REAL estate will continue to be rewarding over a 10-year horizon, even in Singapore and Hong Kong where cooling measures are expected to induce a lull over the next couple of years.
Tim Murphy, chief executive of real estate firm IP Global, says Kuala Lumpur is among the most attractive real estate markets at the moment. There are also selected opportunities in London and New York even though both markets have appreciated considerably over the last year or two.
"Asians love real estate just like the British. If they can invest, they will. In the last 10 to 15 years, although the market has gone up a lot, there is also more affordability . . .
"In the developed markets of Singapore and Hong Kong, you have two types of buyers: the newly wealthy make money on property and leverage; and then there are the very wealthy people who are not impacted at all by changes in interest rates . . . they look for an inflation hedge."
IP Global was set up in 2005 to provide clients with an end-to-end real estate investment service. The firm helps clients to source for properties - typically residential. It may buy its own stock, enhance it and on-sell to clients. It also co-invests alongside clients.
It helps clients to navigate the often knotty issues of legal contracts, tax and bank financing. Purchase agreements, for instance, may include a clause that says the deal is off if the client is unable to secure a bank loan. It also helps clients to lease out the units.
The firm is benefiting from the tailwinds of low interest rates and burgeoning Asian wealth. To date, it has managed roughly US$1 billion in property transactions on clients' behalf.
A second arm of the business involves pooling clients' funds together to invest in real estate through joint ventures or a private equity-like vehicle. This segment has to date invested in some US$150 million in assets. The firm is applying for an investment licence in Singapore and aims to launch closed-ended funds.
Says Mr Murphy: "We have done private equity and joint ventures in the past. Some clients don't want to buy physical assets. They just want to put some money away . . . People may want to access real estate without worrying about tenancy and mortgages - 'just make me some money'. We have something in the region of US$150 million in (joint investments). I would hope to get to US$500 million quickly."
The firm expects to transact some US$300 million worth of properties this year. "Our main focus is on investments, picking markets where we see upside. Or we pick properties in a market that we think will outperform," says Mr Murphy.
In its analysis of value, the firm takes a view of a market's property price against its GDP or economic growth. "People get carried away by the topline price. They say, for example, that Orchard Road properties are expensive. But that's not relevant. What's relevant is how much money people earn and affordability . . . How do the prices relate to average earning power?"
Malaysia, he says, is attractive in this respect. Mumbai, however, is not. "In Mumbai, property prices are unaffordable to 98 per cent of the population. So how liquid is the market? We also look at rental yields. At the moment, money is cheap to borrow. But if it gets more expensive, will rents continue to pay my mortgage?"
Rental yields are assessed relative to borrowing costs. There are also investors, however, who pay largely in cash and who are in it simply for capital appreciation. "Generally, when we started, we tried to get people a great yield and capital appreciation. But the reality is it's difficult to get both. If you bought in Mayfair (in London) 20 or 30 years ago, your yield would never be any good. Neither was it good on Orchard Road. But look at what those properties made in 10 years if you could afford to carry them."
For foreign investors, it is important, he says, to understand the legal system of the country where the property is. Access to bank financing is also key. "The best way to make money is through leverage. So we look at the borrowing capability of the individual. That goes hand in hand with the legal system." Some markets will levy capital gains taxes.
He likes Kuala Lumpur because it is foreigner-friendly. Investors can access bank loans and capital gains tax falls to zero if a property is held for at least five years. "It's affordable. It's a frustrating market for many Asians because they want to see it grow like they have seen in Singapore and Hong Kong. But it's mainly driven by domestic buying, and they're not billionaires. It's a bit more boring and steady. We've done well in Malaysia. I think you'll see that, now that elections are over, there will be more inward investments."
One segment that he has missed out on is Iskandar, however. "I've looked at properties there; I didn't think it was that cheap. In many other parts of the world, there is normally a 30-60 per cent difference in prices from the commercial capital city which generates tourism and headquarters buzz.
"Iskandar's discount to KL was only 15 or 20 per cent . . . I would probably be more confident now because of the sheer number of people buying. But KL has commerce; it's a capital city. Banks would put their headquarters there."
Hong Kong and Singapore are expected to see two years of an "inactive" market. "The governments will probably similarly change the regulations when they think the time is right . . . Then we may see slow growth. But in the next 10 years, people holding property will make good money because there is so much capital in the system, and these are places people want to be. Compared to the US and Europe, this is still a more attractive place to build your business as people get richer in the region."
He continues to like London where the prices are underpinned by a lack of supply. As for New York, IP Global's clients have profited by 20-30 per cent over the last two years.
"I don't think you'll see quite the same level of growth over the next 24 months . . . You'll see steady growth. They are coming out of recession, and the effects ripple out from the centre."
The firm is looking at second-tier cities such as Chicago and Los Angeles. "If you take a view on almost any city in the US, the cost of buying land is more than the cost of buying an apartment. So prices are going to have to go up, otherwise no one would build anything. If no one builds, that drives prices up anyway because there is no supply. That's why I like the US."