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Saturday, February 21, 2009

KLCC prices holding strong

AMID the global financial crisis and waning demand for luxury high-rise condominiums, the coming onstream of 2,000 more condominiums from 10 projects around the Kuala Lumpur City Centre (KLCC) area this year is expected to result in further price correction in properties in the vicinity.

After a euphoric two-year period which saw prices of some recently-released residences skyrocket to over RM3,000 per sq ft, the feverish pitch of high-end condominiums in the KLCC area appears to be cooling down.

The devastating impact of the US-led global financial crisis is taking a heavy toll on the rest of the world and with it, asset and equity values have taken a severe beating. The wealth destruction has significantly weakened consumers’ confidence and their appetite for big ticket purchases such as properties.

Since the middle of last year, prices of secondary residential properties in the KLCC vicinity have dropped 15%-20% while the rental market has eased 20%-25%. The slowdown was more visible in the last quarter of 2008 as reflected by shrinking property transactions. Industry observers are not ruling out further weakening in values and rental yields.

Eric Ooi

Knight Frank Ooi & Zaharin Sdn Bhd managing director Eric Ooi expects the current lull to continue until buyers’ confidence is regained, at the earliest in the later part of the year.

Even so, the general view among industry practitioners is that there is no price bubble in the KLCC residential market.

Terence Yap

According to Zerin Properties head of private wealth (real estate) Terence Yap, property prices in the KLCC vicinity are significantly lower than those in regional hot spots such as Singapore, Hong Kong and Shanghai and therefore, there is less potential for a severe correction: “The supply market is holding pretty well and the supply of condominiums is at a healthy level with no worry of an oversupply.”

In fact, he points out that there was still demand for KLCC properties in the last quarter of 2008, albeit at a slower pace compared with the third quarter. In addition, as there will be no new project launches in the next quarter, he expects demand to outstrip supply, hence stabilising prices somewhat.

Fortunately for Malaysia, while much of the world (US and Europe especially) is reeling from the crisis with asset values yet to see a bottom from a free fall, there has yet to be a visible deluge of distressed assets for sale, owing much to the country’s resilience.

“Some foreigners may be selling at distressed prices but local vendors are holding strong. And despite the correction, prices of residential property in the KLCC area have not plummeted like those in more expensive markets. Coupled with demand from opportunistic investors looking for good bargains, there will still be a flow of transactions to sustain property values,” Yap opines. “The appetite for good value buys is pretty much the same,” he adds.

Christopher Boyd

There are also other plus points that the property sector can bank on, says ReGroup Associates Sdn Bhd executive chairman Christopher Boyd, citing declining interest rates which increases buyers’ affordability – a definite boon for the sector. “Values are way below those of comparable properties in most other cities in the region. There is still an influx of expatriates and as far as I know, there is a long waiting list at the expatriate schools,” he quips. On the other hand, he says foreigners who want to cash out may be willing to cut their asking price to make a quick exit.

Noteworthy is that while Malaysia is on the radar screen of international real estate investors, 70% of property purchases in the country are by Malaysians, which YY Property Solutions chief executive Y.Y. Lau deems as positive. “This is a blessing. Local buyers are more resilient and will not liquidate their positions in a hurry like their foreign counterparts.”

She says the market’s performance depends on a few factors, including the reputation and financial strength of developers and the investment objectives of potential buyers.

“If a developer is positive and has deep pockets, has projects in choice locations and offer quality and well sought after property products, he can sit tight and weather the current unfavourable situation and come out a winner when the market stabilises and scale new highs,” Lau says.

She admits that certain groups from South Korea and Britain have deferred their purchases while others who own existing properties are trying to unload given the severity of the crisis. In addition, due to the worsening property overhang in the Middle East, there is a marked fall in demand from Middle Eastern buyers for local properties since the last quarter of 2008.

To woo foreign buyers, several developers have been holding road shows abroad in countries such as South Korea, Japan, Britain, China and India to take advantage of the competitive pricing. Zerin’s Yap says the establishment of Malaysia Property Inc to promote Malaysia as a property investment destination will definitely heighten interest among foreigners.

“We expect property around the KLCC area to be the biggest beneficiary from this initiative,” Yap says.

By The Star (by Angie Ng)

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