Property: The pull and push factors

The property sector has some way to go unless the current supply of high-end condominiums and the various en bloc sales of both commercial and residential units are mopped up.

WELL INTO the second half of last year, a friend tossed around the idea of buying a property. At the time, the outlook for the world economy was rather bleak.

The property market was soft and developers were offering home loan schemes in which buyers paid a small downpayment and were billed only when the property was completed. The mantra at that moment was: “Now is the time to buy.”

Initially, the friend looked at high-end landed housing with variations of the gated and guarded concept. Next were various high-end condominium projects around the KLCC area.

For three to five months, nearly every weekend was filled with visits to housing projects and talking to agents specialising in different areas and market segments. It is one way to learn a thing or two about the property market.

Agents, homeowners, bankers and developers will give you different views. All of them want to meet certain targets and the outlook for the property market for the coming year is going to be challenging.

Malaysia’s economy may have turned the corner, but the sector has some way to go unless the current supply of high-end condominiums and the various en bloc sales of both commercial and residential units are mopped up. Landed units are expected to do well going forward.

As property consultants Regroup Associates Sdn Bhd executive chairman Chris Boyd puts it: “We are not out of the woods in the high-end condominium sub-sector.”

Because most developers, if not all, have deferred projects the past year, they will be busy trying to get you to part with your money or take up large loans this year. A number of them are planning launches this year but are keeping things pretty much under wraps as they wait to see how things pan out.

Developers will continue to work with banks to offer innovative financing packages. For example, a condominium developer in a very dense location is offering units for a small downpayment and the rest to be paid after five years.

It takes three years to complete a condominium project. The developer is offering five years as a carrot because that neighbourhood serves the tenancy market and rentals are declining.

Because expatriates have been recalled in the wake of the financial crisis, owners have been left with vacant units. It is, therefore, a gamble that in five years, the foreigners will be back. Coupled with that is the low 2% fixed deposit rates. These are the push and pull factors.

Condo considerations

In the condominium enclaves of KLCC and Mont’Kiara, prices have come down 25% from their peaks. An analyst, who wished to remain anonymous, expects prices to ease further this year. Traipsing around the KLCC projects reveals that developers are giving double-digit discounts in the primary market for some of the most prestigious and attractive projects in the Klang Valley, if not Malaysia.

They have to do this because as long as the property is not sold, they are left with a holding cost. Added to that is the huge number of vacant units. There is an existing supply of about 5,700 units in the KLCC area and its vicinity and an additional 5,800 units are expected to come onstream in the next two to three years.

“The KLCC vicinity caters mainly to the expatriate market, but as long as the West remains in the doldrums, the multinational companies will hold back on sending their people here,” the analyst says.

However, it must be noted that the interest in KLCC properties is atypical because the area has several projects that boast unique features.

Rentals in the KLCC area, which hovered between RM4 and RM5 per sq ft early last year, may continue to soften and fall below RM3 per sq ft as more projects are completed in 2010 and handed over to buyers, says an agent who specialises in that market.

“Tenants had been asking landlords to lower rentals last year. They are expected to do so this year; otherwise, they may just move to the next completed condominium,” he says.

Notwithstanding the glut there, developers continue to be enchanted with the view of the Petronas Twin Towers. UOA is expected to launch Binjai 8 this year and Ireka Corp Bhd has bought some along Jalan Kia Peng, which is a stone’s throw away from the iconic location.

Says an industry observer: “We are more positive about owner-occupied projects, preferably landed units.” He notes that Mont’Kiara is already a very dense neighbourhood, while the KLCC market is generally for high-end living.

As seen from the previous years with the launches by Island & Peninsular Bhd, there was a pent-up demand for landed units. This is expected to continue going forward, especially for landed units. Says an observer: “Landed units in good locations will always have a demand.”

Hence, he expects the overall sales to be quite sustained for the residential sub-sector this year. Nevertheless, he made a distinction between landed and high-rise projects.

An agent specialising in Damansara Heights says there are few sellers there.

“There is a healthy demand for landed units here,” he says. Prices of SPPK’s Seri Beringin, mostly semi-detached units, have been holding up well throughout the difficult months of last year and are expected to remain so going forward.

In some of the upmarket areas like Bangsar and Damansara Heights, future supply is said to be limited.

Commercial gloom?

In the commercial sub-segment, the story is slightly different. There is a clear oversupply of office space. Several weeks ago, Kuwait Finance House (KFH), which has been on an acquisition binge in Malaysia, called off the RM920mil acquisition of Menara YNH in Jalan Sultan Ismail, Kuala Lumpur.

Says an industry observer: “Any cordial resolution to the deadlock is unlikely to happen. With a slew of en bloc sales being aborted since the onset of the global financial crisis, it is also unlikely that YNH Property Bhd will be able to secure another buyer without having to lower its asking price substantially from the initial asking price of RM1,250 per sq ft (psf) previously agreed with KFH.”

He adds that prices above RM1,000 psf are difficult to achieve in the near term in view of the large incoming supply of office space over the next three years.

His views are supported by the more than 20% price reduction seen in the sale of Menara Citibank from RM1,000 psf to RM828 psf following the termination of the acquisition by IOI Corp Bhd in November 2008. Another aborted sale was that of Sunrise Bhd’s MK 20 in Mont’Kiara, Kuala Lumpur to Singapore’s Capita-Land. As prices of commercial buildings take a little tumble, so will rents.

The rental market practically screeched to a halt last year. Many of the tenancies secured last year? were the result of negotiations that took place the year before. This will be a better year, but it will be a competitive market, with tenants doing a lot of shopping around.

The Petronas Twin Towers are both nearly 100% occupied and this is spurring the authorities to consider building other iconic sites in Kuala Lumpur to put Malaysia on the world’s real-estate map and give the economy a jump-start.

Two possible sites are being considered – the vicinity of Stadium Merdeka and the Matrade Centre in Jalan Duta-Jalan Kuching.

Says Regroup’s Boyd: “I like the idea of iconic sites because they give identity to the country. While they instill some civic pride, they are hard to justify on commercial terms. The office market in Malaysia has traditionally been inexpensive compared with other countries in the region and we may never see the rentals enjoyed by Singapore. It is hard to make iconic buildings work financially. They are there for other reasons.”

By The Star (by Thean Lee Cheng)