Market rumblings
0 Comments | New Straits Times, Jun 25, 2010 | by Andrew Wong
IF you keep an ear to the ground, you might hear the sound of a locomotive coming your way.
On board are people of all kinds – including local and foreign investors. As it draws closer to you, it will cause the ground to tremble more violently and perhaps make you realise that change is just around the corner. For when it arrives at your station and the passengers hop out, your town will no longer be the listless sleepy hollow it now is.
Instead, it will be filled with people with the money to spend on all sorts of things – even property – so long as it fits their criteria of being cheap but with the ability to quickly appreciate.
It’s very likely that this town is Kuala Lumpur – first stop – and that the train will be coming from Singapore, where its denizen is seeing improved government-to-government ties and is acknowledging the “modest success” we are perceived to be enjoying with our “improved” level of competitiveness.
I didn’t say that – investment bank Citi did when it suggested last month that we may soon see a “next wave of investments” by Singaporeans.
“With the proposed cross-border rapid transit system link between Johor and Singapore by 2018, this connectivity could enlarge (prospects),” it added.
But why did I say KL and not Johor Baru since it is just next door to the Lion City and is thus in a physically better position to tap the benefits? Simply because KL’s market has been tried and tested and is proven to be resilient, weathering shocks well and being the springboard to better gains, as many investors have found out.
Philippine-based real estate research website Global Property Guide thinks so too, as it recently recommended Malaysia as Asia’s top investment destination in its Property Recommendations mid-2010 report.
“Don’t buy in parts of the world which have just come out of a housing boom (except in the United States),” it said, adding that rental yield – the “amount (that) can be earned from renting out a property before expenses and taxes, expressed as a percentage of the property’s value” – is “a key number”.
On why it chose KL, GPG pointed out the city’s solid yield of 8.8 per cent and its relatively low capital gains tax” among others.
“Malaysia has long been a picture of macroeconomic stability and strong GDP growth over many years,” it said.
“Despite submerged ethnic tensions” and “the worry (of) high capital flight, which indicates that something is amiss in Malaysia’s economic environment”, GPG said “strong growth is likely to continue”, especially in KL city.
Where should astute investors put their money ahead of any price rise? Landed residential units may not be the flavour given that domestic demand has caused several parts of KL and the Klang Valley to surge to new highs, especially terraces and semi-dees in modern enclaves such as Desa ParkCity, where three-storey intermediates have changed hands for over RM1.7 million, Taman Tun Dr Ismail, Taman Seputeh and Bangsar.
Rather, they may wish to revisit the Kuala Lumpur City Centre or KLCC area that suddenly went from red hot to stone cold following the worldwide economic slowdown that hit the nation early last year.
According to some estate agents, when it came, it caused prices of some luxury condominiums there to “slump by as much as 30 per cent” due to increasing supply and weakening demand as a segment of the buying market made up of foreign investors found themselves repatriating their money back to their native land to patch up the growing holes in their bank accounts.
That has led to a situation where prime class A luxury condos in KLCC – where land is worth over RM2,200psf – are being offered for almost the same value as a similar luxury project in a fringe-KL location even though the land cost there is significantly less, at perhaps only RM500psf.
Such disparity cannot go unnoticed forever. With the positive comments made by Citi and GPG, this may be the time for KL in general and the KLCC district in particular to shine once again.
Keep your ears to the ground.
Andrew Wong
