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When funds are looking for value buys, what should we do?

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property market malaysia

Are there property value buys today? A good friend had teh tarik with me yesterday evening. Full social distancing yeah. He said his friend was telling him that the property auction market is now extremely attractive. I told him just within H1 2020, there were over 75,000 residential property transactions. People were already in the market, viewing and buying. Banks are actually lending. As for his question, the following was my actual response.

Charles: If we look at the property market today, there are really a lot of attractive choices. It is not just limited to the auction market. What we need to remember is this. Regardless of the state of market we are in, VALUE BUYS are value buys (just that there are far fewer buyers) while overpriced properties are still overpriced properties. Please do not buy at future prices per sq ft, today. So, let’s just read a little about what’s really happening with value buys in the commercial property market. Remember the notion that, ‘all malls are dying?.’

value buys
Photo by Salah Alawadhi on Pexels.com

Why not we ask, if this is the case, then why buy malls?!

Article in nst.com.my. Hedge funds are eyeing malls, hotels, and office buildings hobbled by the Covid-19 pandemic in what some say may be the most lucrative commercial real estate move of 2021. Leo Huang, senior portfolio manager and head of commercial real estate debt at Ellington management Group said, “The distressed loan pipeline is building. This has been a cycle that is so sector-specific that we’ve seen good opportunity.”

COVID-19 has kept shoppers out of malls, travellers away from hotel and workers are working from office. Some property segments such — such as warehouses and cold storage units — have benefited, and even among troubled malls and hotels, there are many that will survive and even thrive, market observers say. Please do read the full article here with a lot more details yeah. Article in nst.com.my.

Look closely, not simply

I do not know of any hedge funds which are out looking for assets to buy and then to lose money. They are LOOKING for good buys. In fact read carefully that even among troubled hotels and malls, many will survive and some may even thrive! Do not look too far away. Just look at the crowd of visitors in Cameron Highlands last weekend… or the 7 hour queue just to check in to a hotel in Singapore for Singaporeans. These are all pent-up demand and as soon as the market recovers, we are going to see a sudden boom in demand. This is what these hedge funds are betting on; market recovery.

Understanding value is not price

Low price does not equate better value. High price does not mean it’s overvalued. Everything is relative. An availability of ONE (1) unit of RM600 per sq ft high-rise unit within a typical median transacted price of RM800 per sq ft is definitely representing good value while a RM500 per sqft may mean nothing if the within the whole block there are another 200 other units all trying to sell at the same price per sq ft. However, if the whole area are full of RM700 per sq ft units, then this RM500 per sq ft may be worth buying and waiting… or even staying.

Happy evaluating yeah.

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