Thursday, 31 December 2009

2010 – A Beginning of another Real Estate Cycle

Gavin thinks it is a year to start Investing

2010, a year whereby the world’s financial market is recovering, and believed to be a new beginning of the property investment in Malaysia. If we look into the real estate investment cycle, this year (2010) can be considered as a new start. Gavin Tee, a Real Estate Investment consultant and speaker believes it is a good year to start your real estate investment again. However, he advises that, as the way of recovering is so much different from the last Asia financial crisis (1998), investors are recommended to adjust their investment strategies accordingly.

The 2010 budget has been an upset to the property market. However, Gavin believes the government would come out with some incentives and new policies to boost the market in the month of April to July. He strongly believes that real estate transaction will be really active in second and third quarter.

Last week, Prime Minister Dato Seri Najib announced to amend the proposed RPGT to apply only for those who resell the property within their first 5 years of purchase. This is the sign that shows the government’s concerns and understands the importance of real estate towards the economic recovery to the country. This is a good start for 2010.

Gavin Tee is a registered real estate agent and also the Principle Investment Consultant of Amcity Capital Sdn Bhd. He specializes in conducting real estate investment courses and marketing research. He has been conducting or invited as a guest speaker for more than 30 real estate seminars and courses in 2009.

He said, “The real estate market will start very slowly in the first quarter as the result of the announcements of RPGT, the increase of interest rates and less favorable bank loan packages. Besides, the festive seasons will also attribute to the slow market in the first quarter.” However, Gavin thinks that investors should get prepared to invest in property after Chinese New Year.

Nevertheless, Gavin thinks investors should draw out their long term plans rather than expect a short term gain as the property market could just grow slowly in the next 2 to 3 years. It will be difficult to get FAST return investments.

Gavin believes that there is good news in 2010 for the real estate market but there wouldn’t be many surprises. The world economy is just in the beginning of the recovery stage and the key investors of the respective countries ( ie, US, Europe, Japan) shall be focused on the opportunities in their own homeland. There may only be an influx of foreign investments within the second to third year’s time. In addition, Malaysia has never been the first choice for foreign investments; therefore, the direct impact on economic recovery to our real estate market is relatively insignificant. However, the real EFFECT shall take place particularly in the High-End residential and commercial markets in the end of 2011 or 2012. We expect the cross-border investment to significantly push up the Malaysian real estate market and the country shall be on its way to become the investment haven to the world.

Basically, Malaysia is still the lowest for investments in the region and with a huge potential. The slow real estate market is mainly attributed by the earlier world economy conditions, the government policies and oversupply problems. However, investors with longer term planning would be able to get the huge profit out of it.

Gavin forecasts that the market in 2010 will turn to the secondary market. The new launching projects have hit another high price lately and most developers will no longer offer incentives. These are one of the reasons for switch of investment trend. In addition, the big number deliveries of new completion projects also attract the secondary market transaction. The strong competition in this area will create more opportunities.

High End condos in KLCC and Mont Kiara have a great number of completed units delivered within 2006-2009 and flooded the market supply. The owners are expecting a hard time in renting out their properties and therefore affecting the market price. This is a good opportunity for investors to catch up on the OVERSUPPLIED units as long as the investors have a ready plan for the next 3 years.. Gavin believes the oversupply will be absorbed by the market within 3 years time. As the supply and demand balance up, the market price should be able to go back to the level of RM1000 to RM3000psf (a 50% to 100% increase in price)

Gavin thinks it is very strange that there is currently an oversupply of residential units in the city centre and on the other hand, an oversupply of commercial units in the suburban areas (which is normally otherwise). This is the first time in the Malaysian real estate market history. And this is the reason why Gavin thinks the adjustment of prices will take place and generate a huge investment opportunity.

Shop lots and Offices in the city centre district will continue to be strong in 2010. However, there will be a huge oversupply problem in the suburban areas as well as new housing projects. The high launching prices and oversupply problem will be the main issues faced by the owner on rental. These include Puchong, Kota Damnasara areas, Subang and Bkt Tinggi, etc. However, there are still some good commercial properties in the same areas continuously enjoying good returns. Good commercial property will normally not be affected by oversupply problems anyway.

On the other hand, The Resort Properties and Green Buildings will begin to be the investment choices for investors. You will find that there is a growing interest on these properties. The world and our government will be the main forces creating the awareness on the importance of such properties. Although it may grow slowly but there is big potential in profit gains within 5 years. Thereafter it will grow rapidly. However, there are not too many choices in 2010 as there are limited buildings and projects with the above characteristics are available in the market.

With regards to the experiences from the last crisis which offered a period of 4 years to acquire goods and low property pricing, Gavin thinks 2010 is different:

1. The interest rate is so much lower compared to 1998 to 2003; we can almost say the highest to the lowest

2. The oversupply (which are mainly medium cost houses) happened in the outskirt and suburban areas in the last crisis while it currently occurs to the prime properties in the city and prime areas

3. The market will be able to absorb the oversupply much faster than the last crisis

4. There are not many auctions and bad debts (NPL) in this crisis

5. Today’s market in Malaysia is more “Globalised” and the property cycle is shorter

For the reasons stated above, WAITING is not a good strategy to apply like last time. Gavin believes we may only have ONE good year to invest.

If we are able to manage such trends and draw out a comprehensive long term plan, next year will definitely be a good year to go into the market, and 3 years later would be the harvest year where it shall be a good time to sell.

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