SHOULD YOU INVEST IN COMMERCIAL PROPERTY?

The answer depends on the stage of development of the township.

With an expected total of 17 million sq ft of shopping and retail space coming onstream in the Klang Valley in year 2019, it will result in an oversupply situation. Currently, Kuala Lumpur has an average all time high of 7.5 sq ft of retail space per person, more than the average for Singapore and Bangkok. Big shopping centres like Suria KLCC and Pavilion are about 1.2 million sq ft each and 17 million sq ft is a very big number.

What has led to oversupply of shopping malls / retail space in the market today? If we trace back to the past, properties near shopping malls always have higher rental returns and good capital appreciation. This is because higher human traffic (footfall) drive higher spending power.

So, with this logic of NEAR TO SHOPPING MALL = GOOD RETURN IN PROPERTY INVESTMENT, developers started to include shopping malls into their development master plan. It is good for the marketing and branding of the development.

With the oversupply, can we still invest in retail shoplots or properties that are nearby shopping malls?

The answer depends. Let us understand what urbanization is all about first.

WHAT IS URBANISATION?

Urbanisation simply means the population shift from rural to urban areas, “the gradual increase of the proportion of people living in urban areas”, and the ways each society adapts to the change. It is the predominant process by which towns and cities are formed, becoming larger as more people begin living and working in central areas.

The United Nations projected that half the world’s population will live in urban areas by the end of 2008. It is predicted that by 2050, about 64% of the developing world and 86% of the developed world will be urbanised. That is equivalent to approximately three billion urbanites by 2050, mostly in Africa and Asia. Notably, a recent United Nations projection is that nearly all global population growth from 2016 to 2030 will be absorbed by cities. This means the addition of 1.1 billion new urbanites in the coming years. Besides a population shift, urbanisation also involves the transformation of urban areas to a better living place. This is closely related to urban structure. Urban structure is the arrangement of land use in urban areas. Many experts have developed models explaining where different types of people and businesses tend to exist within an urban setting. Urban structure also refers to the city development model which concerns the arrangement of public and private spaces in cities and the degrees of connectivity and accessibility.

KLANG VALLEY URBAN STRUCTURE Klang Valley is an area centred on Kuala Lumpur and includes neighbouring cities and towns in the state of Selangor. Klang Valley is geographically delineated by the Titiwangsa mountain range to the north and east and the Strait of Malacca to the west. It extends to Rawang in the northwest, Semenyih in the southeast while Klang and Port Klang are in the southwest. Looking at the map, the urban structure of Klang Valley follows the Homer Hoyt Sector Model. KLCC (Kuala Lumpur City Center) is our central business district and it is surrounded by towns like Ampang, Mont Kiara, Kepong, Bangsar, Petaling Jaya, Puchong, etc. These towns are made up of low to middle-high income population groups. These townships are categorised as developing townships. There are four stages a developing township goes through before becoming a CBD: – Emerging Township – Developing Suburb – Self-Sustaining City – Central Business District EMERGING TOWNSHIP At this stage, the township is in the very early stage of development. You may find that its connectivity to the CBD is moderately good. Due to lack of job opportunities, most of the population work in the CBD. Also, living convenience is limited, e.g. in Kepong town, where there are no iconic shopping complex to cater to the higher income group, these people will go to 1 Utama Shopping Mall (the largest shopping mall in Malaysia) at the adjacent town. At this township stage, infrastructure is also insufficient. People who live here might need to go another town to enjoy better public transport service, medical support, etc. DEVELOPING SUBURB During this stage, the town is in the process of transforming into a self-sustaining city. The living convenience of this township has improved enough to cater to the low to high-income groups. There are high end condominiums and low cost apartments, there are food outlets serving RM5 meals and there are outlets serving RM50 meals in this town. The infrastructure of this town is better compared to an emerging township. One good example of this in the Klang Valley is Setapak. It has two LRT stations, one good shopping complex i.e. Setapak Sentral, a well-known commercial area providing a full range of living conveniences i.e. Platinum Walk, one international school and two medical centres. SELF-SUSTAINING CITY A good example for this is Bangsar South City. At this point, the city is equipped with a retail mall (shopping convenience), LRT stations (public transport), medical centre, MSC-status MNC offices which provide high-income job opportunities and high end condominiums with high rental yield. When a town/city is in this development stage, the property value is almost reaching the peak.

3 STAGES OF TOWNSHIP DEVELOPMENT

Stage 1: Emerging Township >

Stage 2: Developing Suburb >

Stage 3: Self-Sustaining City

Looking at this concept of 3 stages of township development, commercial properties such as shopping malls, retail lots, shoplots are playing an important role to boost economy in that town.

SO, CAN WE STILL INVEST IN RETAIL SHOPLOTS OR PROPERTIES THAT ARE NEARBY SHOPPING MALLS?

For those townships that are still in Stage 1, you may invest for capital gain because it is still undergoing transformation to Stage 2. During Stage 1, the emerging township, the spending power and earning power are both moderately low. As a result, the rental that they can afford are low as well.

But once the infrastructure of that township improves and it moves to Stage 2, a developing suburb, the property price will go up. Commercial properties that fall within Stage 2 and 3, a developing suburb, have moderate good rental returns, but low capital gains.

To summarize, based on Demand vs Supply, investing in demand-driven commercial property but not Concept-driven commercial property is a safer bet.

TONY YAP & CALEB CHIN are the Investment and Marketing Strategists of the IQI Realty Elite Team.

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