The supply of luxury condominiums and service residences in the Kuala Lumpur city centre and surrounding suburbs is set to more than double over year

The supply of luxury condominiums and service residences in the Kuala Lumpur city centre and surrounding suburbs is set to more than double over the next three years as developers rush to take advantage of renewed foreigner interest in Malaysian real estate.

Another 10,205 units will come onstream from now till 2010 to add to the existing supply of 4,146 units, according to a recent market report by property consultants Regroup Associates. What this would do to the rental market and yields remains to be seen.

The greatest change would be to the city centre which would see an additional 6,000 units of luxury condos and service residences, thus expanding to account for 57per cent of supply from 28 per cent currently.

Recent measures to liberalise the sector has been a boon to real estate prices, this being most evident in the area around the prestigious Kuala Lumpur Twin Towers where prices are heading towards the RM2,000 (S$889) psf mark and are fuelling even more projects.

In the Mont Kiara/Sri Hartamas area, nearly 2,000 units costing more than RM500 psf would enlarge the existing supply of 900 units. Mont Kiara/Sri Hartamas would continue to account for some one-fifth of supply.

Despite another 1,000-odd units coming on to the embassy area around Ampang Hilir/U Thant, its contribution to supply would remain around the 10 per cent mark.

Because of the huge expansion in the city, other popular and upmarket suburbs such as Bangsar, Kenny Hills and Damansara Heights would account for less of future supply. Indeed, these more ‘mature’ neighbourhoods are building at a much lower pace. Land is scarce and residents there are inclined to protest against planned projects which they view as unwelcome.

Damansara City - a RM1.2 billion integrated development project comprising luxury condos, a five-star boutique hotel, office towers and a mall - has drawn the ire of residents. Following their protests, the matter was discussed in a weekly Cabinet meeting, but few expect the project by Quek Leng Chan’s GuocoLand to be derailed.

Given the rush to strike while the iron is hot, it would not be a surprise to see additional projects take off which would increase supply beyond the current estimates of 10,205 units by 2010.

Regroup estimates the average occupancy in the city centre at 83 per cent currently. In Ampang Hilir/U-Thant, Bangsar and Kenny Hills where supply is far more controlled, occupancy is as high as 90 per cent. Mont Kiara/Sri Hartamas enjoys 88 per cent occupancy, while in Damansara Heights it averages 80 per cent.

While the take-up has been encouraging, developers who have been touting Malaysian real estate as value for money are playing down fears of a glut or if the expatriate market is large enough to absorb future supply.

Regroup executive chairman Christopher Boyd believes the market for tenants will be ‘very competitive’ in two years, especially in the city centre. While the expat market is growing, he said it would have to ‘really grow some more’ for occupancy to be maintained above 80 per cent.

Top-end properties in the form of The Binjai, One KL and The Troika are likely to set new benchmark rentals, he said, but would be constrained somewhat by the fact they are coming onstream at about the same time. Perhaps more worrying is the ‘mid top-end’. ‘There will be a bit of a bulge there which will be even more competitive (for rentals),’ he added.

Source: The Business Times, 04 July 2007