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Wednesday, September 16, 2009

Good Time To Invest

PETALING JAYA: The number of condominiums mushrooming within Mont’ Kiara and KLCC may have caused the suppression of market rental yield (net), but this does not necessary indicate bad news from many investors’ point of view, says executive director of Regroup Associates, Paul Khong.

Khong: A lot of condos are now trading close to developers’ prices...if you could get a 30 to 40% discount on the purchase price, there is a good chance of capital appreciation

“Firstly, investors who purchase the KLCC and Mont’ Kiara condos are more driven towards capital appreciation rather than looking at the fundamental of rental yields; same theory for people who prefer to buy landed properties,” he adds.

Secondly, condo prices have dropped around 10% to 20% and 20 to 30% among luxurious condos within Mont’ Kiara and KLCC respectively as compared to its peak between the second and third quarter in 2008,” says Khong, while noting less price drop of around 10% among condos located in other areas such as Petaling Jaya (PJ).

Sarkunan: I believe it is the right time to scout around for good buys especially in October and November before prices start picking up at a faster rate

Sarkunan Subramaniam, executive director of Knight Frank Malaysia concurs: “The rental yield performance will not affect much on the buying mood among investors who are keen to buy condos located at both KLCC and Mont’ Kiara areas as majority of them purchase in anticipation for bigger gains in future capital appreciation”.

Regroup’s Khong also says that the slight market rally which started around 3 months ago has seen property prices moving up slowly with less fire sales and availability of good buys as compared to the first quarter of 2009.

“A lot of condos are now trading close to developers’ prices and if you could get a 30 to 40% discount on the purchase price, there is a good chance of capital appreciation.

“It all boils down to your entry price versus the transacted price - if your entry price is high, chances are the capital appreciation will be limited,” Khong notes.

Knight Frank’s Sarkunan adds: “Personally, I think we have reached the bottom somewhere around the second quarter of 2009, and I believe it is the right time to scout around for good buys especially in October and November before prices start picking up at a faster rate.

The prices for the KLCC condos have easily dripped around 30% to 40% since late 2008. Today, condo prices are correcting to a reasonable level. If you are buying 30% to 40% below the peak market price, it is considered a good buy,” says Sarkunan.

Based on Regroup’s research, Khong says the Mont’ Kiara/Sri Hartamas and KLCC areas currently contribute around 50% of the total number of luxurious condominiums (RM350 psf and above) in Klang Valley.

Besides that, he says Regroup’s statistics also show that in the next few years, new condos smacked in Mont’ Kiara/Sri Hartamas and KLCC areas will consist 57% out of total new luxurious condos supply in Klang Valley with 26% and 31% contributed by Mont' Kiara/Sri Hartamas and KLCC respectively.

“The current supply for luxurious condos totals 7,500 units within Mont’ Kiara and Sri Hartamas, and future supply amounts to 5,800 condos,” says Khong.

In KLCC, Khong says the current supply of luxurious apartments and condos with RM350 psf and above collectively amounts to about 5,700 units while another 5,000 units provided by 18 projects are expected to pour into the market in the next 2 to 3 years.

In terms of rental yield, where its performance for every condo differs, Sarkunan reveals that data from his research suggests condos yield in Klang Valley has generally increased marginally at about 1% higher now as compared to September 2008.

“In good times, yield may be lower as the anticipation of capital appreciation is higher- i.e. many investors are willing to bear with lower rental and yield as they expect high capital appreciation in future. But this situation has somehow reversed as the economy is not as good as compared to those booming days, therefore, we are seeing a marginally higher yield now,” Sarkunan says.

Sarkunan cites condos located in Bangsar currently generates yield at around 4.5% per annum, where as the sub-urban areas such as Cheras, Petaling Jaya (PJ) and Subang are currently generating yield of 5% to 7% per annum.

Meanwhile, in KLCC, condo rents started to decline around 30% since late last year, while its rental yield stands at about 4% per annum, says Sarkunan.

On the other hand, Khong says the current yield for Mont’ Kiara is around 3% to 5% per annum and there are cases where existing tenants have moved out from the older condos to newer ones in Mont’ Kiara, for the same rental.

Khong also notes that substantial supply of condos within an area will eventually cause a lower rental due to stiff competition in the surrounding areas.

“Although some landlords of condos in prime areas have reluctantly slashed their asking rents by 50%, they are still unable to find any tenant. This tactic to attract tenants caused a lower yield in the rental market within that specific area,” says Khong.

By The Star (by Venus Hew) (Posted on 15 Sept 2009)

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