Malaysian property prices are trending up...

Malaysian property prices are trending up, fuelling expectations that top-end residential properties in the country’s most desired locations are within striking distance of RM2,000 per square foot (S$880 psf) this year.

Property consultants Regroup Associates said an ‘uplift’ in prices is in sight, especially around the Kuala Lumpur City Centre (KLCC) and the prestigious Twin Towers, and should top RM2,000 psf later this year. The RM1,600 psf price One KLCC achieved recently for its last two apartments in the 94-unit OneKL which faces the iconic Kuala Lumpur Twin Towers indicates prices are heading up. There is not much left by way of top-end properties in the KLCC area and developers - where they can - are upping the ante.

Depending on the quality of the apartments, developers are demanding between RM800 and RM1,000 psf. Regroup executive chairman Christopher Boyd said recent feedback points to a tightening of the property market. A rosier stock market also seems to have boosted demand.

Interestingly, a CH Williams CEO opinion survey for the property sector in 2007 was less bullish. In the poll, which was conducted over September and October 2006, CEOs surveyed were less optimistic than in the preceding year. Respondents expressed caution with regard to the surplus supply of condominiums and commercial shophouses in 2007. About 20 per cent - or almost double that of the previous survey - thought the number of transactions would drop by about 20 per cent. One-third surveyed expected decreases in apartment prices in 2007, but nearly all believed construction cost constituents would increase. Sixty per cent believed they would rise by more than 10 per cent.

Some 70 per cent (compared to 75 per cent in 2006) anticipated that rentals of landed residences and commercial properties would increase or remain stable in 2007. More respondents continued to expect rentals of apartments and condominiums to dip. In terms of interest, the respondents believed foreign investors would be consistent in their preference for condominiums. They were also of the view that foreign interest in factory premises and industrial land is on the rise - a trend confirmed by property agents in Johor. As in the previous year, the supply of Malaysian real estate remains large in a relatively soft market. The stream of high-end condominiums coming onto the market does not seem to be slowing, raising questions of a glut and lower yields. But developers with the right location, product and branding continue to report decent - in some cases impressive - take-up rates.

In the past two years, rental yields for residential apartments have averaged 6-8 per cent, slightly less for bigger apartments of more than 3,000 sq ft, Prestige Homes manager KK Yap told BT. In places such as the Klang Valley’s Mont Kiara, which is popular with expatriates, increasing numbers of developers have jumped on the bandwagon following the success of early pioneer Sunrise’s projects in the area.

Real estate surveyor and valuer Ho Chin Soon Research observes 30-40 per cent of Mont Kiara’s 486 hectares have already been developed with numerous projects - mainly condominiums and apartments - earmarked on the remaining land. The success of the area has led to developments in adjacent areas such as Segambut Dalam ‘adopting’ the Mont Kiara address.

In a recent property focus on the area, Mont Kiara developers maintain the suburb is not overbuilt. According to them, demand has generally matched supply. Although more than 1,000 condos and apartments will come on stream in the coming years, they observe current non-occupancy is not in excess of 30 per cent. To bolster their argument, they point to the rise in rentals and capital appreciation. Rental yields average 8-10 per cent, they said, with the better properties fetching as high as 15 per cent.

Capital appreciation obviously varies, with better products commanding higher prices. As an example, units at Ireka Land’s i-Zen@Kiara II changed hands last year at more than RM500 psf compared to its average launch price of RM380 psf in 2004. Sunrise chief marketing officer Lee Meng Tuck maintains that return on investment for Mont Kiara properties tops those in the KLCC area.

According to him, Mont Kiara’s return is 7-7.6 per cent compared to 4.5-5 per cent for the latter. Despite the stiff competition, developers indicate prices are likely to continue to rise given the increase in land price, the higher cost of construction materials and other charges. Steeper price tags aside, developers who understand their target groups will do well.

‘The market is increasingly competitive. There are a lot of products but good schemes are selling well,’ said Regroup’s Mr Boyd. Estate agents gave the example of One Menerung in Bangsar, which was launched last June at an average of RM750 psf. About 60 per cent of the 229 apartments have been sold and remaining units are now being priced at RM850 psf.

In Petaling Jaya, Selangor Dredging’s Ameera Residences saw brisk sales of its 290 units in January. About 30 per cent of the development - sold at an average RM300 psf - was snapped up in two weeks.

Getting your target market right is important. Prestige’s Mr Yap believes the mid-range segment of smaller apartments costing less than RM500 psf is saturated. He is bullish on larger luxury units - exceeding 3,000 sq ft - which is a more viable option for bungalow owners looking to apartment living. But the mid-market range of RM300,000 to RM500,000 has seen growing interest from Koreans, especially in the Ampang area. Many are settling in the area under the Malaysia My Second Home programme. However, those with fatter wallets prefer Mont Kiara.

In terms of residential potential, Mr Boyd believes KL Sentral has a great future as prime offices are coming up in what is becoming a well-established transportation hub. He also favours the top end of the KLCC area and Damansara Heights, as well as Mont Kiara - or rather developments with the right products.

He is confident office space values should reach RM900 psf within the next 24 months, with prime buildings hitting RM1,200 psf. Office rentals in prime buildings are also inching towards RM7 psf - one or two already lay claim to such rates - from an average of RM4-5 currently.

Yields on commercial investments are expected to dip slightly, averaging 6 per cent, down from 7 per cent, he said, but any shortfall is offset by the prospect of capital appreciation.

Whether the property sector picks up significantly this year remains to be seen. After a promising start, a possible party spoiler for the sector is the equities plunge at the end of February which, if repeated, could dampen real estate demand.

Source: The Business Times, 10 April 2007