KL in the spotlight

KL in the spotlight
By Pete Wong

Advertisement

One week after the abolishment of real property gains tax (RPGT) was announced on April 1, The Avare, a premium project in the Kuala Lumpur City Centre (KLCC) registered a four-fold increase in sales, while other high-end properties around the city saw a similar increase in interest. Foreign investors, especially Singaporeans, are again giving Malaysian property strong consideration and this is partly due to the recent government incentives to boost the property market.

It started with the announcement last December allowing foreign investors to snap up Malaysian properties above RM250,000 without having to seek Foreign Investment Committee (FIC) approval. On April 1, the government announced the abolishment of real property gains tax (RPGT), which means investors no longer have to pay a 30 per cent tax on profits if they dispose of their properties within five years.

On April 13, the government again announced a slew of incentives to reduce red tape and simplify application procedures for property development. Furthermore, Malaysia´s economy registered a growth rate of 5.9 per cent in 2006 and analysts say that the growth prospects are expected to remain favourable in 2007 and beyond.

But is it all smooth sailing from here on? Some industry watchers have cautioned that Malaysia has a history of reversing policies during a change in leadership, with policies set up by an incumbent minister rarely outliving the minister´s tenure in office.

Dr Jeyapalan Kasipillai, a Professor at Monash University Sunway Campus and Council Member of the Malaysian Institute of Taxation, said the RPGT has not really been abolished but merely "exempted", and that it would be easy for the authorities to re-introduce the RPGT Act when the need arises to stem unwarranted speculation and curb excessive rise in real property prices.

"A lot still needs to be done to attract foreign investors,” said property agent Jenny Liew. “Our whole business climate needs to be more conducive for foreign investors. Our financial offerings like loan facilities and Internet services are nowhere close to what is being offered in Singapore or Hong Kong, for example. Some service counters at government departments are still unmanned and I’ve seen foreigners fume with disbelief at the long queues and slow processing time for official applications."


KL leads the way
The KL property sector is arguably the most-promising market to invest in when comparing with other areas in Malaysia such as Penang, Johor and even the nearby, high-tech Cyberjaya city. In the last few years, property values in KL have go up by as much as 10-15% annually, depending on location. The price of commercial land in the fast-developing township of Mutiara Damansara (Petaling Jaya), for example, has seen values rise from about RM100psf just a few years ago to almost RM300psf today.

KL typically leads the way in Malaysia when comparing increase in property values. This is due to the fact that the city is growing in population and that when expatriates relocate to Malaysia, they’re usually based in the capital.

Location is still a very important factor to consider when investing in KL. “I have come across foreign owners whose units were left untenanted for one to two years simply because they bought on the wrong side of the city,” Liew said. “Some areas in the city have a notorious reputation while others may not have good access roads.”

Buyers unfamiliar with Kuala Lumpur are advised not to be misled by location maps offered by the developers, which are often not drawn to scale. It’s important to make a visit to any potential site location and assess the traffic conditions, as some places in KL are notorious for their congestion. Some low-lying areas are also prone to seasonal flooding during the monsoon seasons. Talk to locals living around the vicinity to get a better idea.

KLCC: Twin Towers, top views
The Kuala Lumpur City Centre, commonly known as KLCC, generally refers to the part of KL with a view of the Petronas Twin Towers and is best compared to the Orchard Road area in Singapore.

However, it’s worth noting that while Orchard Road is a trendy shopping district served by an efficient public transport network, KLCC doesn’t yet have quite the same glitz and glamour. Aside from the new high-end residential units being developed, the area mostly features office units and hotels. Traffic congestion can be bad during office hours and the area can get rather quiet in the evenings when the office workers have gone home, although this is expected to change once a few of the residential developments are complete.

While the saving grace for this location is the ‘sexy’ view of the city skyline with the Petronas Twin Towers as the jewel in the crown, the prudent investor has to ask, how often can one look at the Twin Towers and does the view really justify the price? Is the infrastructure, especially the traffic conditions, going to be better anytime soon? Just some points worth considering.

Having an apartment with a great view of the Twin Towers has certainly driven up prices in the vicinity. Last year, some units at OneKL, developed by One KLCC, were sold at a record high of RM1,600psf, recognised as the highest rate recorded in Malaysia. Overall, the average price around the KLCC vicinity is now around RM800psf, while new launches can top RM1,000psf.

