For example, if a unit can only fetch rental of RM2,500 per month, then the property should be priced at RM500,000 or thereabouts instead of over RM600,000 or even RM800,000.
An earlier article here: Rental to determine property price, seems clearer. When a property gives negative yields, it pressures the owner to sell his unit and usually at a lower price too.
It is also wrong to assert that if one is buying for their own-stay, then any price is okay. Seriously, no one should buy overvalued properties.
Now, everything should seem clearer. Globally, let’s look at what JLL has to say. In an article in PRNewswire.com, some general conclusions included the following were made:
• London remains the largest commercial real estate investment market in the world.
• Investors favour familiar cities with well-established investment markets and high levels of transparency.
• JLL projects 2019 investment volumes will be approximately 5-10% below the 2018 total, driven by investor caution and selectivity.
Richard Bloxam, Global Head of Capital Markets at JLL, said, “In a year when investors have had to deal with increasing populism, protectionism and political uncertainty, the appeal of real estate as an asset class has continued to increase.
“Interestingly, investors remain focused on gateway cities, despite tight pricing. Many are looking at alternative or emerging locations, as well as varying real estate property types within these cities, rather than exploring other less familiar cities.
“A notable trend is that half of these established gateway cities are in Asia Pacific. Increasing transparency in these markets is encouraging more investment, moving these cities even higher up the rankings in 2019 and beyond.”
Consider this particular point.
• “Investors remain focused on gateway cities, despite tight pricing…”
• This tells us the reason why prices in the usual hotspots continue to hold its position even as many other less popular areas reduce their prices to attract buyers.
• It also tells us that if we are looking at “value”, then considering some emerging spots are advisable too and not just the usual hotspots.
JLL’s conclusion: Yields are now at historic lows in most markets across the globe.
A sharp correction is unlikely as there is still a significant weight of capital looking to invest in real estate, and corporate occupier market fundamentals across many markets are positive.
This creates the potential for continued income growth.
However, in 2019, overall investment volumes are expected to fall approximately 5-10% below the 2018 total, driven by a slightly reduced appetite from investors to sell, as well as continued selectivity in acquisitions.
We’re not “there” yet. Malaysia is not a “gateway” property market. This means we are usually not the top-of-mind market for global property investors. This shows that as much as we believe prices are high, it usually isn’t. Yet.
As for the prediction that historic low yields will not cause a property market crash, let’s just leave it as that.
JLL has by far more access to data and statistics than kopiandproperty.com
What’s super important is that as property investors, we should look at a much longer term than just that 12-24 months. A crash may happen and yet it’s just a phase.
This article first appeared in kopiandproperty.com
Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.