Growing demand in high-end market

The push in the residential property market around the region, Malaysia included, is coming from the high-end sector. According to Allan Soo, managing director of Regroup Associates Sdn Bhd, benchmark prices are being set in the luxury segment across the region with increasing demand coming from foreigners.

Soo: It will augur well for developers to take note that the market will be driven by quality, in both style and price point of view

As Soo pointed out in his presentation at The Edge Investment Forum on Real Estate 2007, the market may have slowed down a little across the causeway due to credit tightening because of the subprime crisis but luxury homes were still being sold at record prices. Singapore's latest benchmarks in 3Q2007 were the sales of penthouses in The Marc at S$5,100 (about RM11,760) psf and the Orchard Residences at S$5,500. Last year, 22% of all purchases of high-end units were by foreigners, with top end ones having 65% foreign ownership.

In Hong Kong, the demand for high-end residential units was as strong as for the stock market. Huge institutional fund demand for equities has caused investment activities to increase, says Soo. Residential rents for Hong Kong are also the highest in the world. Data collated by Regroup showed monthly rental at The Peak, Repulse Bay and Central reaching HK$67,000 (about RM28,895). A record high was Grosvenor Place in Repulse Bay at HK$165,000. The persistent rise in rent is driven by expatriate demand.

Meanwhile, Bangkok is benefiting from the tourist market and the retirement and second-home market created by Europeans. According to Soo, of the total residential stock in the Sathorn and Limpuni areas of Bangkok, which amount to over 11 million sq ft, 17.7% is foreign owned.

Where does Malaysia stand?
Price trends in the country have grown fast in the last few years, jumping tremendously this year. In the Kuala Lumpur City Centre (KLCC) prices have breached the RM2,000 psf mark for high-end condominiums, with speculation that the Four Seasons will be offered at RM3,000 psf, says Soo.

While KLCC remains a hot spot for many foreign investors, Soo says they are also looking elsewhere. "We have had specific enquiries from foreigners about areas like Sentul and some are also looking at Kuching," he says, adding that other parts of the Klang Valley that will remain hot include Kenny Hills, Bangsar and Damansara Heights.

Regroup's research shows that the total existing supply of luxury condos and serviced residences in KL stands at 4,146 units, with the bulk of it located in the KLCC, followed by Bangsar and the Mont'Kiara/Sri Hartamas area. Future supply (under construction) that will be coming onstream in the next three years will amount to 10,205 units.

The numbers may seem huge but Soo does not think there is an oversupply if compared with places like Shanghai, where transaction volume averaged 19,200 units per month or 230,400 units a year.

Not about yields
Soo says investors in the luxury residential market seemed less concerned about yields when buying. In Singapore, a 5,000 sq ft penthouse on Orchard Turn was sold for S$28 million recently while Hong Kong has recorded the highest prices in the world. "A 5,100 sq ft house at Severn 8 on The Peak was sold at HK$210 million or HK$41,000 psf. Singapore's yields are around 2.55% while Hong Kong's is at 3.8%. Market talk is that some people buy not to rent. They just love buying.

"It is the same for Malaysia. The boom in the residential market only started about five or six years ago, driven by rental and sale. But it is still a capital-led market rather than a yield market," he said.

Currently, Malaysia offers very good yields of between 5% and 7%, which are relatively cheap, says Soo. While the focus remains in the Klang Valley, there is a growing segment of foreigners looking for holiday homes.

"It has been a trend for many Europeans to buy in the tropics. First it was Bali, then Thailand and now it's Langkawi," said Soo. He sees Langkawi's popularity growing steadily as the demand for resort homes has now moved away from the once popular Bahamas and Cayman Islands to other destinations like Bali, Phuket and Langkawi. Last year, a villa at The Datai was reportedly sold for US$2.5 million (about RM 8.4 million).

A few good years
"I think the market will still be good for the next two years or so. In downtown KL, the focus should be on higher-end residential and commercial developments, especially in the Jalan P Ramlee vicinity," says Soo.

The residential market is not yield sensitive and individuals will not be concerned about 6% or 8% net. It will only become sensitive if yields go down to 3%. "It will augur well for developers to take note that the market will be driven by quality, in both style and price point of view. On top of that, asset management is important to keep prices up."

Soo says it's time for upmarket bungalows to play catch-up, adding that among the places to watch would be Bukit Tunku and Bukit Pantai, where prices would double in the next three to five years and that land at RM200-plus psf will "soon be a thing of the past".

Overall, Soo expects the property market to do better now that the Iskandar Development Region has been launched and there is strong foreign direct investment due to the exemption of the Real Property Gains Tax.

"Personally, I wouldn't mind buying something in Langkawi or in KLCC."

By The EDGE MALAYSIA