What the experts say about the property market

James Wong
Managing director,

Residential property
With half of the world economies in recession and our projected economic growth rate at 3.5% in 2009, it will be a challenging year for the residential property market.

With weaker demand, there will be fewer housing starts and residential property prices will soften. The worst-hit will be affordable houses priced RM200,000 and below because of oversupply. Besides, the majority of the buyers are first-timers.

Trends for 2009 and 2010:

  • Fewer property launches;

  • Slower demand with residential prices dropping 10% to 20% for 2009/10;

  • Prices of high-end condos in the KLCC area, which have peaked, undergoing a correction; and

  • Another round of forced sales by way of auctions.

  • Location will remain the all-important factor. Popular areas such as Damansara, Mont’Kiara, Bandar Utama, Bangsar, Petaling Jaya, Kota Damansara and Desa Park City and niche housing developments will be the least affected.

    Investment strategy
    Developers with huge cash piles will have better opportunities to purchase cheaper land. With the intense competition expected in 2009 and 2010, developers which build quality homes at competitive prices will be in a stronger position.

    Purpose-built office space
    Compared to the residential property market, where there is an oversupply situation, there is no oversupply of purpose-built office space in Kuala Lumpur. Owing to the success of the strata office developments launched in 2008, there is still demand for such offices. In our opinion, the high forward sales of en bloc office buildings is over. Grade A offices in KL city have peaked at RM7 to RM8 psf.

    Trends for 2009 and 2010:
  • Capital values and rents may see moderate decline;

  • Demand for office space will soften as companies postpone relocation plans to bigger or more expensive premises or downsize;

  • Demand for offices on the city fringes could increase as companies seek lower office rents; and

  • New buildings nearing completion and newly completed ones may experience higher vacancy rates if pre-leasing has not been secured by now or owner-occupancy is low.

  • Investment strategy
    Look for Grade A offices on the city fringes near LRT stations for investment purposes.

    Potential tenants should look for long-term tenancies, with minimal increases on renewal. Look to buy office properties but only for own occupancy.

    Wish list
  • The Kuala Lumpur City Plan 2020 will be better defined than was done previously. After resolving all objections, future planning should follow the official guidelines with minimal variations. If possible, no excess (changes) should be allowed under any circumstances so that foreign and local investors can plan and decide with greater confidence;

  • A more liberal environment for foreigners to purchase real estate in Malaysia, including doing away with the guidelines of the Foreign Investment Committee; and

  • The government will implement the “monetisation of assets” for the sale of federal land by open tender, with clear and transparent guidelines to raise revenue for the government and to release government land for the private sector to develop.

  • Michael Geh
    Director, Raine & Horne international zaki + Partners (Penang)

    Residential property
    The residential property market in Penang is poised for consolidation as speculators and investors may cash out and owner occupiers come out to cherrypick their dream homes.

    Investment strategy
    Buy for your own stay now — as prices of all residential property will rise to new heights after a two-year consolidation period. Developers will be in distress if they were to launch new products now at current market prices. So they are waiting for market certainty in order that they can price their products higher.

    Purpose-built office property
    This sector is now divided into two distinct categories — prime offices with Multimedia Super Corridor (MSC) status and those without. The capital values differ by another RM100 psf. For example, prime office with MSC status in Bayan Lepas area was transacted on both per unit and en bloc basis at RM350 psf.

    Penang’s prime office market will continue to be soft because the state has over 10,000 pre-war shophouses used as offices.

    Investment strategy
    Prime office space with MSC status is a better bet.

    Wish list
  • The industry focuses on building what the market needs and can absorb, that is, affordable housing built and priced for the working class;

  • Focus on owner occupiers and homebuyers and not speculators;

  • With the inscription of George Town as a Unesco World Heritage Site, Unesco's restrictive guidelines should be made public, including its policy on density suppression. They should not be discussed by academics and politicians only; and

  • The industry should get continuous feedback on foreign buyers’ needs and wants.

  • James Tan
    Associate director, Raine & Horne International Zaki + Partners

    Residential property market outlook
    Subdued and cautious. The whole world is facing a financial crisis which is affecting everything. Stock markets are down, incomes are reduced and non-performing loans increasing. As the whole world's economy slows down, consumer confidence would be greatly reduced, thus affecting demand. Prices are expected to decline at least 10% to 20% across the board except for some prime areas like Petaling Jaya and Bangsar. Mont’Kiara and Kuala Lumpur City Centre would be badly hit due to the huge supply coming onstream. So now the question is, who will occupy these spaces?

    Investment strategy
    Wait and see for the market to consolidate further as this is only the begining in Malaysia. Focus on prime residential areas like Taman Tun Dr Ismail, Bangsar and parts of Ampang.

