Finding Value in Malaysia Property.

[askfind]

Dear Friends.

Brief Intro. I have being investing in real estate since i was 19yrs old, Over the years have picked up a few things about real estate investing vis-a-vis other investment options available out there.

Now almost 2 decades in doing the same thing over and over again, starting off investing in Mumbai, Hong Kong, Singapore and now Malaysia. I have yet to find relatively better value at the current moment in any other place than Kuala Lumpur. I welcome critics to post their comments and will attempt to learn something new in that process.

Real estate is all about one consideration.

1. LOCATION. Its cause of this, that scarcity is developed and prices, rental yields rise. While investing in Malaysia, please consider the following.

"The market here is dependent on foreigners and second home programs, ie retirement etc."

Demand is greater in downtown cities as the influx from rural to urban continues to develop globally, higher oil / transportation/ inflation, simply means end of SURBURBIA, so investing in the right location is the KEY.

That is Kuala Lumpur, The golden Triangle and no where else. I wouldn't even advise buying on the outskirts of KLCC, ie petaling street, let alone mon't kiara or bangsar. For those thinking about Sepang GOLD COAST, Pls think again. The golden triangle is approximately a 3KM radius and there are gems to be found there. Why pay RM600-700psf in bangsar or Mon't Kiara when you can get the same in KLCC.

Note: Malaysia has alot of LAND outside the KLCC Zone and once a couple of years ago they announced no more land in Mon't Kiara, suddently land came on tap and now they are building Mon't Kiara all the way to Segambut.

2. VALUE. The second consideration is, yield to price calculation. For example is how long before your property is paid in full, a relative simply way to understand the value of the property, vis-a-vis rental yields. Just like how equities are valued as PE ratio's, you should check the value of your property and its rental.

A property which is fair valued, equates as 8-12X
decently priced, equates to 13-16x
Over priced, equates to 17X-30x

Property Price: RM400000
Rental: RM30000 pa.

= 13.33X


For example, a rental yield of 8years which equals to the property price is a rarefind and a gem. Almost impossible to find anything like this the world over.

During the property boom of the america's value of rental vs price had almost hit 30X, suggesting a peak in prices is on the cards.

3. Liquidity. Again, no one else besides KLCC there is liquidity in real estate transactions. For a Investor the right question to ask is, Can I get out in an event i want to sell? OR RENT?

In the right location, liquidity can be found at the right price, ie if noone wants to rent, by you lowering the price, can you get a tenant, if so how soon? The same is when you want to sell.

Cause if you are sitting on paper profits, but the unit is vacant, the probability of that unit even getting an offer for sale is relatively low. So whats the use of the paper profit when it can never be converted.

Liquidity is the key, cause when down moves occur there are properties that can sit on the shelf for years without doing anything.

Other Pointers about MALAYSIA.
1) Malaysia is lax with funding, capital is relatively easier for foreigners to get, mortgages are relatively much easier than any other country in WORLD. You will need full cash for deals in Thailand, Vietnam and in other parts, you can only get upto 60% of the property value. 80-85% is available here. Rental documents can also be used as a source of income.

2) Malaysia is a commodity resource economy with huge tracks of land full with natural resources, with having two main sources of OIL, on land and below.

3) Malaysia's climate is one of the best. It sells RAIN to the ARABS, an OASIS and sells SUNSHINE TO THE EUROPEANS.

4) Most land or property can be purchased as FREEHOLD, this is not the case in DUBAI, THAILAND, VIETNAM or CAMBODIA. Even in HK, developers promises are till 2047, as the date of 50yrs from 1997.

END.
Next series. 1) What to invest in and Why? Land, Apartments of Commercial units.

[erikko]

Second to Kuala Lumpur (in terms of the best settlement area) what is the next based on the factors you posted

[andyk2]

Askfind,

You are obviously a real estate agent operating within the confines of the Golden Triangle, and to advocate this as the ONLY area to invest is both misleading and dishonest.

Rental yields in the Golden Triangle average around 7.5%, but by looking on the peripharies of these areas (Jalan Semantan, Jalan Munshi Abdullah, Jalan Ampang) you can find rental yields approaching 10%.

If an investor is looking for capital growth, why not Petaling Jaya, Sentul, Bangsar or Cheras - as the city continues to expand, these locations will become more valuable in price. And what about Putrajaya and Cyberjaya?

The domestic market in Malaysia is the driving force behind property investment in KL - few developers look beyond Malaysian shores for their market (as proven at the Iproperty Expo last weekend) and your quote aboput how the Malaysian market is dependent on "second homers" is rubbish.

