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Historic low yields. Sharp correction unlikely.

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Prices too high?

When someone asked me if property prices are too high today, I will tell them that property prices may be better determined by rental yields.

For example, if a unit could only fetch a 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 gives pressure to the owner to sell his unit and usually at a lower price too.

I also do not support the assertion that if one is buying for own-stay, then any price is okay.

Seriously, these couple of years are no longer the time to buy overvalued properties yeah.

Now, everything should seem clearer already. As for the world, let’s look at what JLL has to say yeah.

Article in PRNewswire.com here. Some general conclusions include the below:

  • London remains the largest commercial real estate investment market in the world
  • Investors favor familiar cities with well-established investment markets and high levels of transparency
  • JLL projects 2019 investment volumes will be approximately 5 to 10 percent 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.”

Please look at 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 to 10 percent below the 2018 total, driven by a slightly reduced appetite from investors to sell, as well as continued selectivity in acquisitions.

That full article for reference here.

We’re not ‘there’ yet.

Malaysia is not a ‘gateway’ property market as per the above article.

It also meant that we are usually not the top-of-mind market for global property investors.

This will usually tell us that as much as we believe our prices are high, it’s usually not yet.

As for the prediction that historic low yields will not cause a property market crash, let’s just leave it as it is.

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 kind of outlook.

Crash may happen and yet it’s just a phase.

I am old enough to have seen at least 3 of these including the worst one for me the 1997/98 ASEAN financial crisis.

(So hard to find a job!) I hope it (the crisis) does not return or at least not at the full extent. Happy following.

Happy understanding.

written on 23 Jan 2019

Next suggested article: Kids are really rich nowadays. In future, poor for property?

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