M'sian investors shifting focus to commercial properties?

KUALA LUMPUR: Property investors could be shifting their interest to commercial properties following new cooling measures introduced by the Government to curb speculation in the residential property market.

However, demand for office space could be suppressed by supply that are already in the pipeline arising from big commercial projects like the Tun Razak Exchange and the Warisan Merdeka Tower.

“The good news is that demand is still there with a take-up rate of three to four million sq ft of office space every year. However, the issue would be on the supply side which would certainly put pressure on the market and this would be a cause for concern.

“However, it would just be temporary until it is absorbed by the market in three to four years,” said property consultant Knight Frank Malaysia managing director Sarkunan Subramaniam at the launch of its Global Investment report yesterday.

He said there was already a shift of investing patterns as investors were attracted to yields from the commercial sector which could be higher compared with residential properties.

“The problem with Kuala Lumpur is the lack of good stock (properties), where our office market is about 18 million sq ft comprising Grade A, B and C offices, and the Grade A properties comprise just 20% of the market which is already tightly held,” he said.

He said that was also the reason why some investors are moving overseas to look at property hot spots like London, which had attracted a bulk of property investments from Malaysia.

CIMB Research in a report last month also said without the solid backing of fundamental demand, the overbuilding of commercial real estate could result in painful long-term issues, such as a magnified oversupply of office space, depressed rentals and yields, wastage of strategic land resources and knock-on effects on the financial sector as borrowers default on their loans and the industry’s non-performing loan ratio rises.

“We are concerned about the flurry of big commercial projects as this will add to the oversupply of office space in Klang Valley over the medium-term. The overhang in commercial space deteriorated further in 2012, weighed down by oversupply and holding back rental rates,” said analyst Terence Wong.

Sarkunan also said residential prices would not go down despite the cooling measures to be introduced in 2014. “Transactions might be fewer, and it may slow the price appreciation, but it would not bring prices down,” he said.

He said the only way to bring house prices down was to flood the market with affordable properties, and the Government could also review incentives for private developers to supply these properties instead of relying on government agencies to supply these properties.

Elaborating on the report released yesterday, Knight Frank global capital markets partner Jeremy Waters said properties in gateway cities like London would continue to be sought after by Malaysian investors as Malaysians understood and had deep knowledge of the UK property market.

In 2012, the UK received the most capital inflows from Malaysia, at about US$5bil, followed by Singapore, Australia, and the United States, which was an almost five-fold increase compared with US$1.15bil recorded in 2011.

He said the firm also received increasing interest from local property developers who wanted to take their expertise to markets like London like what S P Setia Bhd and IJM Land Bhd did.

“The interest to invest overseas is incredibly strong now, and its not only London, but also other gateway cities in western Europe like Germany and France and also in the United States,” he said.

He said a number of sovereign wealth funds from China, Malaysia and Kuwait remained focused on gateway locations, while South Koreans and Qataris are increasingly exploring opportunities in medium-sized and smaller cities.