Property to rise above stock market volatility

PETALING JAYA: There is still growth potential in the local property market although the prevailing volatility of the stock market has made property consultants and analysts more cautious of the upside.
While concerned that the recent stock market jitters, which saw the benchmark Kuala Lumpur Composite Index (KLCI) tumble 54.12 points or 3.84% on Jan 22, would affect property stocks in the near term, they are upbeat that the sector is able to ride out the negative investor sentiment.
Property consultant DTZ Nawawi Tie Leong Sdn Bhd executive director Brian Koh said volatile markets would present both threats and opportunities to institutional funds, who may view real estate in Malaysia as an attractive asset class, given a lack of alternatives in volatile markets elsewhere.
“With the continued healthy economy (in Malaysia), overseas institutional funds could be diverted from there (in US) to here. If prices drop steeply in the US, then buying opportunities may arise as seen in the early 1990s when fire sale prices were plentiful,” Koh told The Edge Financial Daily.
Nonetheless, Koh maintain a neutral outlook on the sector, given the strong escalation in property prices in recent months.“The market will possibly take a breather… individual foreign buyers may be spooked by uncertainties and we could see an adverse reflection on high-end residential market demand.”
Analysts, however, were more bullish on the outlook for the property market, citing fundamentals including steady domestic consumption and the Employees Provident Fund’s (EPF) move to allow monthly mortgage withdrawal from Account II which could potentially free up to RM9 billion cash annually into the economy.
“We maintain overweight on property as EPF monthly withdrawals will have a significant impact on general residential property. The commercial property will perform well if the government continues to introduce more liberalisation measures to stimulate the market,” a property analyst said.
OSK Investment Bank analyst Mervin Chow said ample liquidity in the market and low interest rates would compel most Malaysian households to look at investments outside the banking sector.
“Recent volatility in the equity market has given most Malaysians little alternative but to consider storing their wealth in physical property asset, especially those in excellent locations with potential capital appreciation and other wealth creation.
“In addition, higher-end properties are generally perceived as one of the better hedges against inflation in a thriving economy,” he said.
He said Malaysian high-end and luxury properties were also expected to continue drawing interest from investors looking to diversify into cheaper investments outside Singapore and Hong Kong.
“The estimated accumulated excess current account surpluses of US$900 billion (RM2.9 trillion) by Opec implies further inflows of petrodollars into Malaysia for investments or purchase in real assets.
“Also, exemptions from Foreign Investment Committee’s (FIC) approval to purchase houses below RM250,000 with unlimited home loans that a foreigner could undertake and the strengthening of the ringgit will continue to make Malaysian properties an attractive investment proposition to foreigners,” Chow said.
The demand for commercial property in the Klang Valley has been buoyant, particularly in the Golden Triangle and Bangsar/Pantai enclave, not least due to competition from local and foreign real estate investment trust funds (REITs).
Chow said Malaysia’s office market had not matured fully, and this was reflected in its estimated annual capital appreciation of 6% to 8%, compared with 3% to 4% in Singapore and Hong Kong.
“The prime driver for this segment in the Klang Valley would be the continuous mismatch between demand and supply of Prime A office space for the next 12 to 15 months until the next supply cycle, which is expected to hit the market by mid-2009,” he said.
He also said demand for office locations outside Kuala Lumpur city centre would pick up with the decentralisation trend sparked by high rental and traffic congestions, which had seen many rental-sensitive tenants move out to KL Sentral (Bangsar/Pantai enclave), Petaling Jaya, Subang Jaya, Shah Alam and Damansara Heights.
“We still favour the Golden Triangle and Central Business District as a result of strong demand from rich and growing multinational companies,” he added.
KL Sentral, Bangsar, Mid Valley and Mont Kiara areas are featuring prominently as high-growth locations in the Klang Valley for both high-end residential and commercial properties, on the back of firm demand from affluent locals and foreigners.
However, analysts are cautious about the residential market in Johor, saying there is an overhang in the middle to high-end segment and a general decline in housing prices despite prospects in the Iskandar Development Region. “Only limited locations like Nusajaya and Tebrau City are thriving,” Chow said.