15 Dec 2008: Property: Challenging outlook for higher-end market

Beware KL Property Buyer........


By Sharon Kam and Venus Hew

We may well see a price dip in the secondary market for high-rise residential properties in the Kuala Lumpur City Centre (KLCC) area soon due to the global financial meltdown. In 3Q2008, the prices of condominiums and serviced apartments in the KLCC area rose marginally, but the outlook for this segment in 4Q2008 and early next year seems poor, says Allan Soo, managing director of Regroup Associates when presenting The Edge/ Regroup Klang Valley Housing Property Monitor for 3Q2008. "The global financial meltdown has affected foreign buyers who form a significant part of this property market," says Soo.

In 3Q2008, local investors who acquired units from developers earlier managed to off-load their units at higher prices albeit not without difficulty as there were fewer buyers. "The third quarter still saw some foreigners, mainly from the Middle East, buying high-end condominiums with cash," says Soo. The market for high-end highrise homes in Mont'Kiara was relatively active and prices there were steady. "Most of the purchases were for newer developments and buyers were mainly locals, comprising many who lived there or already owned some units there," he says. Rents in Mont'Kiara were also steady probably due to the fact that another international school was going to open in the area, hence creating more demand for apartments in the area, Soo adds. While the outlook seems challenging for the higher-end market, lower range properties targeted at the local market seem to be faring better. In 3Q2008, units priced at RM200,000 to RM300,000 were still transacting well, says Soo. "Prices generally held out, mainly because owners were naturally unwilling to sell below the original price."

In Taman Tun Dr Ismail (TTDI), there were also no significant changes in prices and rents, especially for newer condominiums which continued to attract demand from both buyers and tenants. Soo cites The Residence and Plaza condominiums there which had asking prices of above RM800,000 for higher floor units with views of the KLCC while rents for such units were RM4,000 to RM5,000 per month. However, the tenancy market was slow, particularly for higher-end properties. "Lower mid-range condominiums were still letting fairly well at rents of RM2,000 per month for units of 1,400 sq ft."

Landed properties Soo believes that prices of landed property may not see much of a "discount" next year as "prices have generally not gone through the roof". While sales for landed properties were slow, leasing activity was stable in areas such as Bandar Sri Damansara, USJ and Puchong. In Puchong Jaya and Pusat Bandar Puchong, rents for 2-storey terraced houses firmed up by between 2% and 7%. In Bangsar, rents remained unchanged whilst TTDI is experiencing a fall of up to 10% from RM1,800 to RM1,600 for its 2-storey terraced homes. Prices for terraced houses in popular locations like Bandar Utama, Bandar Sri Damansara, USJ and Puchong were holding up at levels reached in 2Q2008 as demand for houses in these areas was mainly from buyers who purchased for their own use.

"One developer reported good sales at launches for its latest series, noting that most of the sales were to younger families whose needs for new housing had no direct relation to the current economic factors," says Soo. TTDI, however, recorded a drop in value for its 2-storey terraced houses to below RM700,000, a threshold surpassed last quarter. The new value is about RM680,000, thus registering a 6% drop. "However, there were no signs of panic selling as most were in no hurry to sell and reaffirmed their confidence in the TTDI suburbs," adds Soo. Transactions here, as in elsewhere, were slow. For the rest of the market, prices of 2-storey terraced houses generally remained stable, in areas such as Bangsar, Bandar Utama and Puchong.

Houses in Puchong especially continued to maintain their prices at between RM280,000 and RM300,000. But prices in Bandar Sri Damansara in SD7 slipped slightly by 3.6% from RM415,000 to RM400,000 whilst SD10 units managed to maintain prices at between RM362,000 and RM385,000 compared with RM370,000 recorded in 2Q2008. "The market here is mainly driven by owner-occupier demand," says Soo. In USJ, however, prices in USJ 6 stayed flat, whilst USJ 4 recorded the highest prices at RM333,000 in July but softened to RM300,000 in August for units with a land area of 22ft x 75ft. Prices of single-storey terraced houses in Bandar Sri Damansara rose 4.2% to RM250,000 from RM240,000 in the previous quarter. On the other hand, similar houses in Bandar Kinrara Puchong reduced 5.3% at RM180,000 in 3Q2008 compared with RM190,000 in 2Q2008. Prices of this type of houses in Puchong were generally unchanged in the range of RM180,000 to RM210,000. Elsewhere in TTDI, Bangsar and Puchong Perdana, prices held steady.

The market is bracing for gloomier days ahead as the financial meltdown and impending global recession impact on Malaysia's property market. The fallout rate for transactions is gathering pace. "Most real estate agents and even developers reported a drop in the number of transactions. In late 3Q2008, the market became gloomier and the chief cause for concern was an impending global financial crisis. This led to a significant pull-out rate on deals," Soo says. In the news last month were Dutaland's announcement on the termination of its proposed joint venture with Stonehage Westcity Property Fund Ltd and Merril Lynch (Asia Pacific) to develop part of its Kenny Heights development. The developer said the proposed joint ventures have lapsed and due to the current uncertainties in the global market, all parties consented to end the joint ventures. More recently, IOI Corp Bhd called off its proposed RM586.7 million acquisition of Menara Citibank, citing the worsening global financial crisis for the decision. A sum of RM73.4 million paid earlier was forfeited. "Some developers were already selling off their residential development land from as early as 2Q2008, while there were some defaults on land deals in 3Q2008," says Soo.

Despite the pressure on prices, owners held out and as a result there was no significant drop in transaction prices in 3Q2008. But they may not hold for much longer. "We believe the prices in Malaysia are still low in comparison to those in the region and that we have not built ourselves to a crash. However, buyer confidence is weak and this will ultimately affect sales," says Soo, adding that potential purchasers are holding back on their investment decision for houses. Soo also expects the recent landslide in Bukit Antarabangsa to have a ngative impact on property values located on hill slopes, especially in areas where there are "perceived" signs of danger.