A few days ago, I blogged about Residential Property Prices - How Will It Go? - and of course, the only answer to that question is... UP. There can only be one direction for residential properties here in Klang Valley and that is UP. =) However, I also mentioned one thing... a BIG Factor. Something that all investors need to take note. Something really big to think about...
What is this? It is the YIELD. =P
It has come to my attention that a lot of properties in Klang Valley are not fetching yields of 8% like how they were previously. Here's my reply to that... YOU ARE RIGHT! With the constant rise in property prices and the slower rise in salaries and income, the population today would be struggling to keep up with the rental increases, which has resulted in more stagnant rental movements.
If you could get a property that fetches you a 8% yield, by all means, dont ever sell it - at least not yet. Based on the recent research and feedback from various agents, it seems like a lot of properties in Mont Kiara and KL area are fetching yields of 5-6%, which in my honest opinion, is very good.
Today, Malaysian banks are offering between 2.6% up to about 3% in interest rate returns for Fixed Deposits, a far difference from the 5-6% years ago - which had prompted property returns to about 8%. Today, at 3%, I believe that the proper adjusted property yields should hover at 4-5%. I believe that a lot of people may not agree with me - but I believe this is the scenario that we are facing now in Kuala Lumpur. In order for something to go up, something else need to come down... and in this case, in order for property prices to keep going up, the yields are to come down.
In comparison, the property yields at our neighbouring Singapore are all pretty much all time lows. Smaller apartments and units are fetching yields averaging at 3+ %, and the larger sized ones are much lower, just above 2%. That is not all - this yield does not include the costs of repairs, refurbishments or maintenance charges etc - this is the Gross Yield only.
Further comparisons show that our other South East Asia neighbours Indonesia and Philippines both fetch very good yields of 11% and 7+ % respectively. Malaysia stands at 3rd highest - and that is pretty much about all for this region. Take Hong Kong and China (3+ %) as well as Taiwan (1.7%) for instance - these countries have yields of 3+ % and below - which is probably what we would be looking at for our markets.
Maybe not that low.. but it will still go lower and hover at 4-5% to be the new benchmark yield for Malaysia. (On a brighter note - dont worry, we will never go as low as the yields of 1.2% as seen in Monaco. LOL)
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