City&Country: Long-term investments the way to go in uncertain times

Investment gurus say that in uncertain times, invest for the long term,” declared Zerin Properties CEO Previndran Singhe during his talk at The Edge Investment Forum on Real Estate 2012 recently.

“The key for investments over the next few years will be long term. I do not think there will be short-term play. Long-term investments could be between an average of three and five years post-completion,” he added.

He also said that 1Q2012 had been pretty slow due to the festive holidays as well as Bank Negara Malaysia’s stricter lending guidelines, although there was a bit more interest in the market at the start of 2Q.

Previndran said he expected to see moderate growth for the economy this year, with the real estate sector experiencing slower growth as well. “We anticipate a 15% to 20% drop in transactions this year, but property prices will hold. A lot of people will take a step back to watch what this Bank Negara guidelines are all about.” He added that he was expecting a mini-boom in 2013.

The slowdown comes after a year of record transactions. The volume of transacted properties in 2011 rose 14.26% from the previous year. “All sectors did well, but we saw a phenomenal pick-up for residential landed properties priced below RM2 million in the suburbs of Kuala Lumpur, Penang and Johor Baru,” Previndran said.

Last year, he observed that terraced houses were going for more than RM1 million, while bungalow land in Damansara Heights was going for about RM670 psf. Meanwhile, two condos in Sentul Raya were transacted at more than RM800 psf, which is higher than the price of condos in Mont’Kiara. This shows that a product can see strong pricing if it is good enough, said Previndran.

Penang and Johor experienced the highest transaction growth, while the Klang Valley saw marginally lower growth as its base price was already very high.

“Sabah, Sarawak and Melaka also showed very strong growth. Kota Kinabalu is a very vibrant market and still underserved in terms of products that are available in the market,” he pointed out.

Average prices of agriculture properties grew in line with commodity growth globally, while industrial properties saw 10% growth, which reflects the flow of foreign direct investment into Malaysia.
Commercial properties saw 5.5% growth in prices, while residential properties experienced an average growth of 2.6%. However, Bank Negara’s move to tighten lending policies so as to curb speculative buying and household debt, has impacted buyers.

“Basically, if you wanted to buy a RM1 million property before, now you can only opt for property priced at RM500,000 or RM700,000. It just hits your capacity to borrow. Loan approvals also depend on your other loans and your net income.

“It does not mean you can’t invest. You can invest but what it means is that you have to start looking at different products and different locations to invest in.

“As for developers, they have to take into account what their average buyer prices were like before and maybe discount that by 20% or 30%, as well as the kind of products that would be suitable. Overall, it will encourage efficient living and will be good for us in the long run,” he noted.

Previndran said Bank Negara’s measures were to ensure a sustainable real estate market over the long term. “I think it could be done in a more gradual manner rather than a hard landing. I believe that we must encourage investment, but punish upon exit. If the guy is a speculator, punish him upon exit — even up to 50% or 70% via real property gains tax, for example, if he sells within the first year.”

He said that he expected the government’s Economic Transformation Programme (ETP) to greatly enhance growth in the near future, citing projects such as the mass rapid transit (MRT) system and iconic places such as Warisan Merdeka and KL Metropolis, as well as measures to attract 100 of the world’s top multinational companies to come here, the light rail transit (LRT) extension lines, the proposed high-speed rail link between Singapore and Malaysia, the Second Penang Bridge — which will be completed by end-2013 — and the rising international interest in the local property market.

“We can expect more local and foreign investments, which will have a spillover effect on the real estate market in terms of making locations more accessible,” he said.

Previndran said he believed that the country needed structural reforms in its education system, subsidiary structure and broadening of the tax base in order to become a high-income nation. “Broadening of the tax base needs to happen immediately. Only 1.2 million Malaysians pay tax,” he pointed out.

Hot spots
In terms of real estate investment for the long term, Previndran suggested popular locations such as Iskandar Malaysia in Johor — including Nusajaya, one of the five flagship development zones there — as well as Penang. “In the Klang Valley, stick to the usual hot spots, but I am also very bullish about properties in Kajang, Jalan Ipoh and Selayang.”

He added that Melaka and Kota Kinabalu also held a lot of promise in terms of real estate investment potential.

Follow the money, Previndran said. “I would invest in where the MRT stations are and LRT extensions are going to, and also where the infrastructure developments stand. Landed properties, especially those below RM1.5 million, seem to be the flavour of the day, but do not discount commercial and industrial properties.”

He added that he expected rising demand for lifestyle properties that emphasise health and sustainability. “That, I think, will be key to attracting investors in the country. Even now, the first question global office tenants ask is whether the building is a green building.”

On commercial property, he said the shopoffice market was evolving as people increasingly appreciate the lifestyle elements and convenience. “They will look for developments that are integrated with lots of car parks and in good locations. Strata office developments will be a great investment to go into and again, follow the LRT and MRT lines.

“There is generally a shortage of industrial facilities in good locations, but those in good locations, such as the recent launches in Shah Alam, could see semidee factories fetching RM3.4 million.”
Meanwhile, on whether it was a good time to buy or sell properties, Previndran said that we should buy as prices were still inching up in good locations and a dip in prices was not expected.

“You would know when to sell if you have met your investment targets. However, if you have an existing loan on a property, which is rather substantial, I would rather sit on it, unless it is a terrible loan or the product is substandard. Buy with a long-term view and try to get a competitive loan,” he added.

On overseas investments,  Previndran advised investors to be cautious and to consider currency fluctuations. “Malaysians are still one of the largest group of investors in Singapore, but I think there is a price deterrent, plus the present 10% stamp duty for foreigners is just too much. Vietnam used to be good but inflation is too high, which means loans are very expensive.

“Indonesia has great prospects, but you need to find projects that allow foreign buyers, and the laws there are not that clear yet. It’s hard to read what is happening in Laos and Cambodia. There are opportunities in Australia, but I will be cautious as the country has also started changing its laws. My philosophy in investing overseas is to go and look at the properties before buying,” he said.

As for alternative investments, Previndran said the plantation sector looked good, either via direct investment or via managed investments like growers’ schemes or investing in the stocks of plantation companies. “Real estate investment trusts (REITs) are great opportunities, especially now. Some of the REITs, especially those that have industrial exposure with long-term tenants, would be great to go into as well,” he added.

When asked which among Sabah, Sarawak and Melaka would have the best real estate prospects, Previndran said Melaka. “In the long term, I would say Melaka for its proximity to infrastructure. Don’t forget it only takes five minutes more to head to Melaka than to head to KL from KLIA. The fact is that there’s a lot of FDI going to Melaka as well.”

When asked about the Johor property market and who would be occupying the new properties there, Previndran said there is generally an upgrade market with people looking for good lifestyle products and good security.

“Johor has the second biggest overhang in the country with developers building 1970s-style terraced homes over and over again. There were 40,000 unsold properties, and then Gamuda Land comes in and builds Horizon Hills, gated and guarded with new designs, and sells them for double the normal prices.”

Previndran also cites UEM Land’s recently launched sea-fronting Imperia in Puteri Harbour, which is going for an average of RM725 psf and has seen 82% take-up. The buyers were mainly from Johor (51%), with the rest being Singaporeans and Japanese.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 909, May 7-13, 2012