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#The Edge Forum*Make purchases based on fundamentals

KUALA LUMPUR (April 28,2012): Now is a good time as any to make selective purchases in the landed homes market, said CB Richard Ellis executive chairman, Christopher Boyd.

Boyd was sharing his views in a panel discussion etitled "Buy now or wait?” at The Edge Investment Forum on Real Estate 2012 themed “Investing in uncertain times”. Landed homes is ideal for investment as the Malaysian economy has experienced good growth, he said.

"If you look at the property market in a more level headed view, landed home prices in the Klang Valley have generally doubled in value within the last 10 years or so," he said. "We have good economic growth as well as the commitment of the federal government to increase the nation's household income."

He cited a typical 2-storey link house in Bandar Utama where between 2004 to 2011, the price has  appreciated over 80% or 10% per annum. Growth over the past three years between 2008 to 2011 has been 63% while growth over the preceding three years  between 2005 to 2008 was 11%. The average annual growth between 2004 to 2008 was just 2.8%.

Boyd explained that there is a way to spot areas that have the potential to experience a growth in its property prices.

"If you can find an area that has not seen an average of 10% per annum growth for the last 10 years, then the indications are that the neighbourhood is ready for a growth spurt and you might try to jump in and catch it."

Boyd also named Gombak and other areas between Melawati and Setapak as choice areas for investment. Data showed that 2-storey terraced home prices in Melawati shot up during 2011, after recording limited price growth during 2004 to 2011. The average annual growth between 2004 to 2010 was 2.9% while growth in 2011 jumped to 39%. The total growth of 2-storey terraced houses in the area over a ten year period between 2001 to 2011 is 66%.

"The growth in Melawati last year could partly be the result of the opening of the DUKE Highway," he said.

Another panelist Datuk Ahmad Zaini Othman, chief executive officer of Malaysia Building Society Bhd (MBSB) said property investors should no longer buy or sell based on perceptions but on the fundamentals in uncertain times,

“Buying and selling on fundamentals means you must observe not only our  economy but also in other parts of the world like Europe, the US and China, and study the trends such as unemployment and production. We are no longer living in a fishbowl economy,” said Ahmad Zaini.

The uncertain global economy and Bank Negara’s guidelines on responsible financing, which dictates banks to assess loan applications based on net disposable  income, can affect the country’s economy in the long-term.

The immediate impact, said Ahmad Zaini, is creating a cautious market where investors may take a wait-and-see approach, which will dampen the market. This in turn will cause developers to be very selective with new launches and projects.

“But the more serious issue is the possible ripple effect. In the long-term, it can affect supporting companies in the property sector and eventually the economy. The property sector is an important sector in the growth of the country’s economy. We have to monitor the ripple effect very closely,” said Ahmad Zaini.

However, he believed the guidelines on responsible financing will also help greatly in the long run by reducing speculation in the market and controlling household debts.

Ahmad Zaini noted that right time for investors to buy is when the market stabilises after the initial market reaction. He advised buyers to buy from established and financially sound developers to avoid being left in a lurch by developers.

“In this environment, only the strong developers will survive. You have to be careful as project failures  can happen,” said Ahmad Zaini.

“If you are buying to invest, you really need to study and know the market. If you’re buying for own use, anytime is a good time,” commented Ahmad Zaini.

Meanwhile, the third panelist Sunway Group COO property development division Daniel Lim said property prices will continue to increase due to lack of availability of land in prime locations, a steady increase in land prices in the recent years and high prices of building materials.

He also cited rising cost of labour, cross-subsidy for low/medium cost housing and strong demand due to the young population as reasons for rising property prices.

In times of uncertainty, he advised investors  to “buy from reliable developers with good record and strong financial standings. Buy properties in growth areas, which are well connected, suburban areas with expressways or public amenities such as light rail transit (LRT) /mass rapid transit (MRT) /bus rapid transit (BRT). Areas such as Puchong South, Cyberjaya, Putrajaya and Seri Kembangan have potential too.

“Look at urban redevelopment areas in the Klang Valley such as the Rubber Research Institute (RRIM) land in Sungai Buloh, former military airport in Sungai Besi, the Kuala Lumpur International Financial District (KLFID) in Jalan Tun Razak, former Pudu jail, as well as Jalan Cochrane and Jalan Peel,” he explained.

Lim does not see a property bubble in the property market. “The property supply is quite constant, about 500,000 units every year, and there is a gap based on demand by the growing population. The next few years, we expect to continue seeing demand exceeding supply of properties so there is no use asking if there’s a bubble or not,” he added.

For the full coverage of the forum, read the May 7, 2012 issue of City & Country, the property pullout of The Edge Malaysia.

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