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Saturday, July 4, 2009

Cheaper overseas property prices make them attractive

When times are bad, property investors, more so those with a lot of cash, will look at opportunities beyond the country instead of just locking their money in the local market. With that, there appears to be a rising trend among Malaysians to invest in properties abroad, more notably those in Singapore, Australia and Britain.

The lower property prices, due to price adjustment in the exchange rate, makes it even more appealing. Reflecting the growing interest is the fact that real estate agents have been getting numerous inquiries pertaining to property purchases abroad.

“The closest to our market which has attracted interest is Singapore, where property prices at the heart of the republic, at Orchard Road, saw some downward price adjustment. London is another popular investment destination especially considering the adjustment in exchange rate from RM6.95 to £1 (about a year ago) to RM5.82 today in addition to adjustment in property prices there in view of the economy,” says real estate agency S.K. Brothers Realty (M) Sdn Bhd general manager Chan Ai Cheng.

Chan opines that the main reason investors are considering these markets is the upside potential in their economic recovery.

“For instance, for a location like Orchard Road in Singapore, the moment the market recovers, this location would be the first to benefit. In good times, it would not be possible to own something at Orchard Road at the current prices seen in the past six to nine months” she says, adding that some look at overseas property investment as a diversification of their investment portfolio.

The majority of purchases by Malaysians in Singapore are those who work in the republic. When it comes to Australia, the biggest motivation to buy properties there would be because their children are pursuing education there.

Property consultant Savills Rahim & Co managing director Robert Ang concurs that local property investors are eyeing British and Australian properties to take advantage of the fall in value of the British pound.

Condominium prices in Singapore, Britain and Australia, he says, have declined between 20% and 30%.

Meanwhile, Khong & Jaafar Sdn Bhd managing director Elvin Fernandez notes that Singapore is seeing some pick-up in demand and prices.

“This comes with a general feeling that the downslide in the crises has been arrested,” he says.

“Australia is also a destination that investors are eyeing for long-term prospect because the Australian market seems to be quite stable and not much affected by the credit crisis,” says Y.Y. Lau, executive director of YY Property Solutions Sdn Bhd (in association with Cushman & Wakefield). She adds that corporate investors are becoming interested in emerging markets such as Vietnam.

Locally, Fernandez says high-end condominium prices in Kuala Lumpur have dropped by some 10% to 15%.

“This is not unexpected as the prices ran up substantially in 2007 and early 2008, ahead of fundamentals like rental support.

“Prices for high-end condominiums in Kuala Lumpur, should, in my opinion be considered sustainable if net annual returns are about 6% at the point of purchase,” he says.

As for landed property, the market appears to be holding up pretty well in general. “Even in more volatile markets like the Kuala Lumpur City Centre (KLCC) area, prices are still above launching prices two to three years ago,” says Chan, adding that the asking price a year back was much higher.

Another reason why the prices of properties in the suburbs have held well is because most involve owner occupation and for many, they are at the tailend of their loan repayments to the banks.

“Whereas units at the KLCC area could be more for investment purposes than owner occupation,” she says, adding that such investors will not hesitate to dispose of their investment assets in Malaysia, if necessary.

Fernanadez says that going forward, local property market will face challenges if economic growth is not strong as, on the supply side, there are a large number of developers who depend a lot on keeping their outfits humming and this will be threatened if demand is not robust.

According to Cushman & Wakefield Research’s latest report for June and July, the first quarter of 2009 for real estate investment sales in Asian markets was pretty dire compared with the first quarter in 2008 and 2007.

“Despite the gloomy evidence, our brokers in Asia can see markets starting to move in the right direction. One of the advantages Asian markets have is the wider-spread use of strata-title office space available for purchase by occupiers for their own use,” the report says.

The report also says the economies in Asia are constantly growing, but the growth rate is slower and only increases in speed again after passing the turning point.

“This means that there is a continuing demand for real estate space all the way through the cycle. It’s just that the rate of demand is not as high as it was,” it adds.

In Europe, the report says property and bond markets have continued to deliver weak performance. Property in Eastern and Western Europe has seen a further quarter of negative growth with the prime values in the West down around 6% and 19% in the East, as an acceleration in rental declines has started to take over from yield increases, the report says.

By The Star

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