Mont’ Kiara: Up and coming
Investors are particularly drawn to the Mont’ Kiara area as it’s popular among expatriates and rental demand is high. There are three international schools in the vicinity and many restaurants and pubs catering to expatriates are located in the adjacent Desa Sri Hartamas township. But the growing popularity and increasing population is not good news for everyone.

“Mont’ Kiara is not the quiet residential suburb that it used to be,” said Madam Chia, who has lived in the area since 1998. “The main road is constantly being repaired due to heavy vehicles going to the many project sites in the area. And as more people move in, the traffic congestion gets even worse, especially during peak hours.”

With the completion of several new condominium projects in the area over the next few years, thousands of new units will be added. To date, there is only one main access road to the area. Although a smaller access road has been built, it neither leads directly to the city nor the main highways.

Developers, however, are confident that Mont’ Kiara will retain its popularity and enjoy strong demand for years to come. “Mont’ Kiara has a proven track record for consistent returns and high rental yields,” said Lim Ech Chan, COO of Ireka Land.

“The Mont’ Kiara and Sri Hartamas areas have recently been gazetted as an ´international zone´ in the KL masterplan. This will bring increased attention to the areas and the local authority will continue to promote and develop this area. Besides KLCC, Mont’ Kiara is the only other address for high-end development and the prices here are only a quarter of those in KLCC.”

New launches at the Mont´ Kiara area are between RM500-600psf. Ireka Land has several upcoming projects in the area including One Mont Kiara, a modern integrated development comprising a business hub, a 33-storey office block, 17-storey office tower and a 250,000sqft neighbourhood retail mall. Another project slated for soft-launch in June 2007 is Seni Mont’ Kiara, a high-end condominium project with private lift lobbies.

"We don’t believe there will be an over-supply situation,” Lim added. “The overwhelming response to recent launches is a good testament to that.”

In and around
So, what other areas are there to look at besides prime locations like KLCC and Mont’ Kiara? Reasonably priced properties in well-known residential areas in KL will always be in demand. About 90% of units at Beringin Residence, a gated residential project comprising 20 three-storey terrace townhouses and 16 three-storey semi-detached villas, were sold within months of their launch last June, mainly through word-of-mouth publicity. The project is located at Damansara Heights, an affluent suburban neighbourhood adjacent to Bangsar and Mont´ Kiara.

An upcoming hotspot to look out for is the Sri Hartamas and Persiaran Dutamas areas. Sri Hartamas property values have risen largely due to its proximity to Mont´ Kiara, while Persiaran Dutamas is now directly linked to Mont´ Kiara by a new road. The French International School is in the vicinity, yet property prices here are similar to those in Mont´ Kiara almost a decade ago. Mont´ Kiara is expected to expand in geographical size to incorporate these adjacent areas, where property prices are still very low by comparison.

“Besides Mont’ Kiara, Mutiara Damansara is another area with a growing population,” said Dato´ Michael Yam, Managing Director of Sunrise Berhad, which has several high-end projects in the Mont’ Kiara area. “Combined with adjacent Bandar Utama and Damansara Perdana, it has the critical mass to ensure it won’t fail.

“The Saujana-Glenmarie-Tropicana area is also a green belt of largely landed homes within striking distance of the KL and Petaling Jaya urban centres. The jigsaw puzzle-like development is beginning to fall into place, with increasing population and more amenities being available. As all these growing suburban nodes are in the north-east segment of Kuala Lumpur, the gravity of growth appears to be very much heading towards the Jelutong-Sungai Buloh corridor."

Overall, the jury is still out on whether property prices in KL will find a comfortable level for both developers and investors amid increasing competition, new government incentives and the prevailing positive sentiments.

Datuk Leong Hoy Kum, President of Mah Sing Group, said that expediting the approval process (by the government) would lead to lower holding cost and these savings could in turn be passed on to property buyers. But according to property insiders, building materials, particularly steel bars and cement, are set to go up by around 25 per cent, which could offset such potential cost benefits.

Meanwhile, some analysts believe that exempting property transactions from RPGT may spur greater market speculation, resulting in an inflation of property values. As the saying goes, any time is a good time to buy if you’re buying for the right reasons.