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Wednesday, March 18, 2009

Depreciating high-end condos

Property prices in KLCC and Mont’Kiara areas could stabilise if economy recovers

PETALING JAYA: Property values of high-end condominiums in Kuala Lumpur City Centre (KLCC) and Mont’Kiara are expected to retrace by up to 20% to 2006 levels by the first half of next year, according to Kenanga Research.

The average capital values of KLCC and Mont’Kiara in 2006 were RM943 and RM466 per sq ft respectively, compared with RM1,128 and RM564 psf respectively currently.

If the Kenanga Research projection is right, this would mean the luxury residential segment in these prime locations could fall by as much as 16% to 20% over the next year, on top of a 6% to 10% depreciation since their peak.

Average prices in KLCC peaked at RM1,291 psf in the first half of last year; for Mont’Kiara it was at RM598 psf in 2007.

However, the research house in its report on Monday said property prices in these locations could stabilise if the economy recovered earlier and/or investors had strong holding power.

The research house also expected selling pressure to accelerate when an additional 11,000 condominium units are completed in the next two years, with 60% of these units in the KLCC area.

It should be noted that the number of people putting up their properties for sale should not be used as a measure of actual transactions.

“With the rental opportunities and capital values in a downtrend, property investors will be pressured to unlock their cash to fund other investments,” it said.

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez said due to the economic downturn, property values at Mont’Kiara and KLCC could return to levels that may be sustained by rental returns.

“How low they will go and whether they will overshoot on the downside will depend on the severity of the downturn, going forward,” he told StarBiz in an e-mail.

Fernandez noted that prices in these locations had appreciated steeply between 2005 and 2007, and to sustain these high prices, the rentals had gone up in tandem.

“But there was a constraint in the charging of rentals simply because the expatriate community was not about to pay or couldn’t afford such rentals,” he said.

OSK Research analyst Mervin Chow expected at least a 20% downside risk and prices to bottom in 2010.

“About 30% and 40% downside (in property value) is a reasonable expectation,” he told StarBiz.

He said KLCC and Mont’Kiara condominium prices had already come off by 10% to 20% since late last year. Some properties in these areas, however, still enjoy capital values close to their peaks last year.

By The Star (by K.C.Law)

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