Investing in Properties Located in Prime Locations Posted : on 10/3/15

When we make reference to properties located in prime locations immediately KLCC, Bangsar, Bukit Damansara or similar locations in Kuala Lumpur come to mind.

Most of us refer to prime locations where property prices are on the high side and where the affluent/rich stay and patronise.

The smaller investors tend to shy away from these locations as prices of properties in these locations tend to be more expensive and affordability becomes an issue. While this is true, there are opportunities for the smaller investors, if one was to take a closer and broader look at what is available.

There are several factors to consider when investing in properties located in prime locations. Firstly, in residential developments, the older properties tend to be cheaper and offers the average investor an opportunity to buy into these locations, however most investors are attracted to the newer developments with modern features and finishing’s, while demand for the older units (condominiums especially) tends to be weak due to its age and the perception that newer is better.

The situation is not the same with commercial properties, in the case of shop houses, the older properties in the more established areas tend to generate better rental yields and appreciate in value better.

Bangsar is a perfect example of this situation. The older condominium developments tend to generate lower rental yield, however the shops, which are about 30 years old, still command very good rental returns.

The value of a commercial property is usually based on the demand it draws in attracting prospective tenants, the rental it generates and the location.

A common feature amongst investors is that they tend to look for properties in locations closer to their homes or in locations that they are familiar with. This is a natural tendency as most people tend to feel secure in locations that they are familiar with. Further to this the issue of managing the property becomes uncomfortable if the property is located in a different town/city. However, when investors take an approach like this they are limiting themselves to the options out there.

The point that needs to be stressed here is that properties in prime locations are not confined to the Klang Valley only. A Prime location is an area which is sought after and has strong tenant appeal.

Bearing the above in mind, investors should then explore areas outside their comfort zones. All the major towns in Malaysia have specific locations which are deemed Prime and the values vary depending on specific factors. As an example a prime parcel of land in KLCC, would cost anything from RM 2,000 to RM3,000 per sq ft or more, while in Penang (on the island) in the city centre it would be half the price or less. Similarly a condominium in KLCC would cost about RM1,000 per sq ft or more while a sea fronting condominium in Tanjung Bungah or Tanjung Tokong in Penang would cost much less. The other locations to consider would be Melaka, Kota Kinabalu, Kuching, Johor Bahru and Kuantan.

If you are a long term investor and don’t have deep pockets, then your strategy should be to invest in older developments or locations outside the Klang Valley. Prices are lower and as such your entry levels are lower and the potential upside will be similar to that of the established locations.

Another misconception is that newer is better. This is a common approach with condominium investors. If one was to take a closer look at what is available in the KLCC vicinity, Bangsar, Damansara Heights or Kenny Hills, you will find that the older units are cheaper, have large open areas and still attract foreign tenants. The newer condominium developments tend to have lesser open areas and are almost always high rise. This is simply due to the fact that land prices, construction and labour costs have become expensive.

 In today’s challenging environment, it will be prudent for property investors to be a little more diligent and explore the opportunities available outside the Klang Valley and also take a closer look at the older developments which have the potential for rental income and capital appreciation.

 

NIXON PAUL

Carey Real Estate Sdn Bhd

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