31 December 2011

Property Outlook 2012.

Back in July this year, I wrote a little post on The Residential Property Market and Sector – and I had mentioned of a fair outlook for 2012. In comparison to 2011’s figures, I believe that the developers would be seeing fair growth numbers as the property markets cool down a bit. But – as I said before, I still think that 2012 will be a good year, just without the super impressive growth rates. In general, I believe that the property market would be expected to be moderate in 2012. 

The Summary 
I would love to say that the Malaysian property markets are not affected by the global economy; but the truth is, we do have quite a number of international and foreign investors – and our market will be affected for sure. However, I also believe that the markets, although affected – it would not be as bad as in 2007/2008 during the US subprime crisis. A lot will depend on how the European debt crisis comes out, and how many countries actually go ‘down’. 

 Despite the global economic slowdown, the economic situation in Malaysia is still rather bullish – especially with the rumours of the next general election happening in 2012. With various Government mega projects and incentives coming out, the property and construction industry has experienced and will continue to experience a further increase in labour and building material costs. As the mega projects are being rolled out – building material speculators have resulted in profiteering – pushing up material prices in view of an increased future demand. 

Like I have said before, if you are able to find a property in Klang Valley – say 750 sq ft that sells at about RM 250,000, and assuming it is a genuine developer – go ahead and buy it. By the early 2013, I believe the prices of apartments and condominiums would have increased by at least 10% - which means the average medium cost homes would cost about RM 280,000 at least. 

A lot of investors are concerned of a potential property bubble. The truth is – I believe there will be no bubble in Malaysia. Our markets are able to sustain the developments around – the only worry would be an oversupply situation. But bear in mind this – the prospect of an oversupply situation is suppressing the prices of properties in Malaysia. If there was an under-supply situation – surely prices would have start shooting up now. 

In summary – I believe that 2012 will be a good year in general – and I would expect the market to be stable. There should not be a sudden increase or drop in prices – and property asset capital appreciation would be expected to be stable, rather than a windfall. Yields – should be the main driver of property investments; and in my opinion, property rental yields should come down to hover at about 2.5% - 3% to give a better indication of the current situation.

Even if 2012 turns out to be not so good for many industries, the property sector should still be good. Where there are risks, there will be opportunities. In a down market, investors would be going out to spot for the opportunistic deals – the ‘fire sale’, auctions, and basically below-market-prices. These would be the properties with high capital appreciation potential. 

Residential Sector Outlook 
If you ask me, I have always been bullish about the Malaysia Residential Property sector. As long as the speculators do not go overboard, the residential sector is always very encouraging. I was born in the early 1980s – which is part of the baby boomers generation which sparkled since late 1970s. Today, those born during the baby boomers era would be having their own families and going out to buy their own properties. I firmly believe that Malaysia has one of the fastest growing working population in this part of the world – as the general population is still very young. According to statistics, more than half of our country’s population is below the age of 30. 

Of course, the main question is… what is the 2012 prospects of the Residential Property sector? 

Firstly, you should read this post that I wrote previously about The Biggest Errors People Make When Investing in Properties. I had divided properties into 3 different categories
  • The Chinese kopitiams that serves the regular chicken rice and char kuey teow - and generally RM6-8 per meal - is similar to properties in the range from RM300,000 downwards 
  • The bak kut teh joints, with meals from RM20+ per person, relates to properties in the range from RM500,000-RM700,000 
  • The restaurants like Oriental Pavilion or Ah Yat, meals ranging from RM40+, relates to properties from RM700,000 to just above RM1mil. =) 
I had mentioned that the bak kut teh type of properties are amongst the safest, as it caters to the mid range market, and becomes the bridge between the cheaper and the more expensive, ideal for upgraders as well as the downgraders. 

Just remember this – your Rental Returns (%) has to be of a realistic figure. I have said this before, and let me reiterate once again. I had mentioned that a lot of properties in Klang Valley are not fetching yields of 8% like how they were previously. Here's my reply to that... YOU ARE RIGHT! If you could get a property that fetches you a 8% yield, by all means, dont ever sell it - at least not yet.Based on the recent research and feedback from various agents, it seems like a lot of properties in Mont Kiara and KL area are fetching yields of 4-5%, which in my honest opinion, is very good. If you ask me now, any yields above 3% is a good deal. 

