Malaysia Property: Market Focus

First it’s the US subprime crisis. Then it’s the food crisis followed by the threat of recession. And the final blow seems to be the loss of confidence in the ruling government, resulting in the Opposition party gaining control of five states in the recent March 8 general elections.

With such a seemingly negative scenario, is it still a good time to enter the Kuala Lumpur (KL) property market? The answer depends on whom you ask.

In a recent online survey conducted by one of the country’s property websites,, 48 per cent of foreigners polled thought that the outlook over the next 12 months would be positive. Foreigners generally believe that Malaysia will be relatively unaffected by the expected global slowdown. Among Malaysians, however, only 33 per cent agreed that the outlook would be positive with 21 per cent thinking that it will be negative.

The website’s chief executive officer Asim Qureshi was quoted as saying, “foreigners are in a great position to be able to compare Malaysian real estate with that in other countries. Most foreign investors will not look at Malaysian property in isolation, but compare Malaysia with a number of other property hotspots.” But in perspective, the survey only involved 250 participants and there is no indication on who the participants were.

Zerin Properties’ chief executive officer Previndran Singhe shared a similar positive outlook for the property market during a recent investment forum. He cited factors like “strong domestic consumption, high market liquidity and cheap loans” as reasons for the property market remaining strong for the rest of 2008.

On the other hand, Malaysians are more cautious about the local property market given the rising cost of living and the relatively stagnant average gross monthly income of RM3,686, according to the Household Income Survey 2007. In reality, many are struggling in the city with a below-average income, especially those that migrated from the rural areas and migrant workers. The rising cost of food, rentals and basic necessities are driving many to desperation. Some of the city’s young, reckless and mostly low-income group are venting their frustrations by challenging the law. They form motorbike gangs, known locally as Mat Rempits, to roam the streets at night and to harass law-abiding citizens. It’s common to find road users in the city openly flouting traffic rules, especially among motorcyclists at night. Such problems are rare in cities like Singapore or Hong Kong that has the middle-class making up the vast majority of the population.

The recent general elections that saw the government clinging on to victory with only a slim lead, is perhaps an indication of the people’s dissatisfaction with the failure to seriously tackle social issues like the rising crime rate, corruption at various levels and the rising cost of living, among others. The people are saying that if the government can’t do the job, perhaps the Opposition party can.

With the rising cost of building materials, the negative global economic outlook and the lack of investor confidence, there are already fewer property launches in 2008 compared to previous years.

Master Builders Association Malaysia president Patrick Wong was reported as saying that “many property developers are delaying new projects due to the rising costs of construction materials. This is because property developers are unable to fix prices for their properties due to the current uncontrollable sharp increase in building material prices.”

Bukit Kiara Properties group managing director NK Tong tells us that their current project upon completion will be 25 to 30 per cent higher than the original budget in terms of construction costs. “Will the property market be affected? Certainly, as prices will have to escalate to reflect the inflationary trend,” he adds.

The mainstream media is fond of echoing the developers’ mantra that living in a luxury apartment in the KL city centre (KLCC) with a grand view of the Petronas Twin Towers is comparable to living in London’s Hyde Park or New York’s Central Park without the high price tag. The part about the lower property price is true but when one considers factors like standard of living and city conveniences, the attraction comes down a few notches. Flooding in the city is a still a common problem during the annual monsoon season. Traffic congestion, poor public transportation and high crime rate are some of the other issues. The city mayor recently announced the availability of the Draft Kuala Lumpur City Plan 2020 for public scrutiny and feedback. The authorities hope the public will revert with opinions and feedback on how KL can be transformed into a worldclass city by 2020. For now, the plan remains a vision.

Foreign investors, however, seem to be oblivious of local issues, chasing up prices of luxury units in the KLCC area to RM2,300 per sq ft or an estimated RM15 million for some of the penthouses-in-the-sky.

However, the launch of luxury residential properties within the KLCC area has slowed down in 2008. Many are waiting to see the take-up rates for units launched several years ago and will be made available on the market soon.

Henry Butcher chief operating officer Tang Chee Meng is of the opinion that “the high-end condominium market could see a period of rationalisation and consolidation as a few more condominiums in the KLCC area have been completed.” He added that the ease in renting out units and the rentals they fetch would have an impact on future foreign buying interest.

