Kuala Lumpur Rental Yield to Fall

Recently, many people have asked me about yields and rental yields. I mean, I have been telling everyone out there about the dangers of property investments in recent volatile times, and it is highly critical and essential what you invest in, and what you decide to buy. =)

In my opinion, I believe that rents in Kuala Lumpur is likely to fall a bit. By looking at the prospective projects coming up, looks like there are quite a number of high end homes to be completed in the coming months, right up til end of next year – and that is a rather healthy supply of high end condominiums coming along. Further to that – from what I have been hearing, the expat remuneration packages in Kuala Lumpur have somewhat turned to be less lucrative as compared to before. In fact, not many companies pay the luxury RM25-30k/month rental for a high end KLCC property nowadays.

Mont Kiara Properties
Mont Kiara is still amongst the preferred locations for investments.

If we were to look at our neighbours Singapore – I have read that luxury home rents have dropped by two percent in six months… in fact, in some cases, rents had to be reduced by almost 10% to attract tenants. Similar to KL, the pressure on rents is also seen in a lot of multinational corporations – who have tried to apply local terms for expats. This means the expats must now pay for rent from their salaries instead of enjoying a separate housing allowance.

However, properties in Singapore generally have low yields, but exorbitant capital appreciation figures – a vast difference as compared to Kuala Lumpur.

SO… back to Kuala Lumpur.

Kuala Lumpur Properties

Where would be an ideal property to invest in and still get good yields? For the higher rents, Mont Kiara is still perhaps the best areas to invest in, especially with all the international schools and so on in the area – but in smaller sized units though, cos rents are rather fixed. Go for the 700-900 sf units – that somewhat is the most ideal investments. The larger units… say 1,500 sf and above, would face resistance in getting similar rental rates. Units with nice facilities… i.e. infinity swimming pool, gym etc… those are ideal properties to get.

Marc Residences, KLCC
Marc Residences, KLCC

KLCC vicinity would still be an ideal location too due to its close distance to KLCC and the prime financial centre of the city. But same thing goes… invest in smaller sized units for the best yields. =)

Source: www.ericyong77.com

Scrambling To Sell Properties: Wenzhou Edition

Wenzhou is a city famous for producing lighters. It also produces many real estate speculators who have been buying properties everywhere from their home town to Hong Kong, and probably even Dubai and others. Now in their home town, however, they are scrambling to sell their real estate holdings.

NBD reports that the rush to sell started probably two weeks ago. The selling pressures started from two groups of people: cash-strapped speculators, and cash-strapped business owners.

One speculator was a shoemaker. He borrowed money from a bank for his business, but much of the money ended up going to the real estate market. As the real estate market cools amid increasingly aggressive cubing measures and monetary tightening, he had to borrow money from non-bank institutions (that basically includes loan sharks, pawnshops and others) at very high interest rates. Finally, he decided to sell his property and cut prices. Even after price-cutting, however, most people asking were not really serious about buying it.

Many business owners are also selling properties to save their own businesses as bank credit are very tight, and non-bank credit has very high cost, so selling properties would be a better choice. One real estate broker said that a business owner is selling a RMB80 million townhouse, and 2 days ago the owner of this house told the broker that because his company needs cash urgently, and as bank loans have not been approved, he was willing to cut price by RMB5 million if there are a ready buyer.

The selling pressures seem to make people panic, especially for those who are waiting to sell as buyers do not seem to be very interested. That’s not surprising, because after rounds and rounds and price curbing, purchase restriction, and monetary tightening, they have made it harder for speculators to own multiple properties, and mortgages are harder to get. Thus there is very little wonder that sellers are so desperate to find willing buyers.

If this phenomenon in Wenzhou is representative for things happening in China, or if this sort of things are going to happen in other places in near future, this does not bode well for Chinese real estate sector.

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The Dubai Property Market

Dubai Properties

Some people are asking me what are the prospects of the real estate market in the Middle East. I had not put much thought into that; I wanted to do a bit of research of my own, read some market reports and so on before I make my comments. Lets take… Dubai for instance.

Some years back, Dubai had experienced some massive development and economic growths. It was until a few years ago, that the world markets somehow collapsed, and Dubai – suffered quite badly – especially their own property market. Dubai was seen as the gateway between Europe and Asia; and they did very well to attract some of the largest firms to set up regional offices and so on there. The construction in Dubai had boomed tremendously…

Today, 2 years after that little decline, and based on what I read – I believe that the Dubai real estate market is recovering, but not all sectors though. In the residential sector, it looks like the sale prices as well as rental rates continue to go down and decline further. As the expats are still leaving the country and an oversupply situation, developers would be struggling to sell/rent out the completed units.

Dubai Marina
Image credit: David Pin

Another sector that will see some major declines is the commercial property markets, in particular, the office markets. There are over 6 million sq ft of new office space to be completed in 2011 itself, in addition to the current 60 million sq ft in existence already. Many of the office projects which had stalled previously, had to continue and most are expected to be completed and handed over and introduced to the office markets in the next 2 years. I would still think that office developments in Dubai will still be a no-no; perhaps, what Dubai should do is what DBKL did last time – a freeze on all office spaces in order to curb this decline and oversupply situation.

On the other hand, the hotel and serviced apartment markets – i.e. the hospitality sector continues to perform very well. Their hotel occupancy rates have rise to above 80%, and the ADR rates have improved tremendously too. Tourist arrivals continue to improve as a weakened US dollar means it is cheaper and more affordable to go holiday in Dubai.