Furthermore, it is extremely difficult to invest in land as an investment in Malaysia. There are strict rules governing the criteria under which a foreigner can purchase a property, and if you want to attract business, you should post something along the lines of:-

Malaysia offers the highest ROI of any SE Asia Country

There is a transparent legal and banking system in place based on the UK

Property purchases to foreigners are limited in number, so you will not get the "free-for-all" witnessed in other seasonal "hotspots".

Malaysia has not been affected by the so-called "credit-crunch"

Malaysia has lower buying costs (an important investment factor) than Brazil, Egypt, UK, USA or anywhere in Europe.

Kuala Lumpur offers cheaper $/m2 than UK, USA, UAE; Hong Kong, Singapore etc

Rental Yields in Kuala Lumpur (and most of Malaysia) are higher than China, India, UK and USA.

There is no Capital Gains Tax

Malaysia offers some of the best investment opportunities available at present, but please do not try to blinker the general public when it comes to areas in which to invest - it does you, your industry and your country no credit.

Have a good day

Andy

[askfind]

reply to ERRICO

Here are the relative prices of Properties Around KL.

Bangsar / Mon't Kiara = RM450 - RM900.

Apparently everywhere else is also the same, if you went to other parts of the suburbs its also 450 for new developments.

KL prices are RM550-RM3000.
So in other words if you can grab a lower priced product within KL, ie, OLD buildings, on the fringe of the golden triangle, there in lies your opportunity. Once the subsale market is KL is higher, then only i may consider to invest in Mon't Kiara / Bangsar or anywhere else. Note rental rates outside KLCC zone are relatively much lower than KLCC zone and there is a massive oversupply of condos coming up all over. Including KLCC, where its expected to have 12000 new units to hit the market by 2010.

So here again, your best guess is to trade within the KLCC zone, as when the supply comes, prices will be depressed within KLCC, but they will be worst anywhere else.

When compared to a american suburb and New York city, if both are relatively similar prices, what will you buy? look at the pricing structures at the moment, during the current subprime crisis for indications.

[askfind]

Reply to ANDYK2.

Dear ANDY.
I am not an AGENT and a foreign Investor. FYI.

I am just giving out some facts, started off by stating i have been an avid investor and these are some of the things that i have learn and experienced investing here.

You can buy as many properties as you want, in Malaysia as a foreigner. THIS IS A FACT. We Have. In the old days you needed to ask for exception from BANK NEGERA. First person to get this going, was a VC from HK who invested in AVARE in KL. Once deregulation came in, IE No more FIC etc, this law was removed as well.

2. Transactions in malaysia markets are now lower than earlier this year. If you were invested in 1994 boom, and saw the 1997 crisis, you would realise location is the KEY. When sales are slow, suburbs are even slower and it could be also a case, you wanted to give the unit away at a huge discount but no takers. See historical records for more info.

(Jalan Semantan, Jalan Munshi Abdullah, Jalan Ampang) you can find rental yields approaching 10%. NOT WHEN YOU MARK TO MARKET. On old prices. YES. and even more. The capital appreciation part doesn't work out as well anywhere else outside the zone. pls state some examples of deals known or done.

Yes you can buy LAND as a foreigner. If you have the stomach for it and can do without rentals paying your mortgage, Land values are up, approximately 100% year on year since 2002/3 in KLCC zone.

All i was saying is when you can get a gold for the same or similar price of silver, why buy silver and as a word of caution, i was saying, location is always the key, cause when hard times hit, you can be sure which one will sell first.

BTW there is a lot of land in malaysia, they can simply convert oil palm into a condo development. That is what being done at the moment. like Sepang Gold Coast, there are 4 major islands being build on reclaimed land. Mersing, penang, and the east coast are the others. See Mersing Languna and E&O prop for more info.

cheers.

[askfind]

erikko,

You could look at pockets within KLCC for value. Changkat Bukit Bintang, Tong Shin, is one area. Jalan Damai is also good. But here there are mostly houses for the same prices as Bangsar. Then Down towards Jalan Imbi, Jalan Tun Razak near forum, values in these areas are around 400RM PSF. Look for deals here. neighbouring newer units are quoted at RM650-900 PSF, go into the older buildings, you will find values appreciating in the sub sale markets before any new developments come on tap, due to overhang that is fast approaching.

Avoid deeper Jalan Ampang. As closer towards the twin towers surely is better, Uthant is another good option.

cheers and all the best.

