Property as an Investment

The property market is highly volatile and thrives on speculation.

Although Malaysia is considered a fairly stable market with steady appreciation in value, unlike other places around the globe, it is important for Malaysians to understand when and where they should invest their money.

It was reported last year that the local property market would see moderate growth in 2012 due to a gloomy economic outlook.

However, as we approach the final quarter of the year, the property market seems robust, with more developments being launched and take up rates for new developments averaging above 50% despite volatile economic conditions in the West.

Recently, a property developer informed MetroBiz that most of their condominium units were bought as an investment as many expect that the area to appreciate it value.

“They can always rent it out to cover their monthly installments and after several years, the value of the property will have gone up by at least 30% given its location,” said the developer.

But if that’s the case, why are there so many vacant condominiums in Mont Kiara, Bukit Ceylon and other upscale property developments? MetroBiz takes a closer look at the property sector, a playing field has created so many millionaires and, perhaps, an equal number of bankrupts.

How many times have we heard at the coffee shop that a new property is being launched and that we should buy it immediately because property prices in Malaysia always appreciate. It is not uncommon to hear the phrase, “You will never lose.”

Property guru and investment specialist Marco Robinson calls this speculative buying.

“Most Malaysians invest their money in property based on speculation without seeing the bigger picture.

“Eventually they will not have a positive cash flow from their investment and after a few years they end up selling the property to balance the books or even worse, having the bank take back the property,” he said.

The author of Know When To Close The Deal and Suddenly Grow Rich and a proud member of the billionaire boys club for achieving over US$1bil (RM3.1bil) in sales, Robinson said Malaysians need to invest in educating their minds before investing in anything.

“Many fail to realise that the recession we had is part of an 80-year cycle and we are still in it. Look at Europe, for example. Almost every week we hear countries like Italy, Portugal, and Greece, among others expecting, bailouts.

“And in the US, markets are still crashing and will crash further after the presidential elections are concluded,” he stressed.

Robinson further adds that the global economic outlook for next year will be far worse than predicted and for the first time in history, we could face a triple dip recession.

“Malaysians who are serious about property investments should look into markets such as the US where house prices have dropped tremendously,” said Robinson. “These markets can offer good rent yields and, once the economy bounces back within a few years, the value of the property will appreciate,” he added.

Robinson cited the Hilton family that invested during the 1920s and 1930s, at the height of the Great Depression.

“From my experience, Malaysia is one of the toughest markets to collect rent,” said Robinson, when asked about the risk involved with property purchases overseas.

According to Robinson, Malaysia should not be classified as an emerging market and should be reclassified as a semi-developed nation due to its nature as a “slow-burning” market.

“In Malaysia, although property prices are expected to appreciate, it takes a very long time. Right now, property prices are too high in Malaysia and it does not make cash-flow sense as you need to service your mortgage which is not covered by rent yield returns,” he explained.

Also, property transactions in Malaysia take at least six months to finalise, while in the UK it only takes three days. “In that six months, anything could happen and you may lose out,” said Robinson.

According to a report by Jones Lang LaSalle, a financial and professional services firm specialising in real estate services and investment management, the second quarter of 2012 marks a return to investment transactions above the psychologically important US$100 billion mark and, at US$108 billion, volumes are up 24% quarter-on-quarter globally.

The report further stated: “The rental outlook for 2012 has been tempered by ongoing economic uncertainty, although we continue to expect positive rental growth in many major prime office markets — the notable exceptions being Hong Kong and Singapore.

We still remain particularly bullish about rental growth in Beijing and San Francisco (+20% to 25%) and we have upgraded our projections for Mexico City (+15% to 20%) as supply conditions tighten.”

Closer to home, it was reported that Budget 2013 will see more measures to control the soaring prices of property, including tighter fiscal policies to curb speculation.

With 58% of households in the cities earned less than RM4,000 a month including 44.5% earning less than RM2,500, the government is expected to allocate more affordable housing projects such as the People’s Housing Project (PPR) and the 1Malaysia People’s Housing Project in the coming Budget.

Local industry experts such as Asian Strategy & Leadership Institute chairman Tan Sri Jeffrey Cheah is confident that Malaysia will not be experiencing any such property bubble.

It pays to do your homework before you take the big step into property investment. A sound strategy can pay off even with uncertainties around interest rates and volatile market conditions.

You can reap rewards if you choose the right property as the shortage of rental properties, combined with rising prices in most markets across the globe but be sure keep a close eye on your investment. – The Star

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