The Edge Investment Forum on Real Estate 2018: Leveraging rental opportunities in a soft market

This article first appeared in City & Country, The Edge Malaysia Weekly, on April 16, 2018 - April 22, 2018.

From left: The Edge Media Group publisher and group CEO Ho Kay Tat, Foo, Wong, Poh, Lee, Cheah and Tan

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An exuberant crowd of more than 500 attended The Edge Investment Forum on Real Estate 2018 (REIF 2018) at the Sunway Pyramid Convention Centre in Petaling Jaya on April 7, with some arriving as early as 7.45am.

Organised by City & Country, the property pullout of The Edge Malaysia, this year’s forum, with the theme “Opportunities in a Challenging Market”, was presented by Sunway Property and supported by EdgeProp.my. This was the 12th edition of the forum .

City & Country editor Rosalynn Poh, in her opening remarks, acknowledged the concerns of property investors in the current market. Do we still buy? How is the rental market performing? Will property prices go down? Where do we buy to rent? “Despite these concerns or questions, we still hear of really well-received launches, some of which were fully booked within a weekend or two, or some really good deals on the secondary market.”

The panel of speakers comprised CBRE | WTW managing director Foo Gee Jen, Reapfield Properties group chief operating officer Jonathan Lee, Real Rockstar Coaching real estate coach, trainer and entrepreneur Raphael Wong, Sunway Bhd property division managing director Sarena Cheah and Chur Associates founder and managing partner Chris Tan.

Foo, the first speaker, in his presentation “Market outlook: Which sectors are expected to perform better this year?” suggested that property prices would not drop in general. “Interestingly, the only time in the past 25 years that property prices actually declined was during the Asian financial crisis from 1997 to 1999. Even during the subsequent global financial crisis from 2008 to 2010, prices were still on an upward trend.”

It was the secondary market that drove prices and trends last year, Foo said, noting that the retail and office markets did not perform well. Nonetheless, he believes there is still an undersupply, especially of affordably priced homes, and that the overhang is mostly due to the mismatch in pricing. “In general, almost 60% of the overhang units are priced above RM400,000 and 30% are stratified properties,” he said.

“We currently have 5.1 million residential units for a population of 30 million. Based on an annual population growth of 1.3% as of 2016, we will need 97,500 new houses each year based on an average household size of four. As the annual completion of houses is 78,216 units in the past five years, there is still an undersupply in the segment.”

Reapfield’s Lee, in his topic “Buy-to-rent: Zooming in on properties RM500,000 and below”, advised investors to understand the behaviour of consumers and their expectations.

“We are still considered a very young population,” he said, noting that the median age is 28. “Our population right now has the most productive generation who are between the ages of 15 and 64. If this is the case, the majority of tenants in the market are highly likely to be from this age group.”

He said the younger generation of tenants place a premium on experiences, hence the location and surroundings of the property are important aspects for investors to consider.

He noted that the perspective of this group of tenants is short term and their budget may be limited. “If you’re buying to let, it is important to understand what the tenants would want. I always believe that when you’re investing in a property, your biggest business partner is the developer because it is the one creating and maintaining the value in and around the property. Price factor is only an indication, but the whole ecosystem is very important.”

Real Rockstar Coaching’s Wong spoke on the topic “Renting to millennials 101: What do they want?” He noted that only 33% of millennials, also known as Gen Y — who are between the ages of 24 and 38 —  are able to afford a property, based on HSBC’s First Beyond the Bricks study. He said 86% of millennials in Malaysia rate the high cost of living as one of their top three biggest concerns, along with unaffordable property prices and inability to save, according to a study by iMoney.my.

Should millennials buy or rent then? Wong said two strategies to consider are investing to sell and investing to rent. “If you cannot sell, rent it out to generate better cash flow,” he advised. Some of the things millennials look for in a property include a place that is digitally engineered, eco-friendly, comes with social spaces, is near entertainment spots and is pet-friendly. Areas popular among this generation include Bandar Sunway, Bangsar South, Petaling Jaya (specifically Section 13), Mont’Kiara and Setapak.

In her presentation, “Investment opportunities: Where & what?”, Sunway’s Cheah maintains that location, location, location is still the mantra for real estate. She said accessibility and connectivity, the surrounding amenities, community of services and commercial activities, and being a smart and sustainable city are key factors that make up a good and thriving location.

From a developer’s perspective, she said “we want to offer holistic developments, and in this slower market, we want to go about retaining and growing the value at our developments”. Taking Sunway Velocity as an example, she noted that 60% of the development is owned and operated by the developer, which enables it to continue adding value and growing it.

“We find that the development, anchored by the Maluri and Cochrane MRT stations, has worked out quite well,” she said.

“We want to offer everything in one place. Our hospital will open by the end of next year, the hotel has just opened, the shopping mall is open, we have sold the residences for people to live in, we are moving our education group over to offer a city campus and we have offices there.”

As infrastructure is a game changer, she believes the MRT Second Line and Circle Line will see more people using the MRT. “With growing accessibility, the new trend is transit-oriented developments. We have to move up the ladder towards more value-added production to spur economic activities”, which will be centred around urban centres.

Ending the forum with a bang, Chur Associates’ Tan, who spoke on “Caveat emptor: What you should know before you invest in a challenging market?”, told investors to buy within their means and risk appetite as buying a property is the largest and longest financial commitment most people will make. “Affordability is not an objective but a subjective concept.”

He suggested that the current buyers’ market is also a tenants’ market and this could be an opportune time to join the ranks of landlords. “We will see more people renting. If you go to any developed city, most people rent,” he says.

He reminded investors that there are four things one can do with property — buy, sell, use (rent) and borrow — and advised them to identify the resources they have but don’t use and leverage that. “Always push your boundaries and try your luck by asking questions. Sellers are motivated these days.”

City & Country spoke to some first-time and repeat participants at the forum. Wee Wei Lynn, 27, said it is her third time attending the forum. She added that  it helps broaden her knowledge as a real estate agent. William, 47, has attended twice and hopes to get further insights into the property market.

First-time participants Yee Thian Soon, 62, and Ricky, 30, said they wanted to learn more about real estate investment. “I’m interested in the market outlook, supply, demand and hot spots,” said Ricky.

Of the participants, 33% are 51 years old and above, 22% between the ages of 31 and 40, 21% are from 18 to 30 and 20% from 41 to 50.