What type of residential properties to invest or to buy? Any underpriced property in a prime location with a good yield would be a good buy. Vague, isn’t it? A specific type of property would be to get a landed property – be it a linked, or a semi detached or a bungalow, landed properties usually cant go wrong. Choose from Damansara Jaya, Damansara Utama, Bandar Utama, TTDI, Bangsar, Damansara Heights, Setia Alam, Setia Eco Park, Damansara Indah, Ara Damansara etc etc… all these are established neighbourhoods with plenty of good landed properties to choose from. Oh, I also noticed plenty of areas with Damansara too… LOL. 

As for high rise properties – it is always a challenge to find the best deals. Do note that collectively in Klang Valley itself, there are over 25,000 units of high end condominium. I do not have the breakdown figures of units for lease and for own use – but I would say it is probably in a 50/50 balance. 

The Capers by YTL.

Based on what I see, a common trend in the residential sector is the emergence of smaller unit sizes. Developers are creating smaller, and hence, more affordable units to cater to the market. Looking at what S P Setia did for Setia Sky Residences, what YTL did for The Capers and the Empire Group’s developments in Damansara Perdana – I noticed a major increase in demands for smaller units. Setia Sky Residences Block C and D were originally of larger sized units – but were converted and changed to smaller units after they witness the demands for those types at Block A and B. The Capers at Sentul East, achieved 100% take up rates at about RM600 psf, setting a new benchmark in the area. 

Empire? Do I need to mention more?

Commercial Sector Outlook 
While the residential sector remains encouraging, the commercial sector may seem a little gloomy – but that means there are plenty of opportunities! If you look at the 2011 statistics so far for the office markets – rental and occupancy rates were stable, and were slowly trending downwards as well – due to many new completed office buildings. 

According to records, there are over 60 million sq ft of office spaces in Klang Valley itself. There are many newer commercial developments coming up, increasing the supply. But as far as many concerns of an oversupply situation, I think this would not be the case. Instead of worrying, we should be excited about what the owners of the older buildings do, how they refurbish and who else comes in as tenants next!

Avenue Crest, Shah Alam.

Like how I said before, the race now is for sustainable commercial developments. Newer projects are going for LEED, BCA Green Mark or GBI certifications to be a certified green building – on top of utilizing CONQUAS21 and QLASSIC to benchmark their quality. Some are even getting MSC Malaysia status to attract more tenants. Some of the newer and refurbished commercial buildings include 348 Sentral (LEED Gold), Intermark (MSC), Integra Tower (LEED Platinum), Bangunan Lestari EMKAY (LEED Gold), Menara Worldwide (GBI) as well as Menara Binjai (GBI and BCA Green Mark). 

The commercial property sector would require some time to digest some of the new proposed mega developments in the KL City Centre itself. Together with the mega projects such as the Bandar 1Malaysia, KLIFD, the Warisan Merdeka development, Naza KL Metropolis at MATRADE and so on, my interests also lies in 2 very interesting developments – one would be the Pudu Jail Redevelopment at the end of the Bukit Bintang Shopping District; and the other would be the Tradewinds Centre – the redevelopment of Crowne Plaza Mutiara and Kompleks Antarabangsa. If you add all the above up, together with the new MRT, and the RRIM land at Sg Buloh – the cumulative total of projects in the Greater Kuala Lumpur New Key Economic Area (NKEA) would amount to over RM 81 billion. 

Strata titled type of office projects were also well received. If you look at the office developments such as UOA Bangsar, Q Sentral at KL Sentral, KL Trillion at Jalan Tun Razak, the takeup rates for these ‘office suite’ type of projects are also looking good. In fact, this positive outlook was also one of the main reasons why I have decided to go ahead with my company’s Avenue Crest Office Suites project at Shah Alam. The target markets for these smaller office suites are similar to the medium cost residences – the upgraders and the newbies. During bad times, there are always those who lost their jobs and decided to start a new business instead – and they would be on the look out for small office suites to house their operations. The upgraders would be those who are currently in shop offices and shophouses, and want a more proper business address for their business. And of course… lets not forget the downgraders as well… 

Other Major Catalysts 
I believe that in the next 7-10 years, the Malaysian property industry is expected to remain robust. The Government continue to add sweeteners here and there to impress us further – and for those in the industry, they would love all these new additions to the sector. There are quite a number of major catalysts – I would like to sum it all into a few here. 

The MRT alignment.

