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Property trends and investment strategies
Lim Siew May 
Property size will shrink along with more expensive per square foot property prices
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The local property landscape has undergone lots of changes over the years. These changes include rising property prices, the density of a project, property sizes, the emergence of a more expansive public transportation network and others.

Change, as they say, is the only constant. Under a changing economic and business environment, what are the trends that are likely to take place in the next 10 years? What will these changes mean to property buyers? FocusM spoke to two seasoned property industry players for their insights.

 

Shrinking built-up area of properties

According to Faizul Ridzuan, CEO of property consulting firm FAR Capital Sdn Bhd, the built-up area of properties will likely shrink along with escalating property prices. “The cost of a property has gone up, and to maintain it at a digestible price point, developers have to make their property smaller, so that the absolute price is more affordable,” he says.

When it comes to property investment, Faizul cautions that one shouldn’t assume that what worked in the past, will continue to work in the future

“Ten years ago, a 1,200 sq ft 3-bedroom apartment was considered a reasonable size. Five years ago, the size went down to 1,000 sq ft. Now, you will find a three-bedroom apartment at 800-850 sq ft costing you half-a-million ringgit,” he adds.

In light of this development, he believes that it’s better to buy a small 3-bedroom property than a bigger property with a higher price. “At RM500 per sq ft, a 1,500 sq ft property will be sold for RM750,000, versus RM425,000 for an 850 sq ft property. Even though it’s smaller, people will find it more affordable,” he says.

In his view, given that the average household income in KL hovers around RM11,000 a month, and a half-a-million ringgit loan over a 35-year period translates into a RM2,500 monthly instalment, this still constitutes under 25% of the income of someone who earns RM11,000-12,000 a month. “The younger generation accepts the fact that the properties can be smaller. They are still taking up smaller units as long as they are new.”

Hence, Faizul’s advice is to buy something new at the price of an old property where possible. “If I were an investor, and there is a 1,300 sq ft sub-sale unit at RM500,000, compared with a new 850 sq ft three bedroom property for RM500,000 in the same area, I’d buy the latter. So will 99% of buyers, who prefer newer space. It works the same way for the tenants too. For the same rental, between a new and old property, which one do you think the tenant will choose?” 

This does not mean prices of older property will stop increasing, but its upside may be more limited when compared with a newer property, Faizul stresses.

Faizul acknowledges that it’s not easy to find such a deal in today’s market, as such a property probably constitutes only 1% of what’s available in the market, which means a lot more due diligence is required to unearth under-the-radar properties. While preferring to keep mum on the whereabouts of such properties, he shares one of his guidelines: “If a property has a price point that is similar or cheaper than the sub-sale market, it makes a lot of sense to buy it,” he says.

Faizul also believes that high-rise properties situated along the light rail transit (LRT) lines will become more valuable due to the convenience factor.

“High-rise residential units will benefit more from this because people who live there are looking for convenience, and they are willing to pay a premium for convenience,” he explains.

Room rental getting more common

Faizul observes that for many wage earners who need a roof over their heads, they struggle to save at the beginning of their career. Naturally, rather than living at a three-bedroom apartment and splurging RM1,800 on their monthly rental, Faizul foresees that more and more renters would rather compromise on their privacy, share a property with two other people, and pay RM700 for their room to enjoy the same facilities at the condominium.

Investors, on another hand, should consider renting their property on a room rental model. “With the supply of property coming in, you have got to be more flexible (to differentiate yourself). There will be more and more tenants who are willing to pay RM700 versus RM1,800 a month,” he says.

Having said that, and to err on the side of caution, Faizul stresses that one should evaluate the returns based on the revenue you generate by renting out the whole property and to treat room rental as an option to earn extra money. The gross rental via the conventional rental method should still cover the monthly loan instalment, he advises.

Moving forward, Faizul believes that if the room rental trend were to take off, the need to own a property would decrease, especially for retirees or single professionals who may choose to share a condominium with like-minded tenants renting a private room.

“Already, we now have resorts-type of old folks’ home. Sure, it’s hard to envision this happening now, but we are talking about in the next 10 years. Previously, people would only stay at a hotel when they travel. Now it’s become so common to stay in an apartment thanks to Airbnb,” he notes.

Faizul’s theory is based on his observation that there are too many underutilised assets, an oversupply of properties coupled with a growing single population. “Twenty years ago, marriage was akin to striking gold for many. Today, you only marry when you meet the right person, not because of societal pressure. As people’s income grow and they become more self-sustainable, a new lifestyle has emerged,” he says.

