The international factor in property hotspots

Category: Swhengtee Article Published: Wednesday, 07 August 2013 18:44

FOCUS: The international factor in property hotspots

By KHAIRIE HISYAM ALIMAN

CROSS-BORDER LINKS: Gavin Tee talks to NST RED about his top 10 choices of investment hotspots in the international scene

As the calendar changes to herald another new year, a popular subject among property investors is the location of hotspots. But what exactly is a property hotspot?

“A property hotspot is not an area where everyone rushes in to invest, but rather a place with strong potential that may be overlooked by many or is in the initial stages of becoming a property hotspot,” says Tee, commenting on the common misconception that a property hotspot is characterised by heavy presence of investors alone. “Therefore it is very important for us to foresee where the next hotspot is.”

Recognising hotspots: Due to the continually changing nature of hotspots, Tee notes that this important aspect of investment is a rather difficult thing to do. “While hotspots used to change slowly from one location to another, today we see hotspots moving very fast even from year to year, particularly due to property investment being globalised.”

“Another important aspect to consider is that property investment seems to have become a commercial product rather than buying for own use, and thus we cannot simply base forecast on supply and demand anymore

as demand can be from anywhere, even from across the border,” stresses the property man. “Therefore, to invest locally you must know the global market too.”

“With the face of the real estate world changing, the hotspots are focused in areas that are globalised and urbanised as well as attractive to tourists,” notes Tee. “We also see hotspotsaround special economic zones.”

Commenting further, Tee notes that looking at the four types of areas, a common link between all four is international involvement, be it multinational citizenship and residents, businesses or tourists.

“Many hotspots are created when prices remain low due to undervaluation or lack of an X factor, hence prices remain at yesterday’s level,” adds Tee. “Once recognised by the majority of people, prices then shoot up several times higher.”

Pointing to examples such as China, Moscow and Vietnam where prices rose rapidly once the property market was opened to investors, Tee points out that it is therefore crucial for investors to identify hotspots beforehand. In his recent property seminar last month, he put forth his personal top 10 picks of investment hotspots for the international scene as well as Malaysia and Klang Valley. See Table 1

‘Gin and vodka’: On the international scene, London tops Tee’s personal list of hotspot areas for investment. Despite a somewhat mature market, he feels that London is sustainable due to a big variety in the investor demographic.

“Being a global financial centre with a very much open-door policy to foreign investors, London is very sustainable as it has a mixture of investors from all over the world.

The primary advantage of London is having investors from all parts of the world, thus it would not be affected by crisis in any particular region,” explains Tee, pointing to a recent Jones Lang LaSalle’s finding that the purchasers of new central London developments are only 19 per cent British while the rest comprise many nationalities from across the globe. Notably, Malaysians make up 14 per cent, with only Hong Kong and Singaporean investors forming a slightly bigger group with 17 and 15 per cent respectively.

Another city with potential is Moscow, according to Tee who notes that Moscow has a very short history in real estate investment. He reveals that there is an estimated 90,000 (in US dollar) millionaires among the 17-million population, with most of them below 50 years of age. Tee points to Hong Kong in the 1970s and London in the 1990s as a similar phase that Moscow is currently undergoing.

“The (Moscow) population is young, highly educated and growing, and one thing about hotspots is having many young millionaires along with a big percentage of mid'dle-class groups together,” he says. “Consequently, the demand for both high quality commercial and residential property (in Moscow) is unequalled in any European city, or any city for that matter.”

‘Bulls and bronze’: Also on Tee’s personal top 10 choices of international investment hotspots for 2013 are Madrid and Miami. Still recovering from its recent real estate market collapse in 2008, Spanish house prices has steadily fallen 5–10 per cent annually, according to a Jones Lang LaSalle report published in November 2012. The low prices is an invitation to investors, says Tee.

“Additionally, for an international hotspot, a government’s determination in attracting investors is also very important because investors look for security, and government assurance is the best security for the market,” notes Tee. “The Spanish government’s determination is proven by their readiness to offer permanent residency status to foreigners who buy property worth more than RM614K.”

As for Miami, Tee remarks that its main draw for investors is that it is a truly international destination. “Nowhere else in the US do we see 45 per cent of all visitors coming from abroad.”

Jakarta rises

Looking closer to home, Jakarta is seventh on Tee’s top 10 international investment hotspot choices. The main plus points are the high population and consistent growth rate, in addition to an emerging middle-income segment of the population supporting increasing foreign investment, says Tee.

“Jakarta is highly populated with a consistent growth rate of six per cent, as well as an emerging middle-income population which is important. It also has manageable inflation,” says the property consultant. “Jakarta attracts a lot of investments including from China, Japan and Hong Kong, due to the increasing costs of setting up and conducting business in China especially in manufacturing. So there is a tendency to relocate to the south, with Jakarta among those benefitting the most.”

Source: NST RED