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Saturday, March 7, 2009

Property market the first to be hit by downturn and the last to recover

Malaysia’s property market is set to enter tougher months ahead, as the negative sentiment from global real estate market hits the nation’s shore.

That is the overall view shared by industry players at the recently-held Rahim & Co seminar 2009.

The one-day event covered a wide range of topics on the domestic economy and property market and included prominent speakers such as economists, former government servants, valuers and property consultants.

Malaysian Institute of Economic Research (MIER) projects Malaysia will have 50% chance of full-year recession this year and is quite certain that the country will dip into technical recession in the first half of this year.

MIER executive director Prof Datuk Mohamed Ariff Abdul Kareem expects the domestic economy to return to normalcy only in two to five years.

He opines the world may witness further economy deterioration, as he sees more companies will collapse within six months times.

He says that typically the property market is the first to feel the strain during an economic crisis and, unfortunately, the last to recover.

Prices trending downwards

As an open economy, Malaysia is not spared from the global financial crisis as well as property market meltdown. Since late last year, the domestic property market has started to show signs of weakening.

Rahim & Co executive chairman Datuk Abdul Rahim Rahman says Kuala Lumpur City Centre’s (KLCC) high-end condominium is heading towards a 15%-20% price depreciation in two to three months.

He says buyers are looking for more realistic pricing, reflecting the current conditions. In a worst-case scenario, he is projecting up to 30% drop in prices over that period.

Average price stands at RM1,500 per sq ft in KLCC presently. In other suburbs such as Bangsar, Damansara Heights and Cheras, he predicts a 10%-15% decline.

Abdul Rahim tells StarBizWeek that rental of office space in KL should not be affected at least until the end of the year but he expects prices to come down after that.

“If I am in the KLCC area, I want to save a little bit of money due to the downturn. I will downgrade my office, which I will reduce from RM8 to RM6 per sq ft. So, the KLCC landlord may have no choice but to reduce by 10% to 15% (to prevent the tenant moving out). But at this time, the rental rates are maintained,” he elaborates.

There will be additional 8 million sq ft of office floor in KL by 2011 or 2012. Currently, the rental rates at KLCC and the KL vicinity are between RM6 and RM8 per sq ft and between RM4 and RM6 per sq ft respectively.

Retail scene

On the retail sector, he says Malaysia is fortunate as there are not many retail centres being planned now or coming on stream. Thus, he says retail space is mostly occupied and rental rates have been maintained. However, he points out that the segment may witness a downtrend should the unemployment rate rise.

Abdul Rahim says the commercial sector is least affected now, but in the long-term, affordable housing will be the least affected by the crisis, as people still need a house to stay in.

Ho Chin Soon Research Sdn Bhd managing director Ho Chin Soon advises developers not to be unduly concerned about the external factors such as interest rates and global economy but instead concentrate on their branding.

No matter what the economic cycle is, there are always buyers out there, he says, citing SP Setia Bhd’s recent RM300mil sales which it had chalked up in less than two months largely owing to its financing package promotion.

He concurs with most of the consultants that KLCC high-end properties are seeing a correction now.

“I saw this notice on the sale of a KLCC Marc Residence – “Financial crisis, desperate seller, asking price RM960 per sq ft”, but assuming he sold at RM900 or RM850 per sq ft, he still makes profits if he had bought from the developer for RM650 per sq ft. But the ones who bought at RM1,000 per sq ft and sold at RM800 per sq ft, will be making losses,” he says.

However, he notes that the number of such transactions are few and far between and that the real picture will be revealed by the National Properties Information Centre in a report scheduled to be released in April this year.

The United States’ economy is the backbone of world economic stability.

As such, consumer confidence of the property market will only be restored once the US stabilises.

“The US is in recession but once it stabilises, it will be good news,” says Ho.

Meanwhile, Real Estate and Housing Developers’ Association Malaysia president Datuk Ng Seing Liong concurs that the current world economic crisis will certainly affect the property market.

He expects the sector to trend downwards by 5% to 10% this year.

“There will be definitely a drop in terms of demand and prices but the situation in the country is still under control,” he tells StarBizWeek.

Good time to buy

Ng says this is a good time to buy houses as property is always a good investment.

“We hope that the next stimulus package will bring some goodies to this sector to spur sales and generate economic growth,” he says.

International Real Estate Federation Asia Pacific executive director Yu Kee Su says generally, the prospects of the property market is not so bright but compared to other countries, it is holding steady in terms of pricing.

“Certain areas like Bandar Utama for example is still stable and there has been no drop in prices,” he says.

He feels many developers will scale down their launches as he expects the slowdown to last up until 2010.

By The Star (by K.C.Law & Edy Sarif)

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