How to pick KLCC Condos

There had been no increase in the cost of KLCC condominium properties but prices remained stable.

There is still interest in Malaysian real estate especially in the Kuala Lumpur City Centre (KLCC) area among foreign buyers.

According to Henry Butcher Marketing Sdn Bhd chief operating officer Tang Chee Meng, investors were now more cautious in view of the current political and economic uncertainties. The investors were also concerned about the large number of units that would be completed within the next 12 months and the possible impact on the rental market and yields.

Tang advises investors still keen on buying KLCC properties to look out for projects that stand out from the rest.

On a regional context, prices of Malaysian top-end condominiums were still very cheap, being only 20% that of Singapore and about 12% that of Hong Kong.

Foreign investors were still keen to invest but the level of interest was less compared to the strong surge in foreign interest in the 2nd and 3rd quarters of 2007.

Cancellations

“After the results of the general election,” pointed out Tang, “We actually had a couple of purchasers who cancelled their bookings for one of the projects that we were marketing. However, we suspect that they were probably only using the election results as an excuse. Once things settled down and people accepted the results, we had no more issues.

“Sometimes it’s a knee-jerk reaction. On the whole, we have not heard of situations where a developer faced a significant increase in cancellation of bookings.”

The current uncertainties in the political arena, added Tang, as well as the softer economic conditions obviously resulted in some investors adopting a wait-and-see attitude as far as property investment was concerned. The impact was felt more strongly in the low and medium cost sector as the target buyers were more adversely affected by the rise in the cost of living.

Well-heeled investors were however still investing in the upper medium-cost and high-cost sectors but they were now more selective over location, pricing and the developer’s track record.

There had been no increase in the cost of KLCC condominium properties but prices remained stable, said Tang. “We were told that the developer of K Residence marketed their second residential tower called Regency overseas at a price of RM2,500 per sq ft upwards. This will be an increase over the pricing of their earlier tower. As for the other condominiums, prices have by and large remained at the same levels.”

Tender difficulties

Tang said he had not heard of any specific examples of developers falling behind or being unable to meet their construction schedule. But from market talk, he understood that some developers faced difficulties in getting contractors to tender for their projects. There had been cases where the contractor turned down the award after they were informed that they were the successful in the tender exercise.

“I also heard of a developer whose contractor stopped work after the project was 80% completed and the developer had to continue the construction work on his own.”

At this point in time, investors who were still keen on buying KLCC properties ought to look out for projects that would stand out from the rest, advised Tang.

“Look for distinguishing factors, for example, branding, architectural features and design. Although there are many Grade A prime office buildings in KL, there is only one Petronas Twin Towers. In that sense you have no competition and therefore you are in a position to dictate your own price and rental.

"Secondly, unless it is a project undertaken by a financially strong and capable developer, it is safer to invest in an already completed project as you do not have to worry about the project being abandoned and whether the workmanship is of the right quality.

“Thirdly, if you are investing in a project which is not completed yet, choose a developer who has the financial capability as well as the track record in handling similar projects. A developer who does not have the experience of developing high-end projects may not be able to deliver the right quality.

“Lastly, the investor would obviously have to do his homework thoroughly to make sure that the price that he is paying is a fair price and that his desired return on investment is achievable.”

Pointless

Although the property market could see a reduction in the volume of transactions compared to 2007, Tang believed that property prices would unlikely go down due to the significant rise in construction costs.

“As the current fixed deposit and savings rates of banks are below the real inflation rate, it is pointless to keep money in the bank. Property has always proven to be a good hedge against inflation so it will be a good move to look for outstanding buying opportunities in the property market. However, investors will have to choose their investment wisely.”

FOREIGN BUYERS APPROVED BY KL LAND OFFICE

YEAR: APPROVALS

2005:1,954

2006:1,660

2007:4,035

2008*:935

* For period Jan to April 2008

Source: Henry Butcher Marketing Sdn Bhd

By The Star (by Johnni Wong)