Going up, down or sideways?

Mont’Kiara, predominantly an investor proposition, is facing a high rate of vacancy.

Is there a softening in the condominium market? Some locations seem to be doing better than others while others are not doing as well as before.

ABOUT two to three weeks ago, a developer promoted a friend-bring-friend sale, whereby if a friend were to buy a condominium unit, the introducer will get a small reward. That project, located in a desirable location, was launched last year, amid much fanfare.

In another project, a developer is offering a 20% rebate. This enables buyers to pay 10%, enjoy a 20% discount off the purchase price and get a 70% loan. This 30:70 ratio satisfies Bank Negara's ruling (announced last November) which requires buyers of third and subsequent residential properties to fork out a 30% down payment.

In another part of Kuala Lumpur, a developer launched a condominium and had 80% sales on the first day, prompting the company to open up its second block just a few days after the launch of the first block.

At the same time, analysts are reporting that there will be a re-rating of property prices and that prices will go up. If their judgement call is correct, why are developers coming up with innovative schemes in order to sell their high-rise condominiums while other projects are selling like hot cakes?

Says SK Brothers Realty Sdn Bhd general manager Chan Ai Cheng: “The term softening property prices' is selective, it depends on location, type of properties and pricing. That 30:70 ruling by Bank Negara has not affected the market where buyers buy to stay, but it has affected those who are buying for speculation, or buy in order to flip it after it is completed.”

Chan says that ruling has been very well-implemented because most of her buyers now are those who buy in order to stay, and that 30% downpayment is not an issue with them.

“Most of our buyers are serious buyers, they buy to occupy and when you buy to stay, that 30% down payment is not an issue. It is only when you are buying to invest, or to speculate that you think many times before forking out that 30% money up front,” Chan says.

Much of SK Brothers' work involves helping developers to market their projects.

Like S K Brothers, Reapfield is also seeking good sales from their negotiators. Senior vice-president Gerard Kho says the fact that the company increased its negotiators from 700 last year to 800 this year testifies that the market is good.

Unlike S K Brothers who help developers to market their projects, Reapfield's sales are from the domestic, secondary market.

“When Bank Negara announced that ruling, we were concerned but our agents told us not to worry, that developers and buyers will work around it and today, that is what we are seeing. Overall, the market is adjusting to it, and a rebate is one of the ways to do it,” he says.

Nevertheless, there are certain things to note in the condominium market, excluding the KLCC market because that market is different, a real estate professional says.

“Condominium prices are not the only things to watch out for, although that is one of them. The rate of rental and its rate of increase or decrease says a lot about a location,” he says.

Mont'Kiara, predominantly an investor proposition, is facing a high rate of vacancy. “You can see that when you go by that area at night. Although the “how many units are lit up” principle may not be entirely accurate, it provides a good gauge of how popular a condominium project is.

“The next thing to look out for is rental rates are they sliding? We are seeing that happening here in Mont'Kiara. Investors are accepting a lower rate of returns, of about 4% compared with 7% to 8%. Will it go down to 2.5%. I hope not, but how much further will investors go?”

He says these are signs of a market going down. Right now, because it is location-specific, there is not much concern. The company he works for is nevertheless, keeping tabs on that market. Mont'Kiara, on average, is priced about about RM600 to RM650 per sq ft today, although some may be launched at about RM800 per sq ft.

While Mont'Kiara offers mostly high-end condominium units, over at Damansara Perdana, the situation is slightly different. Prices are lower at Damansara Perdana and because of this, it enjoys a bigger market with both owner-occupiers and tenants. Because of its proximity to good amenities, it has a good rental market with a 430 sq ft studio unit at Ritz Perdana being rented out for RM1,200 to RM1,300. The older blocks in Perdana Exclusive (two rooms with 860 sq ft built-up area) are rented out for RM1,400 to RM1,500.

“The studio is doing better in both the rental and in the for-sale market,” he says.

In the event there is a softening, the condomininium market will be affected first, he says. Over at the KLCC market, there was much euphoria there and prices just escalated. Today, although prices have come down, that location seems to be holding well.

“The KLCC condominium market offers a different product and it is a market that does not follow the trend,” says Reapfield's Kho.

RAM Rating Services Bhd head of real estate and construction ratings Shahina Azura Halip says demand for residential properties will remain healthy. This is supported by domestic economic growth, healthy demographics with 40% of the population aged between 20 and 44 years and 37% below the age of 20, rural-urban migration (urbanites as a percentage of the total population in Malaysia increased from 68% in 2005 to 71% in 2009) and low unemployment rates (less than 4% between 2006 and 2010).

“The high-end condominium market is envisaged to be more challenging given the substantial incoming supply. In Kuala Lumpur, where the bulk of such properties are located, the inventory of high-end condominiums summed up to almost 31,000 units as at the end of the third quarter of last year. This is projected to be joined by over 7,000 units in the next five quarters. This is expected to cap the potential upside for the prices of these high-end abodes.

“The demand and supply dynamics vary according to location. The outlook on the broad sector may not necessarily translate into similar views on different locales. Areas such as Mont'Kiara and KL central business district are facing huge incoming supply, which probably explain the incentives that may be offered to push sales for certain developments. According to statistics from Ho Chin Soon, the incoming supplies in these two areas are expected to increase by a respective 24% and 25% between 2010 and 2012.

“Prices of high-end units in these areas had fallen in 2009 and had only shown slight increase in the second half of last year. Dampened by the supply situation, rental rates for high-end condominiums in these areas have also been reportedly declining in the last few years.

“We think they are unlikely to recover this year due to the large incoming supply. Rental rates for luxury condominiums in KLCC, for example, have fallen from about RM5 per sq ft in 2007 to around RM4 per sq ft in the third quarter of last year,” Shahina says.

By The Star