Malaysia Property Market set for steady growth

Developers in KL will continue to target wealthy buyers looking for lifestyle-focused developments.

All signs point to a slowdown in Malaysia’s residential property market for 2008 after unprecedented global economic growth over the past few years, partly resulting in the US subprime mortgage crisis. “Subprime worries are expected to linger into 2008,” said Datuk Bridget Lai, CEO of Alliance Finance Group. “Inflation will be a key concern in 2008 and high inflation may curb consumer spending. However, private investment is expected to cushion the moderation in consumer spending,” she added.

The Malaysian Institute of Economic Research (MIER) has predicted a slower 5.4% growth for 2008, after an estimated 5.7% growth for 2007. Meanwhile, Prime Minister Abdullah Ahmad Badawi has announced a more optimistic 6% projected GDP growth for 2008, although he warned of rising oil prices affecting the economy.

On the property front, demand for building materials will increase not just in Malaysia but throughout the region. With the rollout of new projects announced under the Ninth Malaysia Plan (9MP), the demand for steel, cement and quarry products will increase, resulting in higher prices for such raw materials.

Patrick Wong, President of Master Builders Association of Malaysia, estimated that the rise in construction costs will be between 20-30% for 2008. Amid tough competition, it would be difficult for developers to increase pricing for mass-market residential properties and pass on higher construction costs to end-purchasers. Consumers are already saddled with inflation and rising fuel costs.

The likely scenario would be a slowdown in the roll-out of mass-market residential properties by developers and a shift in focus to the more lucrative high-end segment. The year 2008 will most likely see a slew of new luxury properties competing to attract the well-heeled and high net worth investors.

High end, high prices

SP Setia Berhad was one of the first-movers when it announced the launch of its Duta Grande luxury-grade bungalows in Kuala Lumpur’s posh Kenny Hills (Bukit Tunku) neighbourhood. The three-storey bungalows with a built-up area of 10,000sqft will carry a whopping price tag of RM30 million and above. Similarly, the Brunsfield Group is also planning to offer three-storey bungalows in the prime Damansara neighbourhood in Kuala Lumpur at RM30 million a unit.

Beside Kuala Lumpur’s posh neighbourhoods, the Ampang area, near KLCC, continues to attract developers’ attention. Brunsfield will launch upmarket low-rise condominium units in the area at new benchmark prices of RM3,000psf. IOI Properties is also looking at launching a luxury condominium project on a 3.76-acre freehold plot in the Ampang area.

But the question remains: will there be enough buyers to take-up the slew of luxury homes on offer? Tan Sri Liew Kee Sin, CEO of IOI Properties, said the company was targeting the “cream of society, a select group of tycoons who want to experience the ultimate extravagance and pampering that money can buy”.

Gan Thian Leong, Brunsfield’s Group Managing Director, echoed the sentiments: “We expect our limited edition bungalows to be snapped up by both Malaysians and foreign buyers, including Middle Eastern, Europeans, Chinese, Koreans and Japanese.”

Investing in luxury properties in Malaysia makes sense for the well-heeled and for foreign investors. N.K. Tong, Bukit Kiara Properties’ Group Managing Director, said: “Benchmarked to the region, Malaysia is still incredibly affordable, both from an absolute perspective as well as from an affordability index.”

David Lee, Executive Director of niche property player Sri Melinger, added: “The relaxation of Foreign Investment Committee (FIC) rules and the relatively cheap prices of Malaysian property compared to global property prices are strong attractions for foreign investors. Malaysia is also one of the few countries that allows foreigners to purchase freehold property.”

However, unless these high-end properties are purchased for owner-occupation, it might be difficult to put them out on the rental market. Even at a conservative 3% return on investment, a RM30 million home would have to be let out at RM75,000 a month.

Target: High rollers

Kuala Lumpur is not yet the same as Singapore or Hong Kong. Firstly, there’s no serious issue with scarcity of land. Secondly, unlike these high-growth economic hubs which attract top-level executives as MNCs set up regional head offices, KL sees more mid-level expatriates coming in to work in factories or on construction and infrastructural projects. These mid-level executives are unlikely to pay the high monthly rentals for luxury properties.

Thirdly, population growth in economic hubs like Singapore and Hong Kong is largely due to an influx of knowledge workers with high salaries. In KL, population growth is largely due to rural-urban migration, with local workers from other states coming to the city in search of entry-level jobs. The increase in city population will more likely result in a demand for mass-market housing rather than high-end residential properties.

But developers are unfazed. “For 2008, the property market is unlikely to slow down,” Lee said. “Niche projects and high-end projects in selected areas will continue to sell well and be in demand.”

Tong had this piece of advice. “Don’t wait. In 2007, we already saw a steady increase in property values. This will be further accelerated in 2008. The subprime crisis may have caused some investors to turn cautious, but there will be little impact on Malaysian properties.”

But if one were to invest in Malaysia, which would be a good location? “From a residential point of view,” Tong answered, “I would favour Kuala Lumpur City Centre (KLCC), Mont’ Kiara and Penang beachfront properties.”

by Pete Wong
Source :

No comments