Investing in a downturn

During a recession, we are often told to look out for opportunities. For those looking to invest in real estate, it is a good time to put your money in highly sought-after properties which are otherwise often off-limits to many, says Knight Frank Malaysia managing director Eric Ooi.

“For instance, institutional investors may want to invest in ‘trophy buildings’ whilst individual investors may want to invest in shophouses in the Telawi area in Bangsar or Bukit Bintang or a good piece of residential land in Kenny Hills,” he says.

According to Ooi, the most important considerations when investing in property during a recession will be timing, choosing prime properties and good financial planning.

Ooi, along with Stephen Tew, managing partner of property consultancy Hectares & Stratas, and Kam Wei Tsung, director of Platinum Property Ventures Sdn Bhd, will be sharing their views on investing in real estate in a downturn at The Edge Investment Forum on Real Estate 2008 on April 4.

 Ooi: Timing a key
 Tew: Investors often
 Kam: Decide on
 consideration do not do homework
 investment objective









Tew says investors oftentimes do not do enough homework before they commit themselves to a property. He advises investors to draw up an investment strategy.

“Understand the market you are interested in and be focused on what you want. Most people are not sure about what they want,” he says.

Kam is a property investor  who has acquired at least 24 residential properties and RM8.3 million worth of commercial properties since 2001. He says an investor has to decide on the investment objective — whether a particular investment is for cash flow, combination of cash flow and capital appreciation or just for capital appreciation.

For example, he says, one buys a property to be rented out for cash flow or at below market price to resell it for capital appreciation.

“During a recession, it is also important to be able to find quick tenant replacements to minimise individual outlays in repayment of mortgages and maintenance fees should the unit be empty,” adds Kam.
Ooi says although the Asian financial crisis in 1997/98 impacted Malaysia directly and severely, the country recovered fairly quickly.

“However, the present crisis is not contained in just one part of the world. The impact of the crisis has been felt across continents,” he says.

“Although the impact on Malaysia was not as immediate as the Asian financial crisis, Malaysia is now experiencing a period of slow economic growth and this is expected to prolong and the country may take a longer time to recover compared with the previous crisis,” Ooi adds.

Tew, however, feels that Malaysian companies are more well-prepared today than in previous recessions.
He believes the current slowdown is sentiment-driven rather than due to a lack of liquidity. “There is a lot of negative news which has spooked people and deterred them from spending. It is not a case where the majority of people have no money to spend,” adds Tew.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 748, March 30-April 5, 2009.

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