“The fundamental thing is there is definitely an oversupply situation. Whether the economy is strong or whether it continues to grow at a healthy rate, there is the fundamental issue of oversupply. With this situation, I don’t see prices even stabilising or picking up in the near future, especially for luxury condominiums,” Savills Rahim & Co managing director Robert Ang said. Savills Rahim & Co is the international arm of Rahim & Co.
He said 1,200 units of luxury condos had been completed in the last two years, while at least another 1,000 units are expected to be completed in the next two years.
“We see these apartments as not very well occupied, so obviously there’s a bit of strain on investors, in terms of rental yields and returns,” he said.
He added, however, the current compressed yields of between 4% and 5% for the condos were expected to pick up to 2006 levels of 6% to 7%, as the property market weakened further.
Rahim & Co sees the supply overhang of condos in the KLCC vicinity at between 25% and 30%, while the valuations of such properties could fall between 15% and 20% this month, with a further decline expected in the next three months, its founder and executive chairman, Datuk Abdul Rahim Rahman said.
Properties in the area currently command an average price of between RM1,200 and RM1,600 per square foot (psf), he said.
Abdul Rahim said, however, the country’s property market, which had yet to feel the brunt of the economic downturn, could recover within two years, although this would depend on the effects of the government’s planned second economic stimulus package.
“Before it starts recovering, we have to face the worst. We are expecting the economy to recover in 12 to 16 months. The real estate market usually recovers slower than the economy, so it could recover within two years,” he said.
He said the current steep prices of homes in the KLCC area, weakening demand from foreign buyers hit by the global economic downturn, and cautious lending by banks here had led to the softening of demand for these properties.
“How much more the valuations will decline, we do not know. We will have to wait and see within the next two to three months,” he said.
Rahim & Co held a media briefing here yesterday on the outlook for the Malaysian property market. The company, whose consultancy services include valuation, real estate agency and research, will also organise a seminar here entitled “Looking Beyond: Challenges and Opportunities in the Malaysian Property Market” in March.
Abdul Rahim said office space rentals in the city centre remained stable, with the current rate of RM8 psf expected to remain.
But for areas outside the central business district, which will see between eight million and 10 million sq ft of office space expected to come on stream by 2011, rental values could then plunge by as much as 15%.
On the outlook for landed residential properties, he said while demand had tapered off, prices remained largely intact.
Meanwhile, Ang said the company had advised its clients to defer new residential property launches until the middle of the year, or as late as the third quarter.
“We at Rahim & Co have advised two of our clients planning high-end projects to defer their launches, scheduled for December 2008 and early this year. Especially for high-end projects, the demand is very, very weak at the moment,” he said.
He said the company also advised its clients to downsize apartment units or use lower-cost fittings to make prices more attractive to buyers, adding that buyers were now looking for lower-priced condos for own occupancy, with investment purchases put on hold.
By The EDGE Malaysia (by Ellina Badri)
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