The general principle doesn’t just apply to residential properties – an oversupply of commercial properties, too, needs to find a way to be repositioned, he says.

“You see shopping malls doing poorly. There is an oversupply of office space, and eventually, these underutilised assets have to be ‘repurposed’. For example, if a shopping mall is not attracting enough traffic, can it be turned into a college? Some shopping malls are also converting top floors into co-working spaces, which attract hundreds of  employees and bring more life to the mall.

“Moving forward, there will be more people who will be working from home. Maybe, say in about 10 years, office spaces may become obsolete too,” he notes.

 

Opportunity to buy more affordable properties

Dr Peter Yee, author of books such as Property Secrets: Create Massive Passive Income and Build Immense Wealth and You Can Become Rich in Property, notes that the property market has been slowing down since the end of 2014.

Yee, who believes that there was a “super boom” property cycle from 2009 to 2013, has been selling some of his properties since 2013

“From my observation, the property market is similar to the stock market, it has to get worse before getting better. The property market will go through the correction phase until its price is stabilised at lower levels,” he says.

He acknowledges that it is already a buyer’s market. However, Yee believes that “it will be a better buyer’s market” in the next few years due to an oversupply of properties. Moreover, there is a mismatch between what the buyer can afford versus the selling prices set by developers.

Yee believes there are opportunities for those who want to buy a landed property since sellers are willing to sell at lower prices during a buyer’s market. “For investors, you may be able to buy a better property at lower prices during a buyer’s market. There will be many buying opportunities in the primary, secondary and auction markets for the next few years.

“The possible threats are difficulty in securing tenants in areas with low occupancy rate, such as an area that has 10 houses but only one house is being occupied,” he points out, adding that one can estimate the occupancy rates by checking the light from houses or buildings at night. High occupancy rates are reflected when most of the houses’ lights are turned on.

Yee says that his property investment strategies have remained the same over the years, which is based on “preparing for good times during bad times, and preparing for bad times during good times”.

Yee believes that property and stocks have their own boom and bust cycles, although the duration and quantum of each cycle differs. “I de-leverage (sell property to pare down loan) during a boom cycle, and leverage (buy property and increase debt) during a bust cycle,” he says.

Yee believes that a bust cycle is imminent and may occur in the next few years. “From a property (four) ‘seasons’ perspective, every season lasts for a few years. We are somewhere in the middle of a property winter (gloomiest season) now,” he predicts.

Yee has been selling some of his properties since 2013. Between 2009 and 2013, there was a “super boom” property cycle, he says. “Before Budget 2013, I managed to sell landed, commercial properties and condominiums. For the past two years, I sold mainly landed residential properties and apartments,” he says. He foresees holding off purchases in the next few years due to an oversupply of properties in the market.

Don’t stay stuck in yesteryears’ mindset

Faizul Ridzuan, CEO of property consulting firm FAR Capital Sdn Bhd, cautions that one shouldn’t assume what that worked in the past, will continue to work in the future.

“The perception from 10 years ago was that when you buy a high-rise property, you will make money from rental but not capital appreciation – one should only buy landed property if you want capital appreciation. However, high-rise properties in Bangsar South have grown much more compared with landed property in Bangsar. People prefer something new over old. The apartment at Tropicana City Mall grew from less than RM200,000 in 2007 to RM600,000 in 10 years, while landed property in Damansara Jaya doubled, but has not tripled,” he notes.

He contends that people’s needs have changed. “I’d say that 10 years ago, everyone dreamt of buying a landed property. Today, we can’t say the same, because of factors like price, convenience (not everyone likes to stay on the fringe and commute for hours) and security facilities,” he says.

Similarly, one should not assume that all service apartments are a bad buy, partially due to the higher assessment rates and utility charges that taint the experience of buyers. “If you go back to what that has worked in the past, it is not necessarily the case going forward. Generalisation can cost you good opportunities,” he says.

However, Faizul believes that there are some evergreen principles – these include fully understanding one’s tenants and the people who are going to buy your property.

“At the end of the day, it is about the community and the people who are going to live there. Once you fully understand the people who are going to rent and buy from you, you will have the ability to predict the future before the value appreciates,” he says.

“Before buying a property, analyse the tenant’s profile first. Find out who will be staying there and what they look for. We (usually) compare a property with existing similar properties, not necessarily in the same location, because sometimes, you just don’t have similar properties to compare with,” he adds.



This article first appeared in Focus Malaysia Issue 277.