THE residential market in Malaysia can best be described as well taken care of at the lower end, and, at long last, in a state of broad equilibrium

CHRISTOPHER BOYD sees more upside potential in the high-end residential market as demand pushes prices to ever-higher levels

THE residential market in Malaysia can best be described as well taken care of at the lower end, and, at long last, in a state of broad equilibrium at the middle levels. The excitement, such as it is, can mainly be found at the top end, which is the main focus of this article.

The Klang Valley these days covers an enormous area from Ampang in the northeast through Kuala Lumpur and on westwards towards Klang and Port Klang. It includes a great many suburbs within reasonable access of this east-west axis and since the whole valley lacks a formal definition, it is reasonably susceptible to hijack by those suburbs on the fringes. By our calculation it contains about 1.4 million dwelling units, of which half are landed, and half high-rise.

Last year, turnover was (in KL and Selangor, pretty much the whole Klang Valley) 57,151 units (Malaysia in comparison: 144,224 units) and the year before 50,715 units (Malaysia:153,315.) About 7 per cent of this turnover was new dwellings. Across the board, as at Q1 2007, the Klang Valley (KL and Selangor) had some 236,998 new housing units under construction and another 186,572 approved but not started yet; an indication of the fast growth rate since an ‘overhang’ of unsold units is barely an issue.

The number of completed condos in the best residential areas and priced at over RM500 per square foot amounts to 4,479 units, with a further 9,872 under construction.

There has been some concern that these top-end projects may be in oversupply, but the majority have met with a ready market, spurred early this year by the suspension of decades-old real property gains tax.

Global draw

The luxury condominium market has international appeal and buyers include the Irish and Middle Easterners, as well as expatriates in Hong Kong. Meanwhile, the Koreans have recently come into the market quite strongly and, who knows, it may soon be the turn of the mainland Chinese. There are no restrictions on the purchase (or resale) of most Malaysian residential property; you get a clear title and loans are freely available locally.

The market has moved up quite strongly over the past two years. Buyers of One KL facing the Petronas Twin Towers who were lucky enough to pay RM1,000 psf last year can now resell their units at twice that value - and the building is still under construction! The project is a development carried out by Malaysian tycoon Chua Ma Yu.

Purchasers of the nearby Marc Residences, a development by Singapore’s CapitaLand, who paid RM600 psf three years ago, are now taking possession of their completed units and getting offers of RM1,200 psf. The developers of the luxury Troika, within the vicinity of the Kuala Lumpur City Centre area, sold for an average of RM1,000 psf at its launch in 2005. The balance of unsold stock was re-priced early this year with a price tag of up to RM2,000 psf to keep pace with the market.

Is there any more upside potential? Will the madness continue? We don’t see why not. Interest rates are low, demand is high and supply, although increasing, is limited. Yields may fall as values rise, but we do not see this as dragging values down. Our experience in the region has shown that yield expectations from top-end residential property are not high. A rental of RM25,000 (S$11,000) a month from a condominium worth RM6 million is still 5 per cent, better than the deposit rate and offering the possibility of growth.

A far greater threat to long-term value is the quality of the proposed management and investors should check this carefully.

In Penang, the mood is bullish and upbeat with the announcement of the Northern Corridor Economic Region and with it, the Second Bridge, Outer Ring Road and monorail. These government initiatives have shaken the cobwebs off a moribund market and given it a new lease of life.

Luxury developments such as The Sanctuary in Batu Uban, Moonlight Bay in Batu Ferringhi, and Seri Tanjung Penang, a reclamation project in Tanjung Tokong have all reported over 70 per cent sales. The proposed Penang Global City Centre, launched on Sept 12, will bring new focus to Penang Island and will inevitably benchmark residential values which, at the moment, are stuck at around RM400 psf for top-end condos.

Johor, much like Penang, was a stable, well-supplied market with no discernable trends until the recent unveiling of the Iskandar Development Region turned it on its ear. The recent announcement of a RM4.1 billion investment by a Middle East group in the region has created excitement and done much to convince the sceptics.

Property prices are reacting accordingly. A three-bedroom apartment in Danga Bay, facing Singapore, which would have sold for RM250,000 in 2005 is now worth RM300,000. Newly-launched detached houses in Casa Almyra overlooking the proposed Integrated Leisure Resort were recently snapped up at prices from RM900,000 to RM1.6 million.

The main growth areas are seen to be within the vicinity of the Second Link to Singapore and the area around Aeon Tebrau City known as the Tebrau Corridor.

Johor Bahru residents can look forward to the creation of a new class of residential accommodation in response to the international attention now focused on their city.

The writer is executive chairman of ReGroup Associates

Source : Business Times - 27 Sep 2007