lumpur to yield steady rental income and capital appreciation over the long term, with those located near major transportation nodes to enjoy relatively quicker and greater value appreciation.
Prices of high-end condominium units rose by 7 per cent to average RM670 (S$270) psf last year, compared with rental increase of under 4 per cent to average RM3.70 psf per month. A significant new supply of about 5,680 units is expected to hit the market this year. This is the highest recorded since 2005 and the bulk - 83 per cent - is located in the city centre.
Notable developments scheduled for completion include: The Elements (1,040 units, Jalan Ampang), M-Suites (442 units, Jalan Ampang), Verticas Residensi (423 units, Bukit Ceylon) and Sky Residence Phase 1 (423 units, Jalan Raja Muda Musa, Kampung Baru).
The abundant new supply forthcoming in the next three years, averaging out at 5,700 units per year, the majority of which will be seeking tenants, is expected to exert downward pressure on rents, especially in the key city centre. Investors who are not prepared to weather the pressure of near-term oversupply should go for entry to mid-range residential properties that are within the means of the local populace, and which will provide a more stable rental yield.
A generally optimistic outlook for the region is bolstered by major projects taking place in the economic corridor, including a high-profile joint venture involving CapitaLand, Temasek Holdings and Iskandar Waterfront Holdings that promises a $3.2 billion township in Danga Bay, as well as the Afiniti urban wellness project in Medini, a joint venture between Khazanah Nasional and Temasek Holdings, which is anticipated to drive up medical tourism.
Property prices have, as a result, appreciated. In the fourth as new facilities - such as Pinewood Studios, Legoland Water Theme Park, Motorsport City, China Mall and Gleneagles Medini - open for operations. Prices of new condominiums are setting new benchmarks of as high as RM1,000 to RM1,200 psf.
But unlike Kuala Lumpur, Iskandar Malaysia is not a mature investment environment and, while it holds the promise of development and the accompanying demand for property, the time lag between investment and returns is something that should be considered. Rental income, for example, may not be forthcoming until a critical mass of facilities becomes functional and starts bringing in a sizeable workforce.
Buoyed by a construction boom that is expected to create RM6 billion worth of jobs over eight years and a slew of other business activities, Penang's growing economy, centred on its revitalised tourism industry and electronic manufacturing hub, is expected to lift its property market as well.
The RM3 billion Penang Second Bridge under construction, coupled with ambitious plans to develop Penang Port into a regional transshipment and logistics hub, means greatly enhanced connectivity for the island state.
Penang is widely regarded as an attractive second- home destination for foreign retirees. Gross yields of three-bedroom apartments are typically between 4.5 per cent and 5.5 per cent.
Kuala Lumpur, Iskandar Malaysia and Penang all present their own opportunities. Investors should be guided by their investment objectives and be aware of the socio-political and market risks. As always, do the necessary research as it's a case of "caveat emptor" - "let the buyer beware".
The writer is head of consulting and research, DTZ Malaysia
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