[andyk2]

Dear Askfind,

As an investor, I would be interested to receive your views on the following:-

Maytower - Jalan Munshi Abdullah. price/ft2 RM 550 Rental Yield 10%
Seri Maya - Jalan Ampang. Price/ft2 RM 350 Rental Yield 9.75%
Somerset - Seri Bukit Ceylon, Banggsar. Price/ft2 RM 600. Rental Yield 9.5% (Guaranteed on a two year contract)

These are todays prices and todays returns

Compare this to:-

Capsquare RM 1000/ft2 Rental Yield 6.2%
Parkview RM 900/ft2 Rental Yield 8.6%
Marc Residency 1250/ft2 Rental Yield 6.6%

If you are considering off-plan (for investment only)

Commercial Units at Oasis Ari Damansara RM 320/ft2. Anticipated rental yields on completion in 2011 - 11.25%

Properties such as Avare, One KL, Troika, The Oval and the Four Seasons will no doubt attract high rentals because of the prestigue attached to living there, but the investment opportunities are not limited to KLCC.

Land purchases by non-Malays are limited to residential and commercial land only. You cannot buy oil palm, agriculural or Malay reserve land, and therefore the development investor (who wants to buy and build or sub-divide) loses out.

Finally there´s already been plenty written on the forum in relation to fluctuating exchange rates and boom/bust times in Malaysia. To quote figures prior to the Asian Crisis is mis-leading. It would be like quoting figures prior to the sub-prime crisis in the States - it is a different market now.

I wish you good luck with your investments

Andy

[askfind]

Dear Andy.

I still stand by the view that supply can be unlimited outside the KLCC area. When Mon't Kiara was first developed, it was an affordable housing area and prices were 150/200, still today units are quoted at 350-450RM onwards with a few exceptions. Cause land seems unlimited in supply there. while in comparision KLCC doesnt have anything new below RM800 today.

My point is this, we should look for an area where land is scare and that is why, they always say location, location and location in real estate investments.

So if you have a chance to purchase anything outside KLCC at 550psf. then look inside KLCC for deals with a slight premium but grab the ones within.

Today you can buy Vista Damai, corinthan (next to troika) at 600psf, these are older buildings, but its the location that counts. Similarly see Megan Avenue 1, office units, paper quotes 450-500psf for a commercial office unit. these are gems the way i see it, cause 550psf is also the price in solaris (mon't kiara),

Another interesting observation here would be, "How can a commercial unit be lower than a residential unit?" since with the commercial unit you could use to make income, business, etc, but residential lacks this. This is simply an opportunity.... cause over time prices will fall back into their respective zones.

In conclusion the sub sales market has to pick up before the new developments. Infact most new projects within KLCC are on hold for the moment till developers can put a price at the new costing of materials.

Maytower - Jalan Munshi Abdullah. price/ft2 RM 550 Rental Yield 10%
Seri Maya - Jalan Ampang. Price/ft2 RM 350 Rental Yield 9.75%
Somerset - Seri Bukit Ceylon, Banggsar. Price/ft2 RM 600. Rental Yield 9.5% (Guaranteed on a two year contract)

--> From these above, i would go with Somerset. Cause there can't be anymore supply and there is a limitation whereas anywhere else its evident where the supply can come from.

Seri Maya was another good one, started off at 220K for a 2 bed room apt, approx RM150/200psf. We had purchased a penthouse there for 579K, 2200sf. This area surely benefits from tenants who want a lower cost of rental as compared to KLCC, but judging from the above if someone can head off to wangsa maju, the same can be said for Bangsar, PJ, etc. But if the prices within KLCC drops. the adjoining areas such as these would have a greater drop in interest. I am also of the opinion that if OIL prices continue higher, Surburbia that they have build all these years world over will have a drastic affect.

My point is this, be prudent. And buy and let, where there is a liquidity, in an event you want to exit, can u exit faster in that area.

where do u think apartments will be snapped up faster,when you seek rentals. In some other areas, the yields may be good, but due to the high cost of entering and exiting in real estate, its simply not enough to exit a property in 2-5yrs. so capital appreciation has to considered and that requires scarcity.

Land purchases by non-Malays are limited to residential and commercial land only.

--> these are the only land that an investor needs. And you can do development on them, if you want. The Malay only land there is plenty of them even in town, but no one touches them even from far. I guess you know why.

All the best.....

[ariecol]

askfind.

great stuff from you!
thanks, and well done.

[ariecol]

andy2k,

fab stuff from you as well.

dont mean to offend sorry.

credits to both of you.

thanks for your info and insights, enjoyed reading it.