The residential property market in Malaysia has seen an overall price gain of 78% from the first quarter of 2000 to the third quarter of 2011.
According to recent market analysis by Oriental Realty and its Hong Kong partner, Zeppelin Real Estate Analysis Ltd, of the four main residential categories - high-rise, terraced, semi-detached and detached homes - the price gains are 50%, 91%, 103% and 79% respectively.
Simply looking at the gains, semi-detached property is the winner during the period stated. However, when one factors the market price volatilities or risks, into the equation, and using a “return to risk” ratio, terraced property has the best ratio of all.
Simple quantitative methods are applied to review, ascertain, and/or analyse, where feasible, the market performances and probable trends using available data:
a) Data source: www.jpph.gov.my
b) Scope: Kuala Lumpur Residential property categorised by high-rise, terraced, semi-detached and detached.
c) Period: 1Q 2000 to 3Q 2011
d) Method: the average and standard deviation of the data streams (quarterly in this case) are calculated to assess their return and risk parameters
The results are reflected in the following charts and tables:
1) This chart shows the raw index figures of the four residential property types and the trends are plotted respectively.
2) This chart compares the price performances of the four categories via equating the 1Q 2000, i.e. the base year, raw index figures to 1.00 (visually, there is only a slight difference from the chart above).
It is obvious that semi-detached property is the best performer with the highest price gain in 3Q 2011 while detached property, which has been in the lead for some time, falls even below terraced house property. High-rise property appears to be a laggard throughout the period.
3) The charts below measure the price volatilities, or fluctuations, of the four property types and plot their price performances to their respective average levels and high and low standard deviation levels in order to ascertain which house types may be more volatile (riskier), price-wise, compared to the others. (High standard deviation level = average + standard deviation; low standard deviation level = average – standard deviation.)
Volatility is deemed a measurement of riskiness and the higher the volatility, the riskier. The high and low standard deviation levels represent the price bandwidth in which, generally, the prices of the house type vary.
Prices below or above this bandwidth can be viewed as being outside the norm so to speak. Note that this bandwidth can narrow or widen, and move up or down, as future data is added or current data is amended.
The charts above share the same vertical scale and thus, it is easily observed that high-rise residential property tends to have the lowest volatility in terms of price performance while both semi-detached and detached property have similarly higher volatilities. This observation is based on the curves themselves and the bandwidths, bound by the high and low standard deviation levels, which go with them.
Note that the 3Q 2011 prices of all four residential property types exceed, in varying degrees, the high standard deviation level. This may mean prices are more or less on the high side.
The chart below plots the overall return and risk values for each of the residential property types.
Essentially, higher returns come with higher risks. For investors who are risk adverse, high-rise homes could be a suitable selection.
For investors who are ‘middle of the ground’ in risk adversity, terraced house property may be an option.
For investors wishing for the best possible price gain, a semi-detached house appears a better selection than a detached house, which not only lags behind semi-detached property in terms of return, but also terraced houses too, while incurring greater risk than all the others.
Again, such observations may change, as future data is added or current data is revised.
Semi-detached and terraced house types appear to show comparatively better price performances during the period, and up to, the last interval indicated.
Nonetheless, calculations only make up part of the consideration. Readers and prospective investors are also advised to consult competent real estate agents and professionals for the most current market conditions and for reality checks.