Tim Murphy
SIGNS of renewed confidence for global investors are very apparent today, after the global recession last year. Here are six markets that we would recommend to investors seeking to grow their property portfolio.
Vietnam
Vietnam’s export economy and growing aspirational population makes it a strong market for growth potential. Also, demand for residential accommodation is outgrowing supply at a rapid rate. There are about 60,000 units scheduled for completion through to 2012 versus the 110,000 homes required in the same period.
Vietnam has a dynamic and cyclical property market that is heavily influenced by its stock market, so this is often a barometer for tracking the performance of the property sector. Over the past few months, the property market looks to be levelling out and there has been a significant rise in supply as developer confidence returns. The fourth quarter of 2009 saw twice as many launches of new schemes as the previous period.
For international investors who don’t know the market, choosing the right property can be a daunting task. Buyers would be wise to look for projects by reputable international developers.
Malaysia
For investors who want lower risk with solid yields and capital growth at affordable prices, I always recommend including a property in Kuala Lumpur in their portfolio. Malaysia is an export-based economy with strong fundamentals and will grow steadily as the global economy continues to recover.
The government encourages little speculation and recently introduced a real property gains tax of 5 per cent on any property sold within five years of purchase. The best time to buy is when interest rates are low and banks are lending freely. Currently, loan to values of 70-80 per cent are easily achievable. The property market is transparent with laws based largely on the UK legal system which makes investing in property very simple. For a private investor, there are thousands of websites to visit that have all the relevant information to compare and contrast the various opportunities available.
KL is Malaysia’s most developed and liquid property market with international appeal and considerable domestic demand. When buying, consider the location of the property carefully. Traffic can be tiresome and it is best to buy close to a public transport node. While property ownership for foreigners can be freehold title, it is also important to note that there are restrictions for foreigners buying property in Malaysia. For example, purchases of under RM500,000 are not permitted.
Hong Kong
The best time to buy in Hong Kong is when land supply is short and interest rates are low. The past 12 months have seen a massive 33 per cent rise in the property market, making it the highest growth rate in the developed world.
The property market responds rapidly to stock market performance, and as the China economy continues to grow, so too will Hong Kong’s. A direct result of this growth is that there are a number of mainland Chinese residents buying property in Hong Kong who are happy to pay higher prices. Sustained buying interest from cash-rich individuals and the tight supply in the luxury sector will push up property prices by 10 per cent over the next 12 months.
With strong liquidity in the banking system and a further drop in funding costs, average prices in the traditional luxury districts grew 9.6 per cent quarter on quarter at end-November 2009, showing there is still growth in the market.
Like Malaysia, Hong Kong’s property market is relatively transparent and sourcing a good deal is simple if you have the time to do your research. Keep away from off-plan developments in Hong Kong, as you will get a better yield from the secondary market. Look for areas that are built up and continuing to show growth such as Sheung Wan. Do be aware of the buildings going up in the vicinity of any development. If you are buying your apartment for the view, make sure that nothing can be built in front of it.
Singapore
The Singapore government is very nimble when it comes to changing regulations on buying property, which can both be a disadvantage and an advantage to investors.
Singapore had a robust residential market in the midst of the economic recession, and 2009 saw about 14,500 new homes sold, second only to 2007. This compares starkly against the 4,382 units sold by developers in 2008. In Q4 of last year, the government added a number of regulations to prevent a property bubble forming, and earlier this year added a 3 per cent stamp duty for investors who sell their residential property within 12 months of purchase. I believe that 2010 holds a lot of promise for the luxury sector, as demand from more confident buyers is being answered by developers.
Singapore has a very transparent property market and for those buyers lucky enough to live locally, sourcing property is simple. However, for those based outside Singapore, deals are snapped up very quickly by the local market. So it’s best to fly there and spend some time looking yourself. Look out for a reputable developer with a proven track record and projects in the most sought-after areas – districts 9, 10 or 11.
London
London is one of the most internationally traded property sectors in the world and is seen as a barometer for the global economy. The best time to buy London property for international investors is now.
London presents opportunities when supply is low, mortgage finance is difficult for local investors limiting their buying power and when the pound is weakening. All of these factors conspire to allow savvy international investors to pick up deals that normally wouldn’t be available to buyers overseas.
This means that there are a large number of opportunities for investors in Asia. However, quantity often does not equal quality. Deals that reach the Asian market are often lower quality, mass market developments. For international investors, it is best to seek advice from property investment groups who can source quality deals by conducting thorough research and underwriting a tranch of units. Investors should be wary of off-plan property in areas with a lot of supply. Look for projects in a quality central location with good transport links to the city.
Australia
Due to its population growth and geography, Australia is experiencing an undersupply of housing. In 2008, Australia’s population grew by 2.6 per cent – which is the equivalent of the entire population of Canberra – in one year. Occupancy rates are always very dependable, with figures such as 98 per cent in cities like Melbourne becoming the norm. These trends are creating great opportunities for foreign investors right now.
Another factor currently contributing to the success of the economy is Australia’s extremely successful export relationship with China. Last year, Australia exported more coal to China than any other country in the world and 2010 is set to exceed last year’s numbers. While the resources sector accounts for only 2 per cent of Australia’s economy, it has a very positive trickle-down effect on sectors such as the property market.
There are a number of factors to consider when purchasing property in this market. Perhaps the most important is to make sure you buy where local Australians want to live. As an international buyer, you are restricted to only buying new property. Also, note that Australia has strict and tight deadlines for the purchase process and local agencies are much less likely to understand the logistical issues for international investors.
There is likely to be a significant increase in funds invested in property markets globally this year. Right now, Asian markets, Australia and the UK are showing the most appeal and we would strongly recommend conducting further research in these areas.
Tim Murphy is managing director and founder of IP Global, a property investment company specialising in acquiring property in emerging, distressed and recovering markets
