Real estate cycle seen peaking this year

KUALA LUMPUR: The country’s real estate cycle is expected to peak in late 2008 as the pace of rental increases begin to lag price increases, particularly in the high-end property segment in the vicinity of Kuala Lumpur City Centre.

OSK Investment Bank said compression of rental yields from high-end condominiums could prompt existing owners to lock in capital gains in anticipation of more new luxury units hitting the market at a time when the real estate cycle was peaking.

Its latest property market outlook report indicated that additional supply of condominiums in KLCC would make it more difficult for investors to rent out their residential units.

“If most buyers are mere speculators and investors, risk of a potential bubble burst in KLCC condos will be rather high by late 2008,” OSK said, adding that the current upward trend in the local real estate cycle may begin to taper off in 2009 when more properties hit the market.

It was reported in February that prices of upmarket condominiums may reach a new high of RM3,000 a sq ft this year as new products hit a niche market driven mainly by foreign demand for local luxury units which are deemed one of the cheapest in the region.

According to property consultancy Knight, Frank, Ooi and Zaharin Sdn Bhd, residential properties in KLCC had fetched between RM1,300 a sq ft and RM2,000 a sq ft last year (2007) while rentals ranged between RM5.50 a sq ft and RM6.50 a sq ft.

The rising prices of these top notch homes, essentially, translates into lower rental yields as prices advance at a quicker pace than rental hikes.

Meanwhile, foreign demand for high-end real estate here may dip on investors’ cautious sentiments surrounding the country’s new political landscape following the recent general elections.

But the slower take-up rate for luxury properties should not be viewed as an across-the-board phenomenon as foreign individual buyers, experts said, were still scouting for local assets.

A downside in demand for larger transactions like en bloc commercial property acquisitions by overseas institutional buyers is, however, possible as investors adopt a wait-and-see attitude to safeguard their portfolios.

“Foreign direct investment is going to be sustained but definitely there will be a wait-and-see attitude in certain industries especially on the bigger ticket purchase items like en-bloc sales.

“Foreign individual investors are still coming in,” real estate consultancy Zerin Properties chief executive officer Previndran Singhe told The Edge on the sidelines of a forum discussing the impact of the recent national elections on the country’s real estate sector.

The forum was organised by the Malaysian chapter of the International Real Estate Federation or better known as Fiabci.

Speaking at the event earlier, Asian Strategy & Leadership Institute chief executive officer and director Datuk Dr Michael Yeoh said foreign investors were still deliberating on the Malaysia’s investment climate following the unprecedented outcome of the recent elections.

“We cannot exclude any possibility,” Yeoh said.

By The EDGE Malaysia (by Chong Jin Hun)