Malaysian Real Estate Still On Foreign Investors’ Radar Despite Being Low Key

The Star: 08 August 2008

THERE is still interest in Malaysian real estate, especially in the KLCC area, among foreign buyers.

According to Henry Butcher Marketing Sdn Bhd chief operating officer Tang Chee Meng, investors are now more cautious in view of the current political and economic uncertainties.

Investors are also concerned about the large number of units that would be completed within the next 12 months and the possible impact on the rental market and yields.

In a regional context, prices of Malaysian top-end condominiums are still cheap, being only 20% that of Singapore and about 12% that of Hong Kong.

Cancellations:-

Tang said foreign investors were still keen to invest but the level of interest was low compared with the strong surge in foreign interest in the second and third quarters of 2007.

Condo prices within the KLCC area are still the cheapest in the region and prices are very unlikely to fall.

“After the results of the general election, we had a couple of purchasers who cancelled their bookings for one of the projects that we were marketing.

“However, we suspect that they were probably only using the election results as an excuse. Once things settled down and people accepted the results, we had no more issues. Sometimes it’s a knee-jerk reaction.

“On the whole, we have not heard of situations where a developer faced a significant increase in the cancellation of bookings.”

Some investors were adopting a wait-and-see attitude, said Tang. The impact was felt more strongly in the low and medium-cost sector as the target buyers were more adversely affected by the rise in the cost of living.

Well-heeled investors were, however, still investing in the upper medium-cost and high-cost sectors but they were now more selective over the location, pricing and developer’s track record.

There had been no increase in KLCC condominium properties but prices had remained stable, said Tang.

Tender Difficulties:-

Tang said he had not heard of any specific examples of developers falling behind or being unable to meet their construction schedule. But from market talk, he understood that some developers faced difficulties in getting contractors to tender for their projects.

There had also been cases where the contractor turned down the award after being informed that they were successful in the tender exercise.

“I also heard of a developer whose contractor stopped work after the project was 80% completed and the developer had to continue the construction work on his own.”

At this point in time, investors who still keen on buying KLCC properties ought to look out for projects that stood out from the rest, advised Tang.

Look for distinguishing factors, for example, branding, architectural features and design. “In that sense, you would have no competition and therefore, you would be in a position to dictate your own price and rental,” he said.

Second, unless it was a project undertaken by a financially strong developer, it would be safer to invest in a completed project. “You would not have to worry about the project being abandoned and whether the workmanship was of the right quality,” said Tang.

“Third, if you are investing in a project not yet completed, choose a developer with the financial capability and track record in handling similar projects,” he added.

Lastly, the investor would obviously have to do his homework thoroughly to make sure he is paying is a fair price and that his desired return on investment is achievable.

Although the property market could see a reduction in the volume of transactions compared with 2007, Tang believed that property prices were unlikely to go down due to the significant rise in construction costs.

As the current fixed deposit and savings rates of banks were below the real inflation rate, it would be pointless to keep money in the bank.

Property has always proven to be a good hedge against inflation, so it would be a good move to look for outstanding buying opportunities in the property market. However, investors would have to choose wisely.