    Purpose-built office space
    The demand for office space will weaken further as business expansion plans are shelved and more workers being retrenched. The outlook depends on how effective the measures taken by the governments are to counter the economic fallout. The office market is still relatively cheap compared to other nations in the region and there is not that much speculation. The aborted Menara Citibank sale has affected confidence in the market somewhat.

    Investment strategy
    Look for fully tenanted buildings with strong blue-chip tenants going for a discount.

    Wish list
  • Reduce stamp duty to cut transaction costs;

  • Introduce more friendly foreign investment policies with no policy flip-flops;

  • Reduce government red tape; and

  • Ensure political stability.

  • Samuel Tan
    Director, KGV-Lambert, Smith Hampton (Johor)

    Residential property
    There will be uncertainties in the Johor Baru property market for the next six months, at the least. The mass market will be cautious as purchasers are most vulnerable to market changes. The high-end and deluxe markets will be more resilient and hold well after the initial uncertain period if the government and all stakeholders, including the developers, can come out with innovative ideas.

    The mass market will depend on job creation, higher disposable income and confidence-building efforts. There will be plenty of opportunities for buyers. For those who are interested and have a medium to long-term view, the next two years may offer the best buying opportunities.

    Iskandar Malaysia should be running full steam by 2009. Hopefully, the spillover effects can be felt significantly in the JB market.

    Investment strategy
    Avoid the herd mentality. Identify and focus on your investment direction. Gather all information unbiasedly. For owner-occupation, buy the location you love best and within your budget. There will be plenty of choices. For investment purposes, explore shopoffices and good-grade apartments in the city. These will offer good returns in the long term.

    For traders, look out for fire sales. Get to know a few good real estate agents, tell them your desired investment and you are on the way to making gains.

    Purpose-built office space
    In JB, most purpose-built offices are for lease only. Besides, there are too few office transactions in a year to form a discernible trend.

    Rents for grade A buildings in the city centre are not expected to move upward or downward. Monthly rents for Grade A will be between RM2.40 and RM2.70 psf, while Grade B will be between RM2 and RM2.40 psf. The lesser quality types and those on the fringes of the city will be below RM2 psf.

    Investment strategy
    Due to the low yields, purpose-built offices are not popular investment choices. They are bought purely for owner-occupation.

    For commercial properties, shopoffices were the favourites for the last four years, especially in choice locations. These include those at Taman Nusa Bestari 2, Taman Molek, Taman Setia Tropika and other good suburban schemes.

    The reasons:
  • Good appreciation — for example, a 3-storey shopoffice in Taman Molek costing about RM850,000 three years ago would be worth a lot more today — two such units changed hands recently at RM1.55 million each;

  • Good yield — shopoffices in good locations can command good yield of 6% to 9% from the developer’s price. The rentals are normally sustainable because of the high occupancy and good tenant mix; and

  • Low maintenance — shopoffices usually require minimun maintenance and management care.

  • Over the past three months, prices of shop-offices in choice locations have remained stable. Compared to a year ago, prices of those in choice locations easily appreciated by 10%.

    The next two years will see selected movements, depending on the location and neighourhood as well as upcoming infrastructural developments.

    New highways that may change the landscape of shopoffices include the proposed EDL (Eastern Dispersal Link), the Southern Link and the Western Coastal Highway. The EDL will connect the existing Pandan interchange, which forms the final exit point of the North-South Expressway to the new customs, immigration and quarantine complex.

    Shopoffices along the exit points of the EDL are good investment consideration. The Southern Link connects the EDL to Masai through Bandar Baru Permas Jaya. This link made connectivity seamless from Pasir Gudang to the city centre. It augurs well for shop-office development at strategic points along this link. The Western Coastal Highway links Johor Baru, via Danga Bay, to the Johor New State Administrative Centre in Nusajaya. A new commercial frontier will be opened up along this highway. Should there be a shift in population along this highway, shopoffices will again become popular choices.

    Wish list
  • The government and all stakeholders, including developers, public service providers like bus and taxis, and professionals come together to improve the State’s housing policy. Issues that require immediate attention include oversupply, bumiputera quota and unsold affordable housing;

  • Make housing estates more liveable;

  • Reduce development costs by removing unnecessary requirements and ensuring security for all JB residents;

  • The authorities must ensure that projects in Iskandar Malaysia are rolled out effectively so that the locals can enjoy the benefits;

  • Get rid of all abandoned malls and schemes in the city — these are giving the city a bad image;

  • Create a vibrant small and medium enterprise market in JB. This will in turn create plenty of jobs and increase demand for houses;

  • Take note of the changing economic landscape in Sngapore; and

  • Increase the disposable household incomes of all earners so that they can buy houses, whether from the primary or secondary markets.

