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Wednesday, December 9, 2009

Property overhang raises concerns over viability of new mega projects

PETALING JAYA: Some analysts and property consultants say the development of mega property projects in the nation’s capital, worth billions of ringgit, may provide abundant jobs for players in the construction industry, but note that these projects could be detrimental to the property market in the long term if not implemented properly, and especially if the take-up rates are slow.

It is reported that mega development projects would take place at Dataran Perdana in Jalan Davis, the area surrounding Merdeka Stadium and the vicinity of the Matrade Centre in Jalan Duta.

A property analyst with OSK Research said the mega projects, including the proposed 100-storey skyscraper near the Matrade Centre bordering Jalan Kuching and Jalan Duta, would negatively impact the property market.

“The property market is still in an oversupply position, especially in the high-end sector in the Kuala Lumpur city centre,” he told StarBiz.

The analyst said mega property projects like the proposed 100-storey skyscraper near Matrade should have due considerations to ensure satisfactory occupancy and take-up rate, and that they are built within the set timeframe to ensure return-on-investment targets are met.

“The approved mega projects and proposed high-end mega projects are in decentralised locations that may not have the population and infrastructure to support the huge development,” the OSK analyst said.

Although the area near Matrade has a certain level of affluence, as it is located close to Bukit Kiara and Sri Hartamas, it remains questionable whether the population, road access and infrastructure are sufficient to support the mega development.

“For the 100-storey skyscraper to be feasible, it would require significant Government commitment and support, possibly even funding to develop the required infrastructure such as roads, tunnels, bridges and highways to ensure the project is a success,” the analyst said, noting that “so far we have not heard of any major Government commitment for these projects.”

Another local property analyst said with the current property overhang, perhaps the priority should be to address the situation, especially unsold properties in the high-end sector.

“We are not saying that mega projects should not go ahead in this current environment (property overhang), but they should be carefully selected and implemented to ensure these projects do not adversely impact the property market, particularly when the market is still recovering,” he said.

Amy Chung notes that current demand for prime properties in the city is in the ‘affordable’ segment.

Amy Chung, a real estate property agent who specialises in selling and renting prime properties in the Golden Triangle area in Kuala Lumpur, noted that the current demand for prime properties in the city was in the “affordable” segment, and the recent Dubai debt crisis had exacerbated the demand for high-end properties.

“Even foreign investors from the Middle East are now opting to buy more affordable and smaller properties here,” she said, adding that some developers were now risk averse, choosing to build fewer high-end units