Excerpt from City & Country: What the experts say.

The Edge Investment Forum on Real Estate 201

Due to time constraints, speakers at The Edge Investment Forum on Real Estate 2010 entitled “To buy or not to buy: Where to put your money” were unable to take all the questions from the floor. Participants were invited to send in additional questions (edited for clarity).

Allan Soo

T K Lim
When do you think the office-space market will pick up and which area will recover faster in this sector?
The supply numbers do not look good for the next five years. We will have a cumulative stock of 90 million sq ft; a total 50% increase. Underlying this is low foreign direct investment (FDI) and slow growth in the service sector. I do not see the sector picking up in the next five years. If there is any area recovering it will likely be the KL Sentral area and perhaps Bangsar and Mid Valley, as the traffic congestion downtown worsens in the next few years.

Chow Sok Sin
Based on your presentation, you recommended Ara Damansara. What is the reason behind this? Why is Ara Damansara preferred over Kota Kemuning, which is almost the same distance to USJ and Subang Jaya?
Ara Damansara is still growing and underpriced. It will grow exponentially in terms of its commercial properties as more and more office blocks are developed. Already there are five blocks there being planned and likely to be fully occupied. The public transport there is good — two LRT stations, an airport, plus it has five golf courses nearby. It is also supported by a large hinterland — Kelana Jaya, SS2, Glenmarie and Subang, plus in the long term, the Rubber Research Institute (RRI) development. Ara Damansara is very well linked by highways and also to the rest of Petaling Jaya. All that commercial activity and hinterland will push residential prices up.

I think the arguments for this location overwhelm those for Kota Kemuning. These areas mirror what happened in Mutiara Damasara and Bandar Utama which are now growing rapidly as a commercial strip all along Lebuhraya Damansara-Puchong (LDP). The way the question was asked suggests that you assume Subang Jaya is the epicentre.

Actually the epicenter is PJ, not Subang, and Ara Damansara is just the last frontier of PJ at its western edge, closer to the epicenter than Kota Kemuning. This is basically the simple organic growth of PJ which is a very established suburb.

Kit Au
You mentioned that the market may be heading for a boom. Is the market heading for a bubble? Your rationale is that Malaysian market growth is not as drastic as that of countries in the region like China or Singapore. Look at Malaysia’s economy; it is not doing fantastically well and may be largely driven by speculators.
I did say that the condominium market is oversupplied and that prices are rising only for landed properties. You can see that in our CB Richard Ellis quarterly tracking and even in Ho Chin Soon’s illustrations. There is selective demand right now but there is a lot of money around, driven perhaps mainly by easy credit. I think we are pushing ourselves towards an almost consumer-led type of boom because of the easy credit.

This, however, does not mean the prices will rise across the board. It will be mainly for the landed properties. I was quite reluctant to call it a boom and wanted it to be more of a discussion but since I was asked my opinion, I thought a boom for the landed properties, including houses and shophouses, as people are chasing good housing.

I do not think we are into a bubble as landed properties are not coming on stream fast. The condo market is already a known one and most of the additional 12,000 units of supply we expect by 2012 have been launched. Even if the next 15,000 units coming in after that were launched, they would pull prices down instead. So I do not see a boom in the condo sector.

The Malaysian real estate market, like the economy, is always a step behind the other regional economies — that is why we are not doing so well. But each time the other markets do well, we follow — usually a little later — not usually because we are good but more because we are part of the map. So we are a default market, and this happened in 2007 when everyone started seeing us as being too cheap. Already the funds are coming back to invest because we are still better than Vietnam in terms of stock and in terms of maturity.

Strangely enough, we are less driven by speculation this time round than Singapore and China. There are a lot of multiple ownerships in Mont’Kiara condos for example and none of them has defaulted since 2008! This fact came from a bank.

Since the landed market has gone up a fair bit in PJ/Kota Damansara/Bandar Utama, is it risky for us, new buyers, to purchase (property) at this point of time? Is it high risk now, in that I may end up buying at the peak of this cycle?
I must admit I have always been wrong in the areas you’ve mentioned. I always felt during each cycle that we were at a peak and as a result I did not buy when Sierramas was offered to me at RM28 psf in 1994, Gita Bayu at RM32 psf in 1996 and the link houses in Mutiara Damansara at RM380,000. Since I was a consultant at the Curve (in Mutiara Damansara), I actually was also the valuer for the developer for the pricing before they went into the market and I had a problem justifying the price at that time!

I bought a piece of land at RM68 psf to build a house in Kota Damansara in 2008 and my friends said it was expensive as the original buyers bought had it at RM30+ psf. Today it has gone up to RM80 psf and is still rising. There is never a good time to buy property. It is hard to predict when the peak is. Every time I compare with past prices it feels like a peak. I think there is still a lot of money around and so we are not at a peak yet.

Plus, we have a large base of households in link houses who can upgrade to better quality housing very quickly by disposing of their current assets or using them as collateral. No doubt it looks risky now to buy when prices are so high, but the real peak is difficult to guess, and I think we are still on an ascent.

Dixon Choy
The first rule of investing, regardless of property or stocks, is to ‘buy when the market is down’. In the current scenario where the market is picking up and, to some extent, hot, does this mean that, as an investor, I should refrain from buying or investing until the market consolidates or contracts?
Answer same as above.

Why do locals invest in foreign properties currently, despite the fact that our property prices are more affordable? Is it because of the returns, investment terms and requlations? Or is it because of other notable reason(s)?
There is a flight of money as a result of our political uncertainties. Also, other markets are looking hot, plus the ringgit is strengthening.

Why has the number of foreigners or expatriates investing in our country and property not increased as desired despite our government’s initiatives and the Malaysia Property Inc’s aggressive roadshows overseas?
Not qualified to answer this one, sorry.

In addition to pricing, what do you think our government should do in order to promote our country as a property haven or make our property more attractive than in other countries?
It’s a structural thing — we have to promote our standards to the workforce as well as improve our basic infrastructure in terms of removing bureaucracy and improving IT support, among many other things. People must want to live and work here compared with Singapore which is more expensive.