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Thursday, July 16, 2009

When will the markets and economies recover?

Predictions on exactly when recovery will set in seem to depend on which channel you watch

In Albert Camus’ celebrated book, The Plague, we read of an insidious outbreak of disease accompanied by a rat infestation in the French town of Oran. At least, that’s what we appear to be reading, but the story is actually an allegorical reference to the inexorable Nazi occupation of France.

It seems to me that the potential A(H1N1) threat could be read as an allegory for the impending danger of the global financial crisis.

Here, we have a life-threatening sickness sneaking unseen into the country to wreak havoc and destruction.

We can see minor signs popping up at random but the real tsunami has not hit us yet and already, we are reading of early signs of recovery.

It’s like sitting in a dark ride at the amusement park, waiting to be smacked in the face by a wet fish.

Just how the region is doing in terms of economic growth is shown on the “weather” map.

Predictions on exactly when recovery will set in seem to depend on which channel you watch.

Certainly the Malaysian market has seen some bright points recently.

The relaxation of local equity requirements for foreign investors has already generated renewed interest in the commercial property market.

There is a strong possibility of new foreign capital inflows and some of the many investment property sales that collapsed in the second half of last year could well be achieved this year.

Malaysian commercial property remains attractive in terms of yield, price and growth potential and having seen a recent minor value adjustment of around 15%, it is looking better value than ever. Be prepared for a number of major sales to be announced in the next 12 months, to both foreign and local investors.

The top-end residential market, while falling some 25% in value from its peak, has shown remarkable resilience and even renewed confidence. For example, the recent launch by Eastern & Oriental Bhd of their St Mary’s serviced apartments in the Golden Triangle has met with strong sales at around RM1,000 per sq ft. Sunrise Bhd has seen similar success with a new release in Mont’ Kiara, and Mah Sing Bhd has reportedly done equally well with its super-sized three-storey link houses in Batu Maung, Penang.

Globally, the office leasing market has felt some of the greatest impact of the financial crisis, with many multinationals resorting to deep cuts in operating costs, large-scale retrenchment and a freeze on new investment. Regionally this has dragged rental values down.

In Malaysia, the office leasing market has been a victim of circumstances since the beginning of the year and we hope we will not see a reenactment of the stagnant period from 1999 to 2006, with companies reluctant to expand.

Personally, I remain optimistic because the growth of the services sector is likely to pick up and will be boosted by a climate of liberalisation. Nevertheless, what we might see in the investment market is a greater differentiation in value between fully let buildings and those sold vacant or off the plan with no rental guarantee.

The appreciation of yield and the quality of that yield is a science that finally emerged in 2005 when the Securities Commission announced its new guidelines for the formation of real estate investment trusts and caused a scramble for investment properties. We are still waiting for banks to embrace this movement and provide more longer-term finance for commercial properties.

There is some cause for optimism with the recent growth of regional equity markets and successful elections in Indonesia and India. Maybe, that wet fish won’t come after all.

The writer is executive chairman of Regroup Associates Sdn Bhd property consultancy.

By The Star (by Christopher Boyd)

1 comment:

Anonymous said...

The topic on the Markets and Economics is so important for the Business people who are awaiting for the recover of the both.

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