Mont’Kiara’s glooming challenge

Mont’Kiara is a sought after address for high-end condominiums.

The best way to check out a location is to take a drive. If the aim is to determine whether the place is occupied, take that drive at night. And so there is Mont’Kiara ahead of you, nice and sprawling, with a lot of high-rise condominiums, many of them in darkness.

The older and more established ones are about three-quarters full, the newer ones are struggling at between 30% and 50% occupancy. With about 2,000 units added to the market this year, this general average could fall further, says Regroup Associates Sdn Bhd executive director Paul Khong.

As the economic crisis deepens, questions about the state of some locations have risen. Ireka Corp Bhd has been, by far, the most forthright developer about the situation there. Though cautious, executive director Lai Voon Hon admits it will not be rosy for the short term. Ireka has built about 2,000 units there.

“We will see a slow down in the property market in terms of sales volume. That is a result of people’s confidence. But the present scenario will not be as bad as the last 1997/98 Asian financial crisis,” says Lai, who has chalked up six projects there, some of which are joint-ventures with Singapore’s CapitaLand group.

Because of the tough times across the board, buyers are taking a wait-and-see attitude with big purchases such as these. “Sales have been slow,” says Lai.

“Some think the situation will recover in the third quarter, others say it will take a year. But developers are not dropping their prices. It is in the secondary market that buyers may be forced to sell, preferring to convert their assets to cash. We will bound to have that as many units will be completing this year.”

There are about 6,800 completed units there. The ongoing projects will comprise another 5,000 units, out of which about 2,200 units will be handed over this year.

Both developers and analysts say prices there have not gone up as quickly or significantly as KLCC. Most of the prices are close to construction price and land cost.

“Developers are not making super profits. Even if they drop, it will settle at a fair level,” says Lai, adding that the normal profit in Malaysia generally is 5% to 30%.

While Lai and the real estate fraternity believe Mont’Kiara will ride out the downturn, there are several issues brewing there. Several weeks ago, StarBizWeek highlighted the situation in KLCC. But while that location boasts emblems of Kuala Lumpur’s boom and the glittery lifestyle it will one day spawn, Mont’Kiara is not iconic.

For more than a decade, expatriates have singled out Mont’Kiara when posted to Kuala Lumpur. They still do.

Most of the projects have a large expatriate community that accounts for about a third or more of its occupants, a fact that Sunrise Bhd used to be very proud of some years ago.

Sunrise built about 4,000 units of condominiums there, about half of what’s available today. It is the largest developer there. With retrenchment high on the list, some of them may be going home.

Says an analyst: “Mont’Kiara’s saving grace is that it has proven to be a property investment hot spot. Because of the fantastic yield it generated years ago of up to 10% or more, Malaysians and foreigners invested in that market. (The yield is about 7% to 8% today.) Many of them have several units. With retrenchment running high, rental may be an issue. This applies to both the rental and for sale markets.”

Those who bought earlier are also expected to convert their assets to cash. Agents and valuers have mixed views how much prices have dropped but the range is between 5% and 20%, depending on the project, from its peak. There are different grades of condominium in that location, with prices ranging from about RM450 per sq ft to about RM900 psf. If prices and rental continue to spiral downwards, the older units will suffer.

Says Khong of Regroup: “We are currently looking at about 10% to 15% drop in rental rates from the peak at this moment and would expect it to move southwards a bit more when the bulk of the uncompleted units come into the market.

“Previous rentals were trading at about RM3 to RM4 psf for the mid-grade projects and currently we are seeing lower asking rental at about RM2.50 to RM3.50 psf. The older and more established ones are enjoying about 70% to 85% occupancy whilst the new ones are struggling at about 30% to 50% currently. With more and more new projects completed, this general average could be therefore lower.”

Another consideration when buying into that market is Mont’Kiara’s neighbour, Sri Hartamas. The two largest developers there are Hong Kong-based Mayland group which developed the Plaza Damas shopping mall, and Dutaland group with its upcoming Kenny Heights project.

While Mont’Kiara units range between 1,200 sq ft and 3,000 sq ft or more, the units offered by Mayland average about 500 sq ft. On a per acre basis, this means there will be more units.

At this point, the developer has already built 1,800 units above and around Plaza Damas. Another 1,500 units will be added to the Sri Hartamas market in about three years when it completes Hartamas 3, which is located across Plaza Damas.

Dutaland has about 90 acres in Hartamas. It is also expected to have high-rise in that location. While the location is holding out well, the pressure is mounting.

By The Star (by Thean Lee Cheng)