Friday, December 23, 2011

property bubble malaysia 2012

property bubble malaysia 2012 : The fundamentals that bear watching for the office market are rents, but rents are a function of business profitability. Ultimately the profitability of businesses in any city sets the sustainable level of rents for that city and it also explains the different levels of rents that prevail in different cities.

In Kuala Lumpur the long term yield for Grade A office space has been about 7% net. From time to time this yield has compressed to lower numbers, as low as 5%, but over the long term the market seems to return to the equilibrium level of 7% when the exuberance dies.

The fundamentals that drive the retail sector are also rents but rents for this sector are driven in turn by retail turnovers and it is this that bears closer monitoring. Turnovers depend on the multitude of shoppers including tourists.

In Kuala Lumpur the long term rental return on average for the Grade A, downtown shopping centres used to be about 8% but this is, I believe, on a structural transit towards 7% as shopping centres become more mainstream assets. Real Estate Investment Trusts or REITS have helped and are continuing to help in this re-rating.

The fundamentals that drive the hotel industry are usually a combination of sustainable average room rates and average occupancy rates. This business income can be translated to an equivalent yield that usually sits on the higher end of commercial property yield spectrum.

By understanding the workings of the property market through the key driving fundamentals and by the dissemination of that market information to market participants and other stakeholders in the property market, we can prick real estate bubbles. Professional Valuers who operate in the market on a day to day basis, can help enormously in bringing about stability in the market. For the latest updates on the stock market, visit Stock Market Today
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