On the retail sector – shopping malls have enjoyed some good performances. Like I mentioned above, as there’s an increase in tourist arrivals, the shopping malls would also enjoy the upside of performances. As per the statistics, there will be no new shopping mall – or rather, no major ones to be introduced into the market, not at least for the next 3 years. The market would then cool down a bit from its potential oversupply situation – which would mean the retail markets would do very well in the next 2 years.

Dubai Waterpark

In general, I would think that Dubai’s overall property market should bottom out by early or mid-2012, and the turnaround should come up soon. Government policies continue to remain a strong factor in the property markets – and I believe the Dubai government would introduce new measures in order to ‘cool down’ the market further for it to pick up later.

Source: www.ericyong77.com

China’s High-Speed Rail, Collapsing Bridges, And Investment Boom

High-speed rail, investment-led model for growth, big projects, quality & corruption and affordable housing. Why do I suddenly see a parallel between Malaysia & China? Read on for an intriguing analysis of China’s growth strategy.

It seems that China’s high-speed rail accident has attracted a lot of attention. Even FT Lex has something to say about it, believing that the pace of investment should be slowed. While I have been arguing here for a while that investment has to be slowed, it is rather harder to see if the “accident” can really be marked as the turning point of the Chinese investment-led growth model as some might believe.

Before considering whetherx it is a turning point, let’s look beyond high-speed rail. Indeed, we actually have more bad news concerning Chinese infrastructure besides the crashing high-speed rail. We are seeing bridges collapsing here and there. This article summarises just a few of the collapsing bridges we have:

11 July in Yancheng, Jiangsu

14 July in Wuyishan, Fujian

15 July in Hangzhou

19 July in Beijing

We have 4 bridges collapsed in 9 days, with another one with some sort of structural failure. Truth be told, we probably all know that things in China aren’t as reliable as we wish. Is the wave of “accidents” really unexpected? Maybe, maybe not.

Now the theme we have here in the past months or so is that China has been relying too much on fixed-asset investment to get the economy going (translation: make the GDP numbers up). That’s why we saw the massive investment programme, particularly in the high-speed rail, in which the government has stepped up the pace of investment in the past 3 years or so, and now they have a really large network of high-speed trains.

But is it worth it? My analysis shows that it probably isn’t (at least for the Hong Kong segment of the high-speed rail). FT Lex points out that there seems to have been an under-investment in the past on railways in China, and they are now furiously catching up with high-speed rail. But there is probably no need to be that furious.

A few months ago, professor Kam-Wing Chan offers some stories during Chunyun (i.e. the annual chaotic transportation of migrant workers around the Chinese New Year), explaining why it was not at all a good idea to invest so much in high-speed rail:

Chunyun 2011 is a telling example. Though the new high-speed trains had added notable rail capacity, ironically the migrant masses found it harder to get train tickets home. Many conventional trains were taken off the rails to make room for the fast ones, but their tickets were too expensive to most migrant travellers. This created a holiday crunch even worse than usual for seats on the regular trains. As a result, hordes of low-income travellers were pushed back onto cramped buses or forced to try something extraordinary to get home.

Press reports of several chunyun transportation dramas have caught public attention in the last month. They tell the struggle of the have-nots being left behind in the new bullet-train age.

After queuing for a train ticket home, and being third in the line for 14 hours without success, a migrant in Zhejiang unveiled his underpants in public to protest.

In the south, a migrant couple did not even attempt to get a train ticket. Instead, loaded with luggage and their 6-year-old son, they rode a motorbike for eleven hours, braving numbing wintry weather for 320 km.

Many more did the same despite the icy weather, and soon there were swarms of motorbikes on many highways, with police escorts helping in some instances.

In an even more extreme case, after failing to get a regular train or bus ticket, eleven young migrants decided to implement “Plan C,” and jogged 130 km home together across frigid northern China.

At the same time, some high-speed trains were leaving stations only half full, even in the peak holiday season.

Under-utilisation aside, which is well expected (at least I think it is expected), there is the problem of corruption, which is also well expected. As this Reuters report points out, these large scale projects seem to be offering opportunity for corrupted officials to earn some quick bucks. Liu Zhijun, the former Minister for Rails, is the prime example of this, who has been sacked for precisely this reason.

So is the high-speed rail “accident” a turning point for the investment-led growth model as some might believe (or wish)? It is actually hard to tell, in my view.

The problems associated with the investment-led growth model is actually pretty obvious. Quality and corruption aside, the investment-led model is also associated to unsustainable debts, as a few other economists and I have argued for many times. There is no question that it has to stop, but whether the government will really stop is indeed questionable.

The reason is that economic growth remains to be a very important target for the Chinese government. With weakened external demand post-financial crisis and the small share of consumption in the GDP, investment is the only thing the Chinese can count on when it comes to generating growth. After all, a government can’t force its people to buy more clothes or eat more, but they can certainly build some more stuff. That’s why the government thought it was a good idea to invest so much after the financial crisis.

If the economy slows significantly (which is actually likely), there is no reason why the government won’t invest if economic growth remains the overriding target of the government. Indeed, it is probably happening already. Even the investment in high-speed rail may be slowed in near-term, the Chinese government is now furiously constructing affordable housing, which will most certainly help to cushion the potential growth shock if the government happens to be tightening too much.

So despite the obvious unsustainability of the investment-led model, it is still too early to say that the government is indeed rebalancing towards consumption driven model.

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