Property Market Outlook 2008
Most of the luxury category units are located in the Golden Triangle, particularly KLCC area, Mont Kiara, Bangsar, Ampang, Bukit Pantai and Bukit Damansara
Gaining the up-market edge
Malaysia is poised for a serious stint of property-based asset inflation due to the abolishment of the RPGT, undervalued property prices compared with the region, the appreciating ringgit, the impending General Election, a stable economy and improved consumer sentiments
The recent steps taken by the Malaysian government to relax various property rulings at the end of 2006 onwards and the introduction of more incentives in its bid to make Malaysian properties internationally attractive to investors is beginning to pay off.
The policy relaxation has spurred foreign interest and domestic demand has also picked up after a two year lull, leading to a twin engine of growth in the property sector. Analysts point out that the property industry is changing structurally, with the high-end property segment taking the lead.
The recent stream of measures to revive the residential real estate market include, reduction of red tape for developers obtaining approval/permits, the lifting of the Real Property Gains Tax (RPGT) in April 2007, easing of foreign ownership and speedy delivery systems are spurring on interest from a largely untapped foreign market.
Earlier the cumbersome approval processes and punitive Real Property Gain Tax (RPGT) were regarded as hindrances to investing in Malaysian properties. As a result of the tedious and often prolonged duration of the process, Malaysian property prices, particularly the high-end segment were stagnant and lagging behind neighbouring countries, compounded by softer domestic demand over the previous two years.
Foreigners can now buy residential properties worth more than RM250,000 per unit without seeking approval from the Foreign Investment Committee (FIC). There are also no restrictions in terms of usage of the property or the number of properties bought.
All foreign transactions still require the relevant state authority’s approval, as property transactions come under the ambit of the individual states that the property is located in. The process usually takes up to three months and can be longer if it is a leasehold property.
There are still restrictions with regards to commercial and industrial land purchase, which may be gradually relaxed at a later stage. Though FIC approval is still necessary for non-residential property transactions, the processing time has been shortened from three-six months to one-three months.
Foreigners are allowed to buy commercial buildings or development land but these acquisitions have to be registered under a locally incorporated company with minimum 30% Bumiputra equity ownership, which has to be complied within two years from the date of the FIC approval.
Analysts concur that Malaysia is poised for a serious stint of property-based asset inflation due to the abolishment of the RPGT, undervalued property prices compared with the region, the appreciating ringgit, the impending General Election, a stable economy and improved consumer sentiments.
The government recently announced that it has targeted RM20 billion worth in properties in foreign ownership by 2010. Most property players at this point in time are still waiting for more incentives from the government in the form of reduction in stamp duty, revamping of Employees’ Provident Fund (EPF) depositors’ accounts to enable more allowance for house purchases and also relaxation to facilitate foreign investors to purchase commercial properties.
This demand will be further spurred on by the growing expatriate market as Foreign Direct Investment (FDI) improves and there is an increase in the arrival of foreign tourists.
High-end developers are best leveraged at this point in time and industry sources point out that foreigners are likely to converge on high-end properties in prime locations like KLCC, Bangsar, Mt Kiara, Damansara Heights, Ampang, Bukit Bintang and Kenny Hills in the Klang Valley. The Northern Corridor - Penang and the Southern Corridor – Johor are also on foreigners buy list.
According to Regroup Associates Sdn Bhd, executive chairman Christopher Boyd, “the entire housing market in the Klang Valley is about 1.4 million dwelling units for a population of 6 million, out of which half are high-rise.”
“Only a tiny portion of these high-rises fall into the luxury category and most of the luxury units are located in the Golden Triangle, particularly KLCC area, Mont Kiara, Bangsar, Ampang, Bukit Pantai and Bukit Damansara. They total about 4,146 completed units,” he pointed out.
Real KLCC sites are hard to come by and only 66 luxury units are in the top league, the crème de la crème including Troika, Four Seasons, Binjai and Avare. Another 935 are under construction and scheduled for completion in stages.
“Generally sales have been very strong and this has been supported by buying interest from very wide catchments. Currently the Koreans are in the market and I believe the Arab markets are only just getting started, pushed along by intermediaries such as Kuwait Finance House which bought over Pavilion and Oval,” Boyd revealed.
Ho Chin Soon Research Sdn Bhd director Chin Soon pointed out, “As at the beginning of 2007, prices have started to increase strongly and in the KLCC area they have doubled for year 2007 when compared with 2006 prices.”
The residential suburbs have registered a 5% to 15% increase this year and with the stock market doing well, 2008 promises to be a better year for the residential properties outside the KLCC location,” predicted Chin Soon who is a renowned map-maker and registered valuer.
He was upbeat about the property market outlook for 2008, “The market is expected to surge further ahead after the upcoming elections where Barisan is expected to win, the stock market is expected to remain bullish in 2008. Petrol prices are anticipated to increase and a fresh round of inflationary pressures will push real estate prices further up. Employees can use EPF contributions for housing loan repayments beginning 2008.”
Apart from high-end properties, the residential upgraders’ market is also set to benefit, with home owners disposing of their existing properties and upgrading to a larger or better located property as well as to invest for capital appreciation.
Office Buildings Grade A
According to Chin Soon, the freeze on Office Buildings have been lifted in Kuala Lumpur and pent up demand for Grade A office buildings have resulted in several transactions of record prices with Mah Sing Group Bhd and Glomac Bhd transacting prices at RM1,150 psf and RM900 respectively with buyer Kuwait Finance House. Office rentals have also generally surged 15% to 30% and are expected to go up further in 2008.
“The shortage of 5-star and 4-star hotels has been felt with the success of Visit Malaysia Year 2007 and the increased number of tourist arrivals. There are hardly any hotel transactions and gauging by the only sale affected last year, Westin Hotel by the Ireka Group at RM1 million per room it is by far the highest ever achieved,” revealed Chin Soon.
As for shopping complexes, The Gardens at Mid Valley and The Pavillon at Bukit Bintang just opened three months ago and it is still too early to evaluate them as tenants are still moving in.
“Historically the Malaysian Real Estate Market follows the stock market, when the latter experiences strong growth, the former will experience a somewhat similar surge six to nine months later. The stock market KLSE indices have been steadily increasing for most of 2006 and the last quarter of 2006 showed a marked increase in turnover and stock values increased,” Chin Soon opined, “The Malaysian Real Estate Market has started on an ‘upswing’ trend since 2007 and this strong trend is expected to last another two to three years.”
Both analysts and industry sources concur that capital values will still increase in tandem with regional trends in cities like Singapore and Hong Kong, so demand is set to stay.
“Rentals are not expected to be sustainable for high-end properties but buyers tend to look for capital appreciation more. Yields maybe about 3% to 5% in 2010 in the KLCC area as an estimated 5,000 units will come on stream and be available for occupation,” he predicted.
According to Chin Soon, Klang Valley will continue to witness strong growth and the Iskandar Development Region, (IDR) Johor may overtake Penang Island as the number two growth region in 10 to 15 years time, provided the IDR Authorities can deliver approvals on a fast track basis and whether the political objections for liberal policies can be overcome.
On the whole, with the recent stream of measures to revive the residential real estate market in place, Malaysia is poised to experience a surge in demand of high-end properties in premium locations, fueled by undervalued property prices, the appreciating ringgit, the impending General Election, a stable economy, a buoyant stock market and improved consumer sentiments.