Ascertaining disposal price of commercial properties with guidance from the property market

Abstract

The right timing of disposing commercial properties is important particularly to investors, as this will have an impact on the disposal price. This paper demonstrates that the disposal price of properties differs excessively during the different points of the property market cycle. Monitoring the property market changes and understanding property market cycles may provides some guidance for investors and fund managers to make beneficial decisions in determining disposal and acquisitions time. Although the practice of monitoring property market has not been widely accepted in Malaysia, studies on the variations of occupancy rates and office rents in prime commercial area in Kuala Lumpur revealed the existence of the property market cycle and that it provides guidance for disposing and acquiring properties. During the period of market depression owners are forced to dispose of properties at extremely low prices in view of the increasing numbers of NPL. However if disposal can be delayed, there are chances that properties can fetch higher prices. Analysis on disposal price when the property market cycle was its lowest point during depression period has deprive the owner of a potential gain of about 70% if they were to hold on and dispose a year later when the property market was at its recovery period. This finding suggest that the commercial property market need to be analysed monitored and kept up to date to enabled it to be utilised for any decision-making. This has important implication on the utilisation of property analyst to investors holding property assets.