Saturday, May 10, 2008

Investing in Brunei Real Estate?

Many people, even local Bruneians, think that investing in Brunei real estate is a waste of time. "The prices never rise!!" is often the main perception these "investors" conceive. Well, that is only one side of the coin. A lot of potential local investors fail to appreciate the high return on investment (ROI) Brunei real estate have been maintaining.

We are looking at 6-8% per annum for residential properties and more than 8% for standard commercial properties. If you are not getting at least this kind of figures on your property, you should start consulting a property management firm and do something about it.

Some properties wearing tenancy contract with the government can potentially fetch 10% or more per annum. Government rentals are normally signed for 3 years and renewable. The good news is we hardly ever see government giving up tenancy ever since they started renting. So technically speaking after 10 years of renting you get a FREE house! Of course it takes a few more years if you are making use of any loans or mortgages.

Brunei real estate prices do not appreciate as much as what we see overseas. 25% increment per year may seem alien to you when you hear your friends from cities like Melbourne, Auckland, Singapore and Vancouver boast about their success stories in "Real Estate Investment". However, they never tell you about how much they worry about a burst in the price bubble there.

If you have been following property prices in Brunei, you can see a semi-detached house sold for about BND220,000 4 years ago; a similar property recently built next door is now transacting for about BND270,000. The recently price hike is mainly due to the worldwide increase in prices for major building materials such as steel, concrete, timber etc.

A typical residential property in Brunei is about 75-80% building value and 20-25% land value. The rise in material prices contributes much to the property prices. Building value is more or less standard all over the region. The differences between the property prices of a 3000s.f. bungalow in Singapore or Kuala Lumpur and a similar one in Brunei is the Land value.

Land value fluctuates, building value will only go up based on the uncontrollable appreciation in oil price and steel price. So since a major price component (Building value) of Brunei property is rising while the minor price component (Land value) is pretty stagnant, we can safely see some price rise in property market in the near future if material prices continue to rise.

Land value is probably about 50-60% of the property price in cities like Vancouver, Auckland and Melbourne. Whereas in Singapore, Hongkong and Tokyo it could be 85% or more. The point is that there is not much room for a Brunei property price to fall further simply because no one will build a house at $200k and sell for $200k. (That is when land value is 0% of the property price).

So the conclusion about investing in Brunei real estate is pretty simple. Brunei real estate is excellent for conservative, risk-averse investors who prefer "Bonds", which has pretty reasonable ROI per annum, can hardly have a loss in capital; rather than "Stocks" which is high-risk, high-return.

9 comments:

Esmailre said...

I found your guide to property market in Brunei rather late, the article posted in 2008. Nevertheless,there are some truth and relevance in your opinion of Brunei Property Market. It may not quite right to make comparison in value appreciation with market in Singapore, Kuala Lumpur, HK, Tokyo etc, as these cities are vibrant in terms of property prices where capital value appreciation could reach as high as 50% per annum or maybe more.
Brunei property market is small, less vibrant and indeed passive but very safe for buyers who do not look at ROI as main objective. But as owner-occupier, ROI is never in his mind.How could a property value appreciate if there is no ROI ingredient and more so no strong and active resale market. Recently,I came to notice only 5% of total land area in Brunei is free up for development and other uses, whilst the remainder is still state land. You see there is still vast acreage will have potential to be released in the future.
Your statement on value ratio of land to building seems to have some logic in terms capital value assessment and does hold water in case of valuation or cost estimation of newly completed or yet to completed buildings. But it may be incorrect in cases where valuation is carried out for property in resale market - where element of physical,functional and economic obsolescence plus host of other factors will play its role in determining the fair open market value Therefore, if your opinion that Brunei property value appreciate solely due to rise in building material and land value remains static, it could be professionally incorrect. Value is relative. A common norm in property valuation fraternity that Cost and value will not equate after certain point, where cost rises but value will stop appreciating.You will see some properties will have values depreciate below its original selling prices, if you take in account of discounting/depreciating factors for building on assumption that land value remained static. If we look at carefully and work out the building depreciation allowances based on the building physical and decorative conditions plus the conditions of building services therein, the end result will show some appreciation in land value,if going by value apportionment basis.
Last but not least, my opinion that Brunei property market will slow and steady, move in tandem with other regional market in near future. let not overlook that Brunei government had taken some initiative to boost up property market, namely with amendments made to its land code of late,and will eventually open up certain sub-sector in the property sector to foreign ownership.That will start ball rolling.
Thanks.

Esmailre said...

I found your guide to property market in Brunei rather late, the article posted in 2008. Nevertheless,there are some truth and relevance in your opinion of Brunei Property Market. It may not quite right to make comparison in value appreciation with market in Singapore, Kuala Lumpur, HK, Tokyo etc, as these cities are vibrant in terms of property prices where capital value appreciation could reach as high as 50% per annum or maybe more.
Brunei property market is small, less vibrant and indeed passive but very safe for buyers who do not look at ROI as main objective. But as owner-occupier, ROI is never in his mind.How could a property value appreciate if there is no ROI ingredient and more so no strong and active resale market. Recently,I came to notice only 5% of total land area in Brunei is free up for development and other uses, whilst the remainder is still state land. You see there is still vast acreage will have potential to be released in the future.
Your statement on value ratio of land to building seems to have some logic in terms capital value assessment and does hold water in case of valuation or cost estimation of newly completed or yet to completed buildings. But it may be incorrect in cases where valuation is carried out for property in resale market - where element of physical,functional and economic obsolescence plus host of other factors will play its role in determining the fair open market value Therefore, if your opinion that Brunei property value appreciate solely due to rise in building material and land value remains static, it could be professionally incorrect. Value is relative. A common norm in property valuation fraternity that Cost and value will not equate after certain point, where cost rises but value will stop appreciating.You will see some properties will have values depreciate below its original selling prices, if you take in account of discounting/depreciating factors for building on assumption that land value remained static. If we look at carefully and work out the building depreciation allowances based on the building physical and decorative conditions plus the conditions of building services therein, the end result will show some appreciation in land value,if going by value apportionment basis.
Last but not least, my opinion that Brunei property market will slow and steady, move in tandem with other regional market in near future. let not overlook that Brunei government had taken some initiative to boost up property market, namely with amendments made to its land code of late,and will eventually open up certain sub-sector in the property sector to foreign ownership.That will start ball rolling.
Thanks.

aliah said...

I read that..Foreigners are allowed to lease but not to own land, except with prior approval in writing of the King..true...??
Investing in Brunei Real Estate is great option..i think if any one is thinking to buy property in Brunei..should go for it..:-)
Newbuy

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Arnold said...

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Amy M said...

Hey,

Why have you stopped writing? Your article is very interesting and informative.

Hafiz Awais said...

I read your blog thanks to sharing information for Property Market I am interested in your blog.

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