On The Home Front (Msia)

Source : The Business Times, July 17, 2008

A look at how KL's residential property market is faring in the current economic climate

MALAYSIA'S property market had cruised into 2008 looking to keep its upward trend. But unprecedented results from the country's general elections in March led to new political parties forming state governments on a scale unseen before in Malaysia.

What's hot: Completed projects by more established developers. To combat higher transport costs, there is also more demand for homes that are closer to public transport

In the midst of the changing political landscape, the country was faced with a 41 per cent hike in petrol prices in June, followed by the central bank announcement that inflation would exceed 6 per cent that month. All this, while the US credit crisis unfolded with its effects felt around the globe.

With so much uncertainty, Kuala Lumpur's residential property market is now reeling. The petrol price hike and its domino effect has been arduously debated in the past month and its implications on the property market are far-reaching. Affordability is now of great concern. With daily living expenses taking a bigger bite out of incomes, people are more cautious about big-ticket purchases.

Meanwhile, developers and contractors are faced with significantly higher prices for building materials, with further increases anticipated. These hikes could lead to projects being stalled and the increasing possibility that completion of ongoing projects may not be a certainty.

One upside to this situation would be an increasing demand for completed projects by more established developers as well as demand for accommodation closer to public transport to combat the higher transport costs.

The immediate response has been a slowdown of launches in the first five months of the year. Our findings reveal that between January and May, some 3,333 units were launched in the Klang Valley. These include terraced, semi-detached, detached, town villas and condominiums in areas like Shah Alam, Semenyih, Klang, Bangi, Rawang, Puchong and Putrajaya. (Statistics based on monitoring of major dailies were compiled by WTW). In contrast, about 10,780 residential units were launched between January and June 2007.

The first half of the year generally sees roughly double the number of units advertised compared to the second half. This observation extends to nation-wide launches of all types of properties that are compiled by NAPIC (National Property Information Centre).

The number of residential transactions lodged in Kuala Lumpur and Selangor in the first quarter of this year was also lower than the corresponding period in 2007. Further declines are anticipated for the second quarter.

These are clear warning signs that the property sector has already made adjustments to domestic and external forces affecting the country in 2008.

Good performers

The top-tier condominium market in Kuala Lumpur located at the Kuala Lumpur City Centre (KLCC) and Mont Kiara have performed well over the last two years with selling prices having doubled in that time. In fact, prices have crossed RM2,000 per sq ft at KLCC and RM1,000 psf at Mont Kiara.

Sales have been good with foreigners making up about 30-40 per cent of the buyers, as prices are still considered affordable by regional standards. The exemption of real property gains tax as well as the lifting of the required approval from the Foreign Investment Committee were also factors in attracting foreign investors.

Between June 2007 and June 2008, some 1,855 units were launched in Mont Kiara, among them Lumina Kiara, Seni Mont Kiara, 11 Mont Kiara, Kiara 9, Kiara 3, Sunway Vivaldi and One Kiara. Over the same period, no new projects were launched within KLCC but 238 units were completed in the area, with another 779 units to be completed before the end of the year. This new supply is expected to create further pressure on occupancies and rentals.

Looking ahead, the top-tier luxury condominium market is expected to soften as purchasers become more selective and developers become increasingly cautious about oversupply, leading to slower sales.

In addition, with the global credit crisis still unresolved and Malaysia's current political climate, many are adopting a 'wait and see' attitude.

This article was contributed by CH Williams Talhar & Wong