Several months ago, an acquaintance received a phone call from a developer who has a project facing the Petronas Twin Towers. The caller wanted to know if he was interested in a condominium which cost slightly less than RM3,000 per sq ft.
“At that price, I must have a rental of RM30,000 a month. Who would want to rent a condominium at that price when they can rent a bungalow in Damansara Heights, Kuala Lumpur for that amount or less?”
The call proves one thing – that the brand of conspicuous consumption that some KLCC developers have been successfully marketing to wealthy clients is currently being severely tested as the global crisis sends many markets in a tailspin, wiping out wealth alongside it.
Do not be mistaken. By no means has the iconic location lost its allure. It is just that the meltdown has given the sector and that location a new dimension.
From London to New York to Dubai, the luxury residential market is hurting as the economic crisis deepens. Malaysia, nowithstanding the fact that we are seeing a slower effect of the crisis, will not be exempted.
Knight Frank Malaysia executive director Sarkunan Subramaniam says the prices have dropped significantly since August and expects prices to drop further.
The fall in value may be greater in some projects compared to others. For example, an analyst says the prices of DNP Holdings Bhd’s The Meritz has dropped 28%.
But SK Brothers Realty Sdn Bhd general manager Chan Ai Cheng says it is a misconception that transacted prices within KLCC have dropped.
“Prices within KLCC have not really dropped, at least not the transacted prices. When properties within KLCC were first launched, they were transacted between RM1,200 and RM1,400 per sq ft and sold out immediately,” Chan says.
(Note: Some of the earlier projects like Stonor Park and Dua Residence were launched at starting prices of RM530 and RM600 per sq ft respectively in 2003/2004. Prices began their stratospheric rise as more developers entered the market).
She adds that the quick flip allowed property owners the opportunity to cash out with higher re-sale prices.
“Just because people feel that the properties would be worth so much doesn’t mean that the properties are actually worth that much,” she says.
“Asking prices are today more realistic,” Chan says.
Besides pricing, analysts and agents have raised other concerns like sliding yields and the burgeoning supply in the vicinity.
These issues are not new or unexpected. They were on the back burner even as early as 2005 when developers were showing interest in the hotspot. Many had then questioned if Malaysia will have or be able to draw enough expatriates to occupy these 6,000-odd units. That question remains relevant up until today.
As the meltdown unravels, these same issues have taken a new urgency of their own.
Before going further, there are different definitions and perimeters of what constitute KLCC. Consider the different concentric circles with the Petronas Twin Towers at the centre. Some may consider Berjaya Central Park (by the Berjaya Group) and Cendana (IGB group) as occupying the outer circle and should be included as KLCC property. Others go no further than Persiaran Hamsphire behind Corus Hotel along Jalan Ampang. The Binjai (KLCC Properties Bhd) being on the KLCC Park itself is the closest to the core.
However one may define it, there are several thousand units out there today which remain pitch black when night falls, a sign that it is not occupied.
“If you look at the property market as a whole, over the past few years, compared with what’s happening in the global property market, we are late in coming. Property prices have not risen as significantly as in the US, where over the past six years, prices have doubled.
“Singapore’s property prices have moved up more significantly. In Malaysia, prices have been stable with the exception of KLCC and Mont’Kiara. However, over the last three to four years, prices in KLCC have doubled.”
The units in that location come in pretty large packages. Catering mostly to families, they have a built-up of about 2,000 sq ft or more. In absolute terms, a unit can cost between RM2mil and RM3mil each or even more.
There are some Malaysians who are sitting on piles of cash and are waiting to pick up some units if the price is right. Because the gap between the selling price and asking (buying) price is today too wide, some of the owners have decided to move into that location.
Says the analyst: “In a market such as today, a lot of multinational companies are cutting back on benefits and are in fact retrenching. Under such circumstances, it is difficult to be bullish about the tenant market.”
Agents and property consultants say it has become increasingly difficult to get tenants, especially in the last half of 2008 and the situation is expected to remain the same for the first quarter of this year.
Industry observers suggest that developers within the KLCC area who have yet to launch their projects should hold out for a bit before they do so as the weak market could translate to weaker sales.
“But if they need to launch, they could scale down the projects or offer smaller units hence bringing down the price,” says one observer.
Will developers revise the prices of their properties downwards due to waning demand? Not likely. “Once developers have set or raised their prices, it will not be reduced. The market does not practice this,” she says, adding that developers may provide more value add or give out freebies to woo buyers. - By Thean Lee Cheng and Eugene Mahalingam (The Star)
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