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The Location Goalposts Have Shifted

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The goalposts have shifted in property investment today and it follows that savvy investors also need to change their mindsets and overcome decades of conditioning. In a multi-part series about sound investment insights and property hotspots, Property Hub’s Christopher Lim looks at the property investment landscape today and finds that we need a new compass to navigate new horizons. In this first part, we’ll take a look at Location, Pricing and Concept to redefine the paradigm of value creation in real estate.

Location is undoubtedly one of the most important elements in all property investment considerations. That old mantra of “Location, location, location!” has rung loud and clear for the longest time and is oft repeated as the everyman’s foolproof investment principle.

However, in today’s context, with the Klang Valley’s unparalleled pace of growth, that logic may have become a victim of its own single-mindedness as investors took it to heart and we now find that a good location alone is not a surefire means to success. Perhaps contextually at least, the term location has evolved to ‘location within the location’, with a macro and micro component as we move from the broad borders of what defines a good location towards its centre.

The pricing gap from one location to another has also narrowed significantly and this is a good sign that choice development pickings abound across all corners of the city. Prime and sought-after locations from before have lost some gloss as the city grows and with it a shifting of its focal centres, driven onward by ever-evolving infrastructure.

Therefore, in today’s context, location, in the essence of its original importance has to be scrutinized and defined with laser-guided precision to be relevant. This has become an extremely important aspect as much as the micro-components of the specific street, neighboring developments, amenities and infrastructure development that synergizes with the Development Concept (more to follow on what this refers to).

Is ‘Location, location, location’ enough in real estate today?

In summary, today’s context of a good ‘macro location’ is very much determined by the existing catchment, continued growth and infrastructure development, lifestyle features that appeal to the local community and population growth, while the ‘micro location’ refers to the exact location of the development that has a synergistic product that compliments its surroundings – this is what we define as a good development concept.

With the right location (within the location), the property buyer must then analyze the next critical component, pricing.

Is the price right?

Traditionally, property investment is done very conservatively and thus the pricing of a development by developers has been relatively conservative and controlled. From early 2000 to 2006, we have witnessed very steady property development and investment growth punctured by a sudden surge of demand by property investors from 2007 to 2013. Government policies such as the reduction of RPGT and other efforts to drive the economy through liberalization have also resulted in more foreign investors and an influx of new players into the property development sector.

This has resulted in a more open and less constrictive market that has led to a glut of developments being launched by many new players including foreign developers and existing established players. With such unchecked momentum, our property market has experienced a tremendous boom as more developers jump on the bandwagon to capitalize on a seemingly insatiable demand created by heavy investing and speculation.

This open play has led to a mismatch of pricing and developers are cashing in on the situation for if they don’t, then others will. To be fair to the developers, land cost and construction cost have all soared and they have to pass these cost increases down to the consumers somehow. Or do they? Are there still good bargains to be found in today’s market? Isn’t this a case for consumer choice?

Nowadays, a developer’s launching is no longer a guaranteed safe haven for investors and savvy investors ought to map and analyze the trend and sustainability of the pricing before committing to an investment. By securing an ideally-located development within an identified good location, one has to ensure that the price can be justified to derive maximum value and appreciation from an investment. Analysis and comparison is a must in today’s property investment market and investors will still need to pick the cream of the crop but continue to invest only within their means to avoid becoming over-leveraged.

With government policies of liberalization, service sector improvements, the rationalization of subsidies, enhanced barriers of entry for developers and the liberal influx of foreign workers coupled with scarcity of land and rapid urbanization, I believe that property prices will not fall drastically despite any downward pressure but will instead sustain with steady appreciation over the next few years in-line with the country’s target to be a developed nation by 2020.

Therefore, to maximize your returns, the development’s pricing must be carefully analyzed with comparable developments within the location and the quality and value that the developer brings.

The Development Concept: Shifting the paradigm for value creation

Having the right location with the right price but the wrong concept is not going to make your investment stand out among the countless options in today’s property market. I am a firm believer of the right development concept that complements and enhances its immediate surroundings.

A good development concept to me simply means that the developer has the end in mind from the very beginning and builds to a targeted profile of end-users since the project’s inception, giving the development a very defined and evident DNA.

A simple test to this would be to ask yourselves who the potential end-users are for any given concept and if you have a very specific answer, then does the concept appeal to a particular group of end users? If at any point, there is some vagueness or hesitation to your answers to these questions, then you may need to probe further to ensure a product’s positioning matches its appeal to be a viable investment.

Having said that, a common mistake for many is to allow sentiment and emotional attachment to cloud our judgment in the analysis. When buying an investment property, we have to detach from our emotional preferences and mindset. We must be open to accept that the concept has been carefully designed and honed for the select target segments which may not necessarily be us, and our thoughts and opinions may well differ. We must remember that investment properties are not meant for us but for the targeted groups of end-users.

With this and in today’s context, the right combination of location, pricing and concept is key to maximizing your property investments now and in the future.

So tread carefully, my fellow investors. The next time someone tells you that the three most important things in real estate are ‘Location, location and location’, beg to differ. Or don’t – you know better and they do not. That’s what the property investment game is all about, isn’t it?

Article is written by Christopher Lim, Co-Founder and Senior Vice President of Property Hub Sdn Bhd, MIEA Residential Agency of the Year 2012 and 2013. Log on to www.propertyhub.com.my for more information. The article represents his personal views.