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Saturday, August 1, 2009

Rising appeal of terrace property

A new trend is emerging in the property sector. Prices of many intermediate terraces in new townships have breached the million ringgit mark on the back of rising demand for these properties. And it is worth taking note particularly because these terrace homes are in areas nowhere close to being considered prime 10-15 years ago.

Driving home this point further is the Sri Tanjung Pinang project in Penang developed by Eastern & Oriental Bhd (E&O) launched two weeks ago; it managed to sell all its intermediate terraces and the highest price achieved was RM1.52mil.

Talks with realtors and industry experts reveal that one of the first million ringgit terrace in a new location was spotted at Kuala Lumpur’s Desa ParkCity (DPC) in 2008, followed by Petaling Jaya’s Mutiara Damansara (MD) in early 2009.

Noteworthy is that this rising trend has persisted despite the global economic recession which has led to a slowdown in Malaysia’s economic growth.

How to build a million-dollar link home

In the distant past, seven-digit price tags were exclusively reserved for super prime areas such as Damansara Heights and Bangsar.

Today, such premium prices are being fetched in areas which have historically never been deemed prime.

Metrohomes Sdn Bhd director See Kok Loong says credit should go to the three developments – Desa ParkCity, Mutiara Damansara and Sri Tanjung Pinang – for turning non-prime land into an address that home owners want to be associated with.

These developments share some common features – they involve an area large enough for a master-planned neighbourhood. This, says an industry observer, is key as it avoids having developments that conflict with each other within the same development, for instance heavy traffic commercial development in a low density residential section.

Secondly, these developments have dominant lifestyle themes such as sea-front or lakeside living. Having a lifestyle-driven commercial development such as a marina or box-concept shopping malls (for example warehouse-type one-stop shop Ikea, Ikano and Tesco) quite clearly increases the appeal of a property project.

In addition, the market seems willing to pay premium capital values and monthly service charges for units that are more spacious in low density and secured neighbourhoods with club facilities such as pools and gyms.

The gated appeal

KGV-Lambert Smith Hampton’s director of valuation Anthony Chua explains that price appreciation of terraces in Mutiara Damansara and Desa ParkCity has been faster than the more established Bandar Utama, largely because they were one of the first to introduce the gated community scheme.

“Older terrace estates are not designed to be gated and have too many entry points. The developer offered the buyer a lifestyle concept, whether it’s sea fronting or lakeside living,” says Chua.

Hence, the buyer gets the best of both worlds. They get to stay in a landed property, but enjoy condominium facilities.

For that reason, the price appreciation for intermediate terraces in these areas have been remarkable, far surpassing the national average of 3%. Desa ParkCity has seen prices go up by 14% per annum, Mutiara Damansara 10% pa and Seri Tanjong Pinang by 12% per annum while the units in Bandar Utama have appreciated by merely 5%.

Managing director and regional head of equity research at AmResearch Benny Chew says properties in these areas have reached prime area status. “Most of the developer’s land in these prime areas are getting very limited, hence the effective physical supply is lessening. This mismatch will cause prices to increase.”

HwangDBS Investment Management Sdn Bhd Head of Equities Gan Eng Peng says there will come a time when we can no longer expect to buy a terrace house for under RM1 million.

“As in more developed countries like Singapore or even Thailand, land prices in the city center start range from RM2,900 to RM4,900 per square feet (SGD1,200 at current exchange rate) compared to KLCC properties that are deemed expensive at RM 900- RM1,500 per square feet (psft),” he says.

Gan says that if a developer were to launch terrace houses today with decent security thrown in within central Klang Valley, there will be very strong demand.

“High terrace houses prices are not deterring buyers,” he says.

New cycle?

See says this could be the start of a new property cycle for landed property.

“Personally, I feel the property market is driven by government policies and interest rates. The low interest rates will drive housing. None of the owners are selling. Everyone seems to have holding power. Besides, low cost of funding allows the owners to refinance,” he adds.

He says these homes will set the new benchmark pricing for upper-middle class demand, as old-school developers cannot offer features like a clubhouse and security.

Meanwhile, Chua sees such terraces easily appreciating by 5% to 7% per year. Due to the continuous huge pricing gap between semi-detached and bungalows compared to terrace houses, Chua expects to see more such million ringgit houses coming on board.

Gan explains that the typical investor’s largest asset class tends to be properties, followed by banking deposits and investments.

“If there is no inflation in properties and no million dollar terrace houses, it would be disastrous for the economy. Because that would mean no wealth creation for the typical investors/household largest asset class. Without wealth creation from properties, consumers are less willing to spend. Banks will be less willing to lend as their collateral does not appreciate. Generally, a healthy economy requires higher property prices,” he says.

By The Star (by Tee Lin Say)

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