I recently had some interesting email exchanges with a potential investor in Iran who was keen on investing in Malaysian properties. This gentleman had even ordered my books to gain a better understanding of the Malaysian property market. He was taking a medium term view and was looking for a return of 20% year-on-year for the next 5 years as what real estate prices in the Middle East have experienced over the last 5 years and are expected to continue to do so in the future.

I frankly told him that I personally didn’t think we could expect that sort of returns in our local property market. My reasons being:

1. The current political situation is unpredictable after the general elections on 8 March. Rumors of elected Members of Parliaments from the ruling coalition crossing over to the opposition anytime hereby forcing a change of government is not doing the country, the economy or the property market any good. Even if a change of government occurs, it is going to be unstable. The ruling coalition is not going to sit still.

Further, incessant calls for a change in the top leadership of the country are not helping matters either. Political stability is a prerequisite for both economic stability and growth.

2. Malaysia's GDP is expected to grow at slower rate of 5-6% pa for the next couple of years. Foreign investment seems to be bypassing Malaysia for China, Vietnam and other high growth countries in recent years. Malaysia is losing out as the government can't seem to get its act together and focus on the economy to attract foreign investment. 

3. The long overdue sharp increase in fuel prices of 40% on June 5 is fueling inflation across the board and reducing people’s disposable incomes. While high end properties that are mainly purchased by foreigners and rich locals are not expected to be badly effected, the lower to medium cost properties purchased by local wage earners will see a slow down in demand. 

4. Thanks to increases in raw material prices like steel, cement, etc and construction costs, prices of new projects by developers will have to be at higher prices. This will automatically push up prices of completed properties in the secondary market.

5. In the last few years with so much construction taking place, there is going to be a massive over-supply of properties especially of high-end apartments in the KLCC vicinity. This area is often seen as a benchmark for property prices for the rest of the country.

Developers are able to sell due to the strong demand coming from overseas investors who are purchasing because our prices are still relatively cheap compared to other countries. If you take a drive around the KLCC in the evenings and observe the number of apartments lighted up, many completed condominiums have very low occupancy rates. There are just not enough tenants who need big size units and can afford rentals of more than RM10,000 per month for a beautiful view of the twin towers. Those with families would prefer to stay in neighborhoods such as Mount Kiara, Bangsar or Ampang which has many international schools, restaurants and many other attractions conducive to raising a family.

Retirees coming in under the Malaysia My Second Home program prefer to stay away from congested areas in the Klang Valley to places such as Penang and Kota Kinabalu where they can enjoy the sun, the sea and good food in one place.

6. Malaysia doesn't have the so called "X factor" for property prices to go up sharply. For example in Singapore, there are 2 new casino resorts currently under construction. Upon completion, they are expected to employ over 20,000 people and bring in a huge inflow of tourists. Further a lot of international companies, due to pollution and other factors, are relocating out of Hong Kong to Singapore. Being an island city with a shortage of land, prices can only go sky wards.
 
In the Middle East, the "X factor" is petro-dollars and the governments there are strongly encouraging the growth of the tourism industry. Within a few years, airlines operating out of Dubai and Abu Dhabi have become major global players.

Hence my frank advice to this Middle East gentleman was for him to concentrate in the Middle East where he has the "home country" advantage instead of investing over here unless his budget was big enough. For local investors, if you are planning to buy from developers, my advice is that it’s best not to wait too long as prices can only go up due to the higher construction costs. If you are planning to buy from the resale market, you may want to adopt a “wait and see” strategy and buy from motivated sellers due to the higher fuel and food prices.

If you have any comments on this article or questions, please email to me at achievers88@yahoo.com. I would highly recommend that you sign up at our moderated getrichbook egroups at:
 
http://finance.groups.yahoo.com/group/getrichbook/

It's free for all my book readers and readers of this article. Only relevant emails pertaining to finance, property and stock investments will be approved for broadcast.

Article Contributed by:

Milan Doshi
Financial Trainer and Best Selling Author of
“How You Can Become a Multi-Millionaire Real Estate Investor!”
For more information, visit www.milandoshi.com

Copyright 2008 by Milan Doshi