A contrarian view

Zerin Properties CEO Previndran Singhe is a brave man. Despite mounting concerns over the state of the world economy in all corners of the globe — Second Finance Minister Tan Sri Nor Mohamed Yakcop recently said Malaysians must accept the reality that the global financial crisis is expected to continue into 2010 — Previndran is sticking to his guns. He says the Malaysian property market is beginning to show signs of bottoming out.

Previndran is also convinced that the price dip in certain areas has levelled off. However, very few of his contemporaries seem to agree with him, with most saying the bottom is not in sight yet. Any improvement is only likely to come next year or even the year after, they contend.

Varying percentages of market decline have been bandied about, with that for the high-end condominiums in Kuala Lumpur City Centre said to be a high 30%. Interestingly, this was one address many property consultants chose to promote until recently.

While the market remains divided on how drastically values will dip, no property consultant will argue that last year was a dismal one for house values in most countries, with the dip in prices accelerating in 4Q2008. In Asia, housing markets continue to be weighed down by the global credit crisis ignited by the housing slump in the US.

Online property research house The Global Property Guide too does not see any real recovery in global housing markets this year. Why?

The IMF has predicted that the world economy will grow just 0.5% this year, the lowest level in six decades, while GDP in advanced economies is expected to dip 2% this year.

The Global Property Guide expects the UK and Japan to be hit the hardest — output in the UK may contract 2.8% while Japan’s may fall 2.6%. Growth in emerging economies is expected to slow to 3.3% this year, down from 6.3% in 2008.

Developing Asia, however, is expected to be the least affected, with a growth rate of 5.5%. Although China’s economy is predicted to grow 6.7% this year, this is a significant drop from 9% in 2008, opines the research house. (See Global Property Guide’s chart on house price change)

Meanwhile, hardly a day goes by without reports of retrenchment and bankruptcy in major markets worldwide. There is more gloom and doom, with the task now for governments being to shore up confidence.

So, is Previndran in self-denial? Catch him at The Edge Investment Forum on Real Estate 2009 — the third in a series organised by The Edge — on April 4.

Developers scrambling

More developers have wised up to the fact that given growing supply, they can no longer afford to twiddle their thumbs. Thus, the scramble for buyers, especially for projects that have already been put on the market and are now being built.

The innovative and attractive financing packages now on the market  eat into developers’ margins but that is acceptable in the current environment. Why hold on to unsold units when positive cash flow is crucial?

While these financing schemes may differ in structure in parts, the objective is similar — developers want to convert the wait-and-see owner-occupier. They also aspire to court investors seeking ways to protect and grow their funds in a low interest rate regime.

However attractive a proposition to buy may seem, deal only with developers who are credible and with track record. You would not wish to see the construction of your dream home abandoned midstream. Or end up with a building of inferior quality.

Your investment should offer potential capital appreciation and possibly, attractive yields at the same time.
Going against the herd and investing in a yet-to-be proven location comes with both significant upside and downside — just ask those who had put their money in and around Rawang in anticipation of growth potential.

In short, before making any decision to buy, do your homework. Remember, there are opportunities in adversity. Happy shopping!

Au Foong Yee is the editor of City & Country

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 745, March 9-15, 2009.