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Generally there are 6 main sectors you can choose to invest if you
planned to put your capital in property. There are from i.e. Office
Buildings, Retail Centres, Hotels / Serviced Apartments, Residential
Properties, Development Land/Projects, and Industrial Properties.
Below we outline a brief commentary of the Office, Retail, Hospitality,
Residential and the Industrial sector and our opinions of investment
opportunities in Kuala Lumpur in the respective sectors. These opinions
should be regarded solely as a general guide with specifics being
verified upon interest to invest.
Office Sector
For the first quarter of 2012, rentals and market prices in the Klang
Valley remained generally stable, with exception to the older buildings
and buildings in poor locations which have difficulty competing with the
newer completions and will likely have to drop rents to retain existing
tenants or attract new ones. Yields have been stable, ranging from a 6%
to 9% per annum.
Though there is an overhang in the Office Sector, good and healthy
opportunities for corporate investments are still available. Our hot
picks are based on the following criteria:
1.Buildings located in the Golden Triangle Area (Along Jalan Sultan
Ismail , Jalan Bukit Bintang, Jalan Ampang and KLCC) and Damansara
Heights Area
2.Prime Office Buildings (generally offering above average quality of
office accommodation and less than 10-15 years old. Average Rentals from
circa RM3.00 psf per month onwards)
3.On En-Bloc only. We do not recommend purchasing properties on strata
basis for offices.
4.Profile of tenants a good mixture amongst prominent MNC's and local
companies/public listed/conglomerate
5.Tenancies are well structured (break clauses, rent reviews, term
tenancies etc)
6.Very strong Management
We have come across properties fitting the above bill and a couple also
offering guaranteed returns based on a sale and leaseback basis. In
terms of development, we anticipate high demand for high-class offices
in the same locations.
Retail Sector
There has been an increase in supply of retail space with new malls
coming on board i.e. Paradigm Mall, Nu Sentral and the Setia City Mall
which comprise a total of 2.05 million sq ft of NLA and are targeted to
come on stream during the remainder of 2012. Rentals and market values
have remained stable this year with Malls in the city centre able to
command higher rentals by virtue of limited supply of good malls in the
city. Yields are ranging from about 7% - 9% as well.
There are however, very limited opportunities to invest in the Retail
sector and we strongly recommend this sector, based on projected
demographics and economic growth. Our hot picks for this sector are as
follows:
1. Buildings located in the Golden Triangle and Residential Locations
with High Purchasing Power or within close access to these residential
locations
2. Close to Public Transport
3. On En-Bloc only. We do not recommend purchasing properties on strata
basis for retails. An investor has to be very strict here as generally
malls need very strong management and it gets stronger with a single
owner
4. Wide Range of Goods and Attractive Features within the Mall (strong
lifestyle and contemporary based Tenancy Mix, not the same old tenants)
5. Quality Management and Services. Just like Hotels, Management is
almost everything in a Retail Centre. If the existing centre is not
doing well and due to quality management, there is an opportunity to
capitalize here as the turnaround potential for malls is really big in
the property sector
6. Able to keep pace with the latest shopping trends
In terms of development, we advise medium sized malls in the above
locations and go in with a strong Management & Marketing Consultancy
Team that not only knows the retail market but also knows the retailers
and retailing.
Hotel / Serviced Apartments
The hospitality sector is a very lucrative sector in the property market
due to its potential free cash flows. A strong Management Company/Team
is essential and the success of your investment in the Hospitality
industry will strongly hinge on this. Management Companies that are
innovative in their appointments (such as willing to share the trading
risks or even provide guaranteed returns) and management style are what
you should look out for.
Also note that Tourism Industry is now the biggest industry in the
world.
Though there are over 28,000 hotel rooms in Kuala Lumpur and 4,800
serviced apartments, at the moment, occupancies have been steadily
picking up since the September 11th incident. Room rates have also
remained stable this year with some hotels and serviced apartments
recording increments. Anticipated yields for hotels and serviced
apartments range from 6.5% to 11%, depending on category and locations.
Our hot picks are hotels and serviced apartments with the following
traits:
1. Within or around KLCC, top resort destinations that are accessible
(Penang, Langkawi, Kota Kinabalu, Kuching, Kuantan) and even suburbs of
Kuala Lumpur for Serviced Apartments.
2. Functional Room Designs and General Layouts
3. High End and Medium End Categories (low end category provide cash
flows but low yields for the same management costs) to cater for
international and domestic tourism
4. Potential to offer products to the more discerning consumers
A word of caution though, hotels and serviced apartments would initially
require some capital injection, but with the right management, these
efforts are really lucrative. Very strongly recommend this sector.
Residential Properties
For corporate investments, we only recommend low-density high-end
condominiums that are sold or developed en-bloc basis i.e. boutique
single development-one owner. The main reason is lack of supply of these
types of properties and also the quality of tenants are really good.
Locations you should be looking at include Ampang Hilir, U-Thant,
Bangsar, Damansara Heights, Petaling Jaya (note: no such development in
Petaling Jaya yet).
Other success factors include:
■ High privacy and security
■ Ample facilities
■ Efficient, functional and spacious layouts
■ Quality finishes and fittings.
■ Quality of the detailing and construction of the building
■ The quality of the management and maintenance of the building
As mentioned, there are not many in the market and any opportunity
should immediately be secured.
For development, the high-end market is a good market. But we also
recommend run of the mill property development in growth areas of
Puchong, Kota Damansara, Cheras, Sungai Buloh, USJ, Petaling Jaya and
Bukit Jalil.
Industrial Properties
We do not anticipate much action in the industrial sector in the short
term and we only expect consolidation. Only AFTA is expected to
contribute towards the recovery of this sector. With this anticipated
recovery, our advice is investments in distribution centers and
warehouses cum showrooms in high traffic areas like in Section 13,
Petaling Jaya, Glenmarie and even Ulu Kelang.
Though real estate investment has a lot of upside to offer in your
portfolio, caveat emptor as real estate investment has also its fair
share of drawbacks, the main being:
1. Real Estate investment has a high cost of entry and ownership
2. Real Estate investment offers less liquidity as compared to equities
3. Real Estate investments generally require a long holding period
With this in mind, it is always good to back up your Corporate Real
Estate Investment decisions with sound research, a structured decision
making process and reliable advice.
Sources:
http://zerinproperties.com
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