  • Y Y Lau
    YY Property Solutions In association with Cushman & Wakefield

    Residential property
    The outlook for landed properties in good locations is stable. Prices will depend largely on demand and we don’t see demand for landed properties dipping despite security and safety concerns. Depending on construction costs, some areas might even experience some upward adjustments.

    Come 2009 and 2010, when more high-end condos, especially in the KLCC vicinity, are completed, we expect more competition for rents, with landlords needing more time to have their units tenanted. We expect some owners who bought for investments to divest their properties at the original acquisition costs, if not lower. Some of them, for example South Korean and US investors, who face problems at home, are willing to let go of their properties here.

    Investment strategy
  • Prioritise your investment objective — should it be rents or capital appreciation?

  • Purpose-built office space
    For the leasing market, the outlook for 2009/10 will remain good in both the central business district (CBD) and locations on the city fringes. In the CBD, new offices coming onstream for 2009/10 will be lower in number than those in the decentralised locations or on the fringes. Most will be Grade A buildings whose landlords are expected to seek rents exceeding RM6 psf to reflect the higher land and construction costs.

    We expect some multinational corporations to try to negotiate for early termination or restructuring of the lease in view of the economic situation back home.

    For locations on the urban fringes, there will still be activities due to lower occupation costs than those in the CBD. We have already witnessed some companies relocating their offices from CBD to the fringes.

    Investment strategy
    For investors, this is the right time to get ready with their money. Cash is king and financing costs are at an all-time low. Start selecting your location, assess the quality of products, check the track record of delivery and the status of tenancy, and evaluate the potential upside (both in terms of rents and capital appreciation). In short, it is back to the basic fundamentals.

    Wish list
  • The government must have consistent and clear policies on real estate;

  • Concerted efforts must be made to promote Malaysia as an investment destination;

  • Improve safety and security; and

  • Carry out comprehensive research on the real estate sector.

  • Eric Ooi
    Managing director, Knight Frank Malaysia

    Residential property
    There will be price correction for high-rises in the KLCC area and Mont’Kiara. Prices for prime landed properties may dip slightly.

    Investment strategy
    Look out for good buys when there is price correction, especially for properties which are tenanted.

    Purpose-built office space
    Rents and prices will soften, especially in the later part of 2009 and 2010 as more office buildings are added in the face of weakening demand.

    Investment strategy
    Wait for good deals.

    Wish list
  • Soft landing for the property market since our economic fundamentals are good;

  • The government must attract more investments and encourage more MNCs to set up their regional headquarters in Malaysia. More investments and expatriates will be good for the high-end residential and office sectors; and

  • Do more to boost tourism, which will help the hospitality and retail sectors.

  • Previndran Singhe
    CEO, Zerin Properties

    Residential property & investment strategy
    Transactions will be fewer as some investors adopt a wait-and-see attitude. However, domestic demand is still strong, given the lessening inflationary pressure and lower interest rates for borrowing. With this strong demand, we do anticipate prices of landed properties inching up in the usual “suspect” locations of Damansara Heights, Bangsar, Taman Tun Dr Ismail, Sri Hartamas, Medan Damansara, UThant/Ampang Hilir, Ukay Heights and the “underdog” locations of Seputeh/Robson, Taman Desa/OUG, Taman Yarl, and the 3rd-4th Mile Jalan Ipoh. Outside KL, we see Penang, Medini (Iskandar Malaysia) and Kota Kinabalu as locations with potential.

    For condos, we do see some downward pressure on selected projects in KLCC, especially those that do not deliver and are badly managed. Only very few selected condominiums like The Binjai and One KL actually saw prices appreciate.

    For Mont’Kiara, we still see strong demand mainly from local buyers attracted to the amenities in the neighbourhood.

    Other hot picks for condo developments are Sentul East and Sentul West, Bangsar Baru and selected projects in Damansara Heights.

    Purpose-built office space & investment strategy
    The office market will see strong demand as the economy is still growing, albeit at a slower pace. Also, our financial sector will see some growth as the authorities keep liberalising it. There could be some downward pressure on the retail sector, due mainly to the incoming supply of retail space, but key malls will still see stable or even expansionary spending.

    Tourism is strong, with growing domestic tourism and also regionalisation of the tourism markets. We have heard some UK visitors have cancelled their bookings for mid-range hotels in Langkawi, but luxury hotels still enjoy strong occupancies.

    Wish list
  • Further liberalisation of the financial and insurance sector;

  • Focused marketing of Malaysia as a tourism destination; and

  • Focused marketing of Malaysia as a real estate destination.

