Good time to invest in property now


Better upside: (from left) Knight Frank Sdn Bhd international project marketing (residential) senior manager Dominic Heaton-Watson, Knight Frank Asia-Pacific research head Nicholas Holt, Sarkunan and capital markets executive director James Buckley at the event

KUALA LUMPUR: The slowdown in the local property market has bottomed out, with prices seen picking up later this year, according to property consultancy firm Knight Frank Sdn Bhd.

“We predict a stable rate in 2017 and we will possibly see better upside towards the end of the year or early next year,” Knight Frank managing director Sarkunan Subramaniam said.

“The market has had a few years of contraction and we feel that this year, what will clear up one of the major concerns of most investors is the political uncertainty,” he said at the launch of Knight Frank’s 2017 Wealth Report here yesterday.

According to the report, “political uncertainty” was among the top concerns of its respondents in Asia at 25%.

“We’re going to have elections possibly this year. Once they have cleared, there will be positive movement in the market and that’s why I feel now is a good time to buy property in Malaysia.

“Once the elections are out, the economy will generally start picking up and sentiments will improve. Capital will also start coming in,” he said.

According to the wealth report, potential fall in asset values was the highest concern among its Asian respondents at 30%, followed by rising taxes and tighter controls on capital movement at 28% and 27% respectively.

Going forward, Sarkunan said affordable homes would primarily drive the local property market.

“Affordable homes will still be a driver to an extent, but medium-to-high end properties will also pick up again. Also, when the mass rapid transit (MRT) lines come into the city, it will drive the commercial market there as well.

“We’ve had a lot of decentralisation push over the last 10 years and the MRT will bring office workers to the city.”

Sarkunan pointed out that locations with light rail transit (LRT) and MRT lines, such as Damansara Heights, have bucked the trend in terms of condominium values.

“Prices have actually increased compared with some of the other areas in Malaysia. Transport hubs or transport-orientated developments, such as Kota Damansara, have also seen improvements in prices.”

The Knight Frank 2017 Wealth Report tracks the value of luxury homes in 100 key locations worldwide, including 19 destinations from Asia Pacific.

According to the report, values rose globally by 1.4% on average last year, compared with 1.8% in 2015. Asia was the second best performing world region last year, with prices rising 5.1%.

Australasia was the strongest performing world region with prices rising 11.4% year-on-year.

Source: BY EUGENE MAHALINGAM The Star/ANN

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Tips on courting investors


IN this penultimate column, I would like to explore the world of romance, courtship and partnership. Why some marriages are happy and long lasting and why some end in a messy divorce. I will also talk about quickie engagements, marriage of convenience and spouse for hire.

Courting-investorNo, I am not Aunty Thelma providing counsel on your turbulent personal life. Neither am I qualified to talk about politicians and rent seekers. This discussion is confined to entrepreneurs who need partners to help them kick start their business. Occasionally, desperately sourcing capital for survival and sometimes needing a healthy dose of cash injection to grow.

For new startups, courting the investors will be the most stressful stage. Before they part with their money, they will question the viability of your business, sustainability of your business model and most importantly, the potential to scale. You are advised to be well prepared with facts and figures supporting your proposal. If a knowledgeable investor tears up your assumptions and forecast, swallow your pride and rebuild your model if necessary. You will be better prepared to face the next potential investor.

Knowing the type of investors that you would like to “sleep with” will save you unnecessary stress and avoiding misaligned discussions. Short-term investors think very differently from long-term investors. Temporary relationships means moving in together and having fun without any responsibility. Breaking up is not hard to do.

Long-term relationships requires patience, understanding and tolerance between both parties. Like all marriages, there will be fights and misunderstandings but both sides will make up and continue for the sake of the children, albeit on an uneasy truce.

If you have a quick turnaround project with an early exit plan, then you will click immediately with short-term investors who will be willing to take on higher risks but expecting immediate returns on invested capital. Normally they do not mind having a smaller equity share as long as they see good upside but you will have to pay interest or dividends on their different class of preferred shares. It is best you find out more on terms like convertible cumulative preferred stocks and RCCPS (redeemable convertible cumulative preference shares) etc … If you want to be on the same page as these savvy investors.

If your project has a long gestation period, get a rich investor who looks for steady recurring income with an eye for capital asset growth. Be conservative with your forecast and highlight your cashflow management skills. Nothing pleases the long-term investor more than having a mature thinking partner who will conservatively build a meaningful asset business in a steady environment.

Once you have the investor interested, the real negotiation starts. Assuming all investors are fools, you will be able to load the investors with a high valuation, retain majority equity and management control and yet raise a lot of capital by giving little away. Alternatively, assuming you are the desperate fool, you would end up working for the new investors, saddled with a low valuation and stuck with minority equity stakes. Nobody likes playing the fool so either one of these relationships will definitely end up in divorce.

Basically, the whole negotiation rests on the basis of valuation. For a new startup with no prior track record, the valuation is based on forecast budgets normally over a five-year period. To investors, getting the forecast right determines the level of risks to be taken. But his guess is as good as your guess. Then you end up with two sides articulating their understanding on market trends, benchmarking best practices etc, just to justify their number guessing skills.

So the final numbers to be agreed upon will depend heavily on your negotiation skills or how much the Investors believe in you. If you are desperate, the Investor will see through that and you will not be negotiating from strength. A right minded investor would prefer to have a highly motivated entrepreneur at the controls of a start up so you will not be forcefully bullied. Just remember to tell him that you need to feel motivated when you wake up every morning and he will back off and see that you are fairly treated.

If the Investor pushes you into a corner, just walk away. You have not lost anything. That said, I assumed you have been realistic with your forecast numbers and have comfortably addressed the investors concerns. If not, do not be surprised if the investor walks away instead.

Understanding how investors think will help you prepare your proposal. Greedy investors look for maximum short-term returns and these are normally fund managers who wants to believe in well structured glossy presentations so that they can justify to their investors why they should invest their money into your project. It will be unfair for me to say that these professional fund managers are willing to invest in high risk projects since it is not their personal money but the pressure to perform forces them to take higher risks that carries higher returns.

Individual investors are way too careful and they prefer proposals with reduced risks and long-term asset building models. This has been my preferred business model as an entrepreneur then and even now as an investor. But the lure of fast short-term gains enjoyed by so many has whetted my appetite and I am now reconsidering my investment strategies. Greed is indeed sinful and irresistible.

Since I made a promise not to write about politicians and GLCs (government-linked corporations), I will not be elaborating on the topics of quickie engagements and marriage of convenience. I apologise if you have found this column dry and boring but I hope my advice on having safe sex in a monogamous marriage will help you live longer with a healthy bank balance by your side. Stay happy always.

ON YOUR OWN
By TAN THIAM HOCK

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