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Tuesday, December 16, 2008

Foreigners still keen on Malaysian properties

PETALING JAYA: Landmark office transactions concluded in the past 12 months show that foreigners are still keen in the local property market.

Of the nine transactions that were concluded this year, four involved foreign buyers or foreign-related funds. According to data compiled by Rahim & Co Research, the outlook for office property market looked good with more transactions expected going forward.

“Foreign investors like Malaysia for its stability as they feel it is not as volatile compared with markets in Vietnam, Hong Kong and Singapore. The stable economic outlook and good infrastructure are also plus factors for the real estate sector,” the research house said.

This year, several en bloc transactions had taken place, including the sale of Menara Standard Chartered to ING for RM300mil or at RM934 per sq ft, and Pearl@KLCC to Flora Bliss for RM550mil.

There are other several foreign funds that are looking to purchase real estates on an en bloc basis.

“Prime Grade A office buildings in the Golden Triangle and around the KLCC (Kuala Lumpur City Centre) vicinities are almost 100% occupied now. It is for this reason that we expect the few new office buildings in the Golden Triangle to do well in terms of occupancy,” it noted.

Interested buyers for the two office buildings that are up for sale in Kuala Lumpur - Horizon Commercial Centre in Bangsar South and Menara UOA Bangsar Tower A along Jalan Bangsar - comprise mainly foreigners.

The asking price is between RM900 and RM1,000 per sq ft, a significant increase from RM700 to RM900 per sq ft last year. About 3 million sq ft of new office space will be ready next year while the average annual take-up is only about 1.5 million sq ft. The balance space is mostly for owner occupation by big corporations and government departments.

Meanwhile, rental rates - which have been rising over the first half of this year - have started stabilising. Excluding the Petronas Twin Towers, Grade A office space in Kuala Lumpur’s Golden Triangle and around the KLCC are commanding monthly rents of RM7 to RM9 per sq ft.

Reflecting the prevailing pensive mood, Savills Rahim & Co said some companies entering Malaysia for the first time were not commiting to long tenancy or lease of office space but had chosen to occupy service offices instead.

They want the flexibility to watch the market’s performance next year before signing on the tenancy papers. Zerin Properties chief executive officer Previndran Singe said the office market would still see strong demand as the economy was still growing, although at a slower rate.

On the growing number of aborted property deals, Rahim & Co Research said: “The global financial crisis is affecting most institutional funds in various ways, thus they are taking a step back to monitor the situation.”

Banks are also starting to tighten credits and the credit crunch will make it increasingly difficult for investors and buyers to borrow to fund property deals.

Last month, IOI Corp Bhd forfeited a deposit of RM73.4mil when it withdrew from its proposed purchase of Menara Citibank in Jalan Ampang, Kuala Lumpur. The 50-storey Grade A office building has a net lettable area of 733,626 sq ft and a 99% occupancy rate.

Elsewhere, the gloomy global economic outlook has also resulted in aborted deals. In Singapore, the deal by City Developments Ltd’s 53%-owned London-listed Millennium & Copthorne (M&C) to sell The Seoul Hilton to Kangho AMC Co has fallen through. Kangho had agreed to purchase the hotel for S$596mil in June and had paid a non-refundable deposit of 10% plus another 1 billion won for two payment extensions.

These amounts will be forfeited and M&C will book S$60.6mil as extraordinary gain in the current financial year and continue to manage the Seoul Hilton.

With Malaysia’s gross domestic product growth having slowed down to 4.7% in the third quarter this year from 6.3% in the second quarter and 7.1% in the first quarter, Rahim & Co Research is anticipating a further slowdown in the final quarter.

“The global economic crisis is taking its time to impact Malaysia but in 2009 the effect on the country will be more pronounced.We expect some companies, especially in the financial sector, to reduce their headcount or at least stop recruitment.

“This may lead to the consolidation of separate departments or offices into one premise and new office buildings outside of the city centre may prove more popular,” the research house said.

By The Star (by Angie Ng)

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