  • Tang Chee Meng
    chief operating officer,
    Henry Butcher Malaysia

    Residential property
    Expect a slowdown in 2009 in line with the global economic downturn. The low and medium-cost segment will be sluggish as people, mostly the low income group, will defer spending on big ticket items. High-end condos will see a slowdown as foreign investors worldwide more cautious. Furthermore, 2009 will witness the completion of a number of high-end condos in the KLCC area and this will put added pressure on rents. The lower yields may then have a negative impact on capital values. However, we do not see prices suffering a drastic drop. The high-end landed segment will continue to see support from the locals, but the market will be more location and price-sensitive. The medium-priced landed properties and condos will see slower sales, but will continue to attract local buyers if the location, pricing and design are attractive. The recovery of the market will depend on how the country manages to deal with the economic slowdown.

    If the world economic situation improves in 2H2009, the property market can pick up again in 2010. However, if the US and Europe are not able to resolve their economic problems by then, 2010 will still be a sluggish year for the property market.

    Investment strategy
    For investors, a safe approach is to invest in completed properties or projects built by reputable developers, with strong financial standing. The important thing is to invest in popular locations, which command strong rents. When the market recovers, such locations will recover faster.

    Purpose-built office space
    The purpose-built office market in 2007 was fuelled by strong interest from funds, which drove prices up to record levels although still way below top luxury condominium prices in KL. Rents have moved up but not as fast as capital values. We therefore see a situation where yields are becoming compressed. With the economic slowdown, funds have adopted a more cautious approach. For funds which are not badly affected by the financial crisis, they appear to be holding back for now as they anticipate that capital values may start to drop next year. The economic downturn has also affected the service sector. The financial and the oil and gas sectors have been badly affected by the global financial turmoil and the drastic drop in crude oil prices.

    Demand for office space is expected to slow down in 2009. However, we believe that rents will remain stable unless there is a further shakeout caused by massive retrenchments and downsizing. If the Malaysian economy is able to ride out the current rough patch, the office market could also see a recovery in 2010.

    Investment strategy
    As companies cut costs by downsizing and relocating to less expensive offices, there could be higher demand for offices outside the main commercial districts, but which are well served by public transports.

    Investors could look at these locations as alternatives to the more expensive downtown ones.

    Wish list
    The government should :
  • Provide more support to the industry — give extra incentives to encourage people to buy houses, like exempting them from paying stamp duty;

  • Relax temporarily the bumiputera and low-cost quota: and

  • Help developers to market their projects overseas.

  • Brian Koh
    Executive director,
    DTZ Malaysia

    Residential property
    The property market will be challenging, given the gloomy economic outlook. In addition, foreign demand cannot be depended on to underpin the high-end condo market.

    Investment strategy
    There will be opportunities to buy when prices pull back sufficiently on the secondary market. Focus more on the upper mid-end sector as well as the more established locations where the rents are stable. Avoid brand-new townships as these could be badly hit and take a longer time to recover.

    Purpose-built office space property
    The market has already gone over the peak in mid-2008, and is likely to adjust when a combination of new supply of houses and slower growth in the service sector kicks in. Rents are likely to see a marginal decline, with more downward pressure in late 2009 onwards.

    Investment strategy
    Focus on prime established locations, and quality buildings and tenants as these factors will be able to better withstand the financial storm.

    Wish list
  • Moratorium on lending to speculative and marginal projects in secondary locations as we do not want to see projects being abandoned again;

  • Stabilise construction costs to reduce uncertainties for contractors and developers; and

  • Continued efficiency in the approval process by authorities to reduce holding and hidden costs of development.

  • Chris Boyd
    EXECUTIVE Chairman, Regroup Associates

    Residential property
    Poor sentiment will lead to a weak market. We do not anticipate a crash, but the most speculative subsector, that is, high-rise luxury apartments, will be the most vulnerable. Suburban landed property is expected to hold its ground. Despite the global recession, Malaysia will probably continue to enjoy virtually full employment and low interest rates. These are not the ingredients for a crash. Moreover, the “sell then build” practice is effective in reducing the number of houses constructed on a speculative basis.

    Investment strategy
    Probably the best strategy is to hold cash for a few months and then look for bargains, particularly for property that is easily lettable. If you do not want to buy property, take a look at some of the Main Board-listed property counters.

    Purpose-built office space
    A competitive market strongly supported by a fundamental balance in supply and demand.

    Investment strategy
    This is actually a good time to start developing, but you will need strong nerves and a strong balance sheet. Look for well-located property with good yields. I still like offices near LRT stations.

    Wish list
  • Sometime in the first quarter, I hope that a developer will launch a really attractive condo development in Kuala Lumpur that will become a roaring success, with buyers coming from unpronounceable far eastern European countries with suitcases full of cash;

  • A further review and liberalisation of Foreign Investment Committee requirements for larger investments; and

  • Banks must not panic, but take a long-term view, and continue to support the development industry.

  • By Sharon Kam (The Edge Daily)

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