Foreigners cautious on high-end properties

Foreign investors may be put off from acquiring high-end properties in the country as uncertainties in the global market have caused them to be risk-averse and cautious.

Analysts said foreign investors were now more apprehensive about acquiring properties and were poised to contain their risk exposure against volatile global market conditions and the new political landscape that was shaping the country.

One analyst told The Edge: “I think it is very evident that foreign investors are thinking twice about purchasing properties here this year, due to the financial uncertainties in the global market.

“Already in Penang, we are seeing softening in sales in condominium units.”

The decline in demand for properties began when foreign fund managers had to cut losses in the wake of the subprime mortgage crisis and a declining US economy.

Moreover, prospective property owners are adopting a wait-and-see attitude, due to the political changes in the country after the recent general election.

“People want to see what moves the government would be making to boost the property scene, and they are holding back their investments now. Hence, we are seeing an over-supply of property units in the country,” an analyst said.

MIMB Investment Bank Bhd research head Pong Teng Siew said the robust high-end property sector had been spearheaded by foreign investors, especially under the Malaysia My Second Home Programme, which was an initiative by the government to encourage retired foreigners to live in the country.

“However, we expect the momentum to be slowing down this year,” he said, adding that property developers would still be able to attract Singaporean and Middle Eastern investors to acquire properties here, but on a smaller scale compared to a year ago.

Additionally, another analyst said that property owners — both foreign and local alike — were now facing difficulties in renting out their properties, especially high-end ones, due to their higher rental prices.

As of December 2007, monthly rental of condominium units with floor size of 2,000 square feet that were located in the vicinity of KL City Centre could fetch between RM7,000 and RM9,000.

The analyst said: “Unlike Vietnam, whereby prospective buyers purchase property to live in, there are more buyers here that are acquiring properties to be rented out. Thus, the demand for properties may not be as sustainable.”

Subsequently, Pong said most property counters would have more downside in the short term as projects faced mounting cost pressure from steep raw material prices, and a market that might not respond coherently to the higher construction costs.

However, another analyst believed property counters still had their upside as players such as SP Setia Bhd had locked in high sales a year earlier, which would cushion the impact of lower sales this year.

“Nevertheless, the property sector is expected to be flattish in 2009, as property prices in certain segments seem to have peaked in 2007, resulting in a stabilisation process in the prices this year,” the analyst said.

On Friday, the Kuala Lumpur Stock Exchange property index rose 8.83 points to close at 788.93 points. - By The Edge Daily

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