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IS IT TIME TO INVEST IN PROPERTY?

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561


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Considering the current pressure on the economy, is it the right time now to invest in property? You may ask what are the potential risks if I choose to invest now? What is the outlook for the local property market in the near future?

No doubt, property is a popular form of investing amongst many people in Malaysia. There are ample reasons why people buy property. For those working in the congested Klang Valley, owning an apartment in the city centre may be convenient both in terms of proximity and time saved in going to work.

Property can deliver attractive regular returns to investors in terms of rental income in addition to capital appreciation or profits from potential increase in the value of property.

In the first part of this article, we will take a brief insight into the property sector in terms of the overall growth of the country.

The construction sector as a whole in Malaysia has been accelerating over the past few years mainly due to a continued high economic growth. Table 1 depicts the country's GDP growth since 1990. The high growth rates achieved have been underpinned by a relatively stable inflation trend.

While the country as a whole was growing strongly at around 8%, growth for the Klang Valley, the premier urban centre in the country where some of the country's most expensive property is located has been growing at even higher rates (refer to Table 2).

Manufacturing, construction and service sectors have been contributing significantly to the growth of the country. Continued expansion in both the residential and non-residential construction activities plus implementation of large infrastructure projects have been the main force behind the strong growth of the construction sector. The property sector is a significant contributor to the economic well-being of the country.

Specifically, residential construction has been very active, driven by on-going housing projects particularly in prime locations such as the Klang Valley for example. Demand for residential homes has been strong over the recent last few years.

The increased demand for residential sector was fueled by higher income levels, relatively easy access to financing and strong general expectations for capital appreciation. Property buyers were everywhere. Some speculators reaped almost "instant" rewards as property prices shot up in a very short-time. The increase in house prices was most evident in major areas such as Johor Bahru, Penang, Kuala Lumpur, Petaling Jaya and Penang. Table 3 and 4 further supports this point. Both tables reflect a buoyant property market. The relatively high exposure of the property sector to the economy has led Bank Negara to move in March 1997 when it imposed new guidelines on lending to the property sector. The move was seen as a necessary positive step to curb excessive property lending.

Table 1. Economic growth of Malaysia

Source: Economic Reports
Due to the recent currency crisis, the government has indicated a slowdown in growth for 1997
|
Table 2. Economic growth of Selangor and Wilayah Persekutuan

Source: Economic Planning Unit
|
Table 3. Direction of Lending

Year

Total Outstanding Loans

Real Estate

(%)

Construction

(%)

Housing Loans

(%)

Property Sector

(%)

1992

156,217

14,932

9.6

12,450

8.0

20,973

13.4

48,355

31.0

1993

174,498

15,267

8.7

13,917

8.0

24,325

13.9

53,508

30.7

1994

203,286

14,624

7.2

15,722

7.7

28,019

13.8

58,364

28.7

1995

260,892

20,572

7.9

20,233

7.8

32,753

12.6

73,557

28.2

1996

332,752

27,952

8.4

27,804

8.4

39,616

11.9

95,371

28.7

Source: Bank Negara Malaysia Annual Report 1996
Amounts in RM million

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