Property rental is a better determinant of property price. Earlier article here: Price too high, rental too low, demand slows. Many years ago, it’s possible to get positive rental yields here in Klang Valley. If we are buying today, it’s very yough to even try for a positive yield these days. Well people say prices are dropping…? Property prices do seem to be weakening if we look at some of those property for sale advertisements. However, there are those property listings with prices so attractively low it could not be true.
You are right, those are ‘fishing’ property listings. Some of these black sheep real estate negotiators posted those to attract you to call and then offer you some other units when you call. Of course, maybe there are some with genuine reasons. The cheaper unit was sold for example and they now have just the market price ones. What’s happening to the rental rates in the residential and the office market these days?
Article in themalaysianreserve.com Malaysian Institute of Estate Agents (MIEA) president-elect Chan Ai Cheng said that homeowners would prefer to maintain the rental rates if they could during unpredictable economic situations. She shared, “A couple of years back, there was an adjustment in rental rates where they generally fell 20%. Rental rates have been steady since the past two years but have not gone back to where they were during good days.”
For commercial properties, Chan said rental rates for offices depend very much on the location. She said, “It is an issue of the economy. When businesses are successful, they will expand which means they need bigger space. When the economy is bad and businesses are shrinking, there will be less demand for office space.” She also shared that short-term rental on AirBnB listings are currently affected by the Covid-19 outbreak. Article in themalaysianreserve.com
If I am renting a condo for RM2,500 per month which I found to be comfortable and I have moved a lot of my own things into it, I would not be actively looking for places where the rental is RM2,000. Unless of course that particular unit is just next to my current unit. This is especially if I have been staying at the same place for some time. It may be RM500 savings per month but the hassle of moving out and moving in will be super tiring and I would need to pay for the removal service yeah. Last but not least, to waste a couple of weekends just to complete the move. Sorry yeah… the RM500 savings per month is just not attractive enough. Well, unless of course those luxury condos in the area I like is now going for RM2,000 per month, then most likely I would…
It’s the same for offices. Assuming an Australian multinational company occupying 4 floors in an office building in a central location. The rental may be RM10 per sq ft and total sq ft may just be 40,000 sq ft? Now… an property agent comes to them and pitch to them that if they move, they can now save a lot on rental. In fact, 20% savings! RM8 per sq ft. That’s an actual savings of RM80,000 per month! This is wow… right?
Think deeper. A multi-national which could pay RM400,000 rental per month, what do you think their renovation cost would have been… and what would the renovation cost be for the new place. What is the cost of moving everyone to the new place? Would everyone move? What if 10-15% of the staffs leave because of this move? By the way, if just 10 of their good managers resign, just rehiring these 10 managers via the services of the recruitment agencies, the cost is likely to be RM8,000 (salary) x 2 months head hunting fee and that’s RM160,000… Suddenly that rental savings seems not that attractive anymore. Happy understanding the reasons why it takes a long time to decide on the office location and why a minor adjustment in rental will not mean a lot.
Next suggested article: Property staging. What’s that? How to do it well?