Malaysian property and the hare and the tortoise

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A recent report by the Association of Valuers and Property Consultants in Private Practice Malaysia (PEPS) has highlighted a very useful concept which appears to offer a large degree of protection to the property market in Malaysia. When compared to neighbouring countries such as Hong Kong, Singapore and Thailand the price of property in Malaysia has increased at a slower rate with a steadier incline.

In the boom times each and every property investor appears to go for the “moving markets” leaving behind some of the stronger more stable markets such as Malaysia which are only now starting to come into their own.

The hare and the tortoise

Anyone who was ever heard of the tale of the hare and the tortoise will know exactly what we mean when comparing the Malaysia property market to those in Hong Kong, Singapore and Thailand for example. These are three areas of the world where property prices have increased substantially over recent times and many investors have made very very good returns. However, markets which mushroom in a short space of time can often curl up and die only to be overtaken by the slower moving, steadier and more stable markers such as Malaysia.

There are a number of reasons why the Malaysian property market has become stronger in itself but not as volatile as many in the region. These include:-

Supply and demand of Malaysian property

While many property markets around the world have seen supply increase well ahead of demand in the hope that there will be a catch up period, these are very often the markets which are struggling at the moment and finding prices falling dramatically. One example would be Dubai where there has been a substantial increase in the number of properties in the region in the hope that the property boom would continue for many years to come. Unfortunately we have recently encountered the credit crunch and the ongoing worldwide economic slowdown which has seen buyer numbers fall substantially and many properties left in the hands of developers.

Malaysia and in particular Kuala Lumpur has managed to contain supply and demand around similar levels to ensure little pressure on pricing either way and little effect on the overall market in the event of a slowdown such as we are seeing now. This management of the supply and demand factors has proved vital to the success of not only the Malaysia property market but the Malaysian economy as a whole. As the story of the hare and the tortoise told us, while the hare raced away at the start and tired itself out the tortoise kept plodding along and eventually overtook the hare.

Property bubbles

Where there is no denying the fact that Kuala Lumpur in particular is central to not only the Malaysia economy but the Malaysia property market, the authorities have managed to control both the economy and the property markets in order to reduce any possibility of a property bubble. This has been vital to the stabilisation of the country which will in due course attract more and more foreign investment due to its less volatile nature compared to other countries in the region.

Property bubbles are very welcome in the boom times but in the bust times these are the first markets to be hit and many investors could and do lose more money than they made in the good times. That is not to say that the Malaysian property market has escaped unaffected by the worldwide slowdown, just the fact that prices have and are forecast to fall at a substantially reduced rate than the average around the world.

Business and retirement

There has been a general increase in investment into overseas businesses and overseas retirement homes in Malaysia over the last few years. While places such as Kuala Lumpur have attracted most of the business investment a number of the less well-known cities of the country are attracting substantial investment from those looking to possibly move overseas fulltime. This two-pronged attack on the country has offered a backbone to the property market which in itself has been well managed by the developers and authorities.

Malaysian property development margins

Due to the fact that Malaysia has experienced a gradual increase in the property market many of the country’s property development companies are working on relatively small margins which reduce the likelihood of substantial cost reduction. Large cost reductions can cause panic in markets as we have seen elsewhere in the world and a low-level more stable and structured approach seems to be the way forward. There is also less likelihood of property developers increasing prices in the short term due to the worldwide situation which could see a number of interesting longer term investment opportunities arise.

Is it the same in the retail market?

Unfortunately the retail market is very different to the housing market in Kuala Lumpur and Malaysia as a whole. A number of significant retail developments have been completed over the last few years with more developments currently in progress. However, the reduction in economic activity around the world has seen less consumer spending as a whole in the region which is set to impact upon the retail market of places such as Malaysia.

Property and tourist market

While the tourist market has held up fairly well in Malaysia of late it would seem inevitable that there will be some form of slowdown the longer the worldwide economic troubles continue. There are already signs of reduced interest in hotel bookings in the region and this could slow further the longer neighbouring countries struggle. The hotel market and the housing market in the country seem to be very much at odds with each other at the moment.

Conclusion

While Malaysia has always been a popular property and business market for overseas investors the value of a more steady approach is only now coming to the fore as neighbours such as Hong Kong, Singapore and Thailand appear to be struggling more than Malaysian property markets. The hare and the tortoise tale perfectly illustrates how a long-term approach to property markets and economies can reap substantial rewards in the future.

House prices in Malaysia are only forecast to fall by between 5% and 10% in total which is substantially less than countries such as the UK where forecasts are currently running at up to 30%. In these troubled times there are great benefits to having exposure to more stable and steady markets which may not have caught the headlines in the boom times.

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