Meanwhile the demand for office and retail space in KL among foreign investors is still generally strong due to several factors such as the comparatively lower rental costs (when compared against neighbouring cities), a good location as a south-east Asian hub and an educated workforce that is effectively English-speaking.

There is also a strong demand for Class A office space in the KL city centre. Currently the occupancy rate for such offices are around 90% with rental rates between RM6 and RM9 per sq ft. But many are of the opinion that the city infrastructure has to be upgraded to accommodate further developments. The recent launch of the Pavilion KL shopping mall is a glaring example. Soon after opening, a traffic bottleneck is created along a section of the Jalan Bukit Bintang stretch causing traffic to be at a perpetual standstill.

Elsewhere in KL, at the popular Mont Kiara residential suburb, there seems to be no end to the number of new developments being launched. The area is popular for its two international schools, a slew of trendy cafes and chic restaurants and a good mix of local and expatriate communities. A constant stream of lorries plying the area and the never-ending clearing of hillside forests are, however, taking away some of the allure of living in the area. Nonetheless, it remains a popular choice among foreigners looking to invest in the country.

Take Kim, for example. A Korean national, he came to Malaysia just a few months ago after securing a food franchise license. He chose to start his first restaurant at Solaris Mont Kiara, a new commercial and retail area in the vicinity. “At the same time, I will be looking around to buy a condominium unit in Mont Kiara soon,” he says in halting English. There are many foreign entrepreneurs like Kim who keep the Mont Kiara area buzzing as a favourite expatriate enclave.

Meanwhile, Chris Low, a hardware-shop-owner-turned-developer, is busy doing some background research before launching his tentatively-named One Kiara luxury condominium project. “We have identified a shortlist of potential buyers for the first phase of our project and we are confident in getting them to commit,” he says. The list comprise mostly of property owners who have made good money from previous investments in the Mont Kiara area during good times. “Beyond that, we are hoping to target foreign investors from Singapore, Hong Kong and other countries for our second phase. Our estimated RM700 per square feet may sound pricey by local standards but for foreigners, they are still considered a bargain,” he adds.

Bukit Kiara Properties will also be launching their third tower called Vogue in their Verve Suites project in the second half of 2008.

But there are also downsides to investment in Mont Kiara. Property agent Jenny Liew says, “With more and more projects being launched at Mont Kiara, tenants are spoilt for choices. It is not unusual for owners to have units vacant for more than a year.”

So besides the KLCC and Mont Kiara areas, where are the other property hot spots? According to Singhe, the Klang Valley (Kuala Lumpur), Johor and Penang remain the top growth areas in the country with Sabah coming up on the list.

Within KL, popular locations among foreigners are still KLCC, Mont Kiara and other areas close to the city. “Foreign investors are mostly from the Middle East, Indian subcontinent, Japan, China and South Korea,” according to Singhe.

Locals, on the other hand, usually pick locations based on sentiments, like areas where their parents are staying or where they grew up in.

Zalam Corp recently sold 70% of its Alam Puri condominium project in Jalan Ipoh, which is a short 15-minute drive to the city centre. And that’s even before the official launch date. Priced at between RM219,888 and RM292,888, or an average of RM240 per square feet, the units were easily sold to local buyers. The company’s chairman Tan Sri Wong See Wah said, “As at May 6, we have sold 142 of the 196 units, leaving only 24 bumiputra and 30 non-bumiputra units. Many of our buyers are from the Jalan Ipoh area.”

Consumer spending and confidence may be down but reasonably-priced projects in good locations within Kuala Lumpur still draws the crowd.

Although 2008 is expected to be a problematic year, the consensus among industry experts is that the property market in KL will be strong enough to weather the storm. Experts are saying that the property sector is currently more resilient compared to the previous downturn 10 years ago.

DTZ Debenham Tie Lung executive director Brian Koh was reported as saying that “Malaysia does not have a glut in properties, the economy is strong and there’s a lot more foreign interest in Malaysian properties which experts say are generally attractive or undervalued.”

Mulpha Group sales and public relations manager Peter Lim says, “Now is perhaps the best time to invest in Malaysia. Developers may be more open to negotiations to clinch the deal. Compared to neighbouring cities, KL’s real estate is still coming from a low base.”

Bukit Kiara Properties group managing director NK Tong offered this tip, “If I were an investor, I would focus on KL projects targeted at Malaysians. A higher percentage of foreign ownership in a project may cause problems later as too many units may hit the resale or rental markets, putting a downward pressure on pricing during the months after handover.”


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