The MRT system, has been announced by the Government – with an estimated cost of about RM 50 billion. The system is expected to address the poor public transport system in Klang Valley – and would be completed by 2020. It is forecasted to increase utilization of public transportation by at least 40%. 

The MRT would link all the new and major development areas in Klang Valley together. If you look at the alignment – I like the idea that the MRT is able to bring the human traffic from Kota Damansara and Bandar Utama (where there are a huge population), into the city centre and onwards towards Kajang etc. It also passes through a major shopping centre – One Utama – indirectly able to reduce the congestion on LDP. 

Further to that, I believe the MRT can only bring positive impact to the property sector. Property prices will move up for sure. In my opinion, the impact would be even greater when seen at existing properties and the secondary market. This is because the MRT is passing through already established and well-populated areas. 

The 3,000 acre RRIM Sungai Buloh project may be a huge RM 10 billion project – but I think the impact that it has will not be in 2012, but perhaps starting 2014 onwards and throughout til 2025 or so. Developments of this scale takes at least 10-15 years to mature – hence, the impact it has on the market would be rather speculative. The Sungai Besi airport redevelopment, or codenamed Bandar 1Malaysia – would probably take at least 3-5 years before it has any immediate impact on the market. 

One should be more interested in the KL International Financial District instead – due to its proximity to the city centre. The KLIFD is developed by 1MDB – and is expected to have a GDV of at least RM 26 billion. Filling up spaces at KLIFD has been made easier – especially when the Government is offering special incentive packages to attract investors to the KLIFD. KLIFD is expected to have about 8 blocks of 35-50 storey serviced apartments, at least 3 blocks of hotels, at least 12 office towers (of which one would be 80 storeys), and a massive shopping mall on its podium.

The Proposed RM 6 billion Pudu Jail Redevelopment.

Elsewhere, the RM 5 billion Warisan Merdeka development, developed by PNB is expected to have Malaysia’s tallest building. Looking at it, this development, together with the RM 6 billion Pudu Jail Redevelopment, codenamed the Bukit Bintang City Centre (BBCC), are likely to have some major announcements by end of 2012 – and this would have quite an effect on the KL Property markets. 

Hotspots for 2012 and beyond 
Back to everyone’s favourite question – where is the NEXT HOTSPOT for 2012? 

KL’s hottest property hotspot still belongs in the KLCC vicinity. Most of these places are filled with high rise and high end developments, including Jalan Ampang, Jalan Binjai, Jalan Stonor, Jalan Yap Kwan Seng, Jalan Sultan Ismail, Jalan Pinang, Jalan Perak, Jalan Kia Peng… and of course, Jalan Bukit Bintang – amongst my favourites! 

Looking beyond the KLCC region, my personal favourite is still Bangsar. I personally think that Damansara Perdana and Mutiara Damansara has plenty of potential – but it is starting to look overcongested and oversaturated over here.

The KLCC City Centre.

Mont Kiara – everyone’s favourite hotspot, had slowly drifted out of the investors’ radar due to the lack of expatriate based tenants offering exorbitant rental prices. However, I believe now is the time to jump back into Mont Kiara – when the markets there are slowing down, now is the right time to jump back in. 

Cyberjaya remains my long term hotspot. I believe it has plenty of potential for your investments to grow, while still being rather cheap. It is on the uptrend though, so you might want to snap up some properties there before it gets too expensive. With the MEX highway, Cyberjaya is only a good 15 minutes (or to some slower driver, about 25 minutes or so) away from KLCC, perhaps reaching there faster than if you are coming from Petaling Jaya. 

The other locations??? 

Like I mentioned, Old Klang Road / Kuchai Lama and OUG areas are existing matured neighbourhoods that I would put my money on, KL South area would need more time though. As for Setapak / Wangsa Maju area - the potential is there, but nothing great about it. Rental yields there are good because of the TAR College students though. I see a lot of potential in Kelana Jaya as it still has certain small tracts of undeveloped land. 

As for Subang Jaya and USJ... I think lets not look in this direction yet. Subang Jaya, USJ, and its new fringe townships Putra Heights as well as USJ Heights represent a massive area to be developed - and I'm just hoping it wont become a situation of oversupply here. As for Seri Kembangan area - plus Balakong as well - there is some potential here as well. This place should also enjoy a good 20-25% appreciation over the next 1-2 years. Sentul has been a location that I havent touched on - but it has plenty of potential too.