Conditions in the Klang Valley's property market remain challenging, according to a property market report from global estate agent DTZ.
DTZ said the office property sector faces downward pressure on rental and capital values due to weak demand and the new supply that will be completed in the next few years.
In the second half of the year, there is an impending supply of some 3.43 million sq ft in Kuala Lumpur.
DTZ said the downward trend may, however, be cushioned by the government's recent liberalisation on economic policies targeting the services and financial sectors.
"The relaxation in policies is expected to promote foreign direct investment, with more foreign interests in the commercial property sector specifically," it said in its DTZ Research Report, Malaysia Property Times Q2 2009, released yesterday.
Nevertheless, rents of prime office space in Q2 2009 remained unchanged at an average of RM6.14 per sq ft per month. This is attributed mainly to the fact that there was no new completion of office space in the city centre, and most of the prime office buildings were close to full occupancy at the time of review.
On the retail front, DTZ said there was no significant change in occupancy of existing shopping centres as at end Q2 2009, which remained at above 90 per cent.
But prospects for the retail property sector are expected to be weighed down by the continued contraction in the economy, which is forecast to recover only in the fourth quarter of this year.
"Rents in prime shopping centres remained stable as they are less vulnerable to the economic slowdown.
"However, new and upcoming centres that are currently under construction are expected to experience downward pressure in targeted rents in their efforts to build occupancy up to a higher level," it said.
"With the oversupply of retail malls in the market, it will be a testing time for shopping malls, especially those in the secondary area with poor population catchments," it added.
Meanwhile, the residential property sector would be challenging over the next six months as any improvement in the economic situation is not expected until the fourth quarter of this year.
"Prices continued to undergo corrections and are expected to continue softening in the short term in view of impending new supply and weak economic conditions," it said.
Generally, prices of high-end condominiums in the Kuala Lumpur City Centre (KLCC) area have dropped by 20 per cent year-on-year.
Average rents of high-end condominiums in the KLCC area increased by 6.5 per cent quarter-on-quarter to RM4.08 per sq ft per month.
However, the rental market is expected to face downward pressure as a result of incoming massive supply of condominium units in and outside the city centre during the second half of this year and towards the early part of 2010.
DTZ said on a positive note, the recently announced overhaul in economic policies, particularly on the repeal of the foreign investment committee's approval for property transactions involving foreigners, would boost interest from foreigners in the local property market, specifically on the high-end residential segment.
In terms of selling and buying of commercial properties on the market, DTZ revealed that there were only two major transactions in the second quarter, of which one is between related parties.
"There are still some investors out in the market looking for commercial properties with investment value.
"Over the next six months, sentiment is likely to recover with some investment activities by opportunistic funds but this will be selective and driven by value hunting," it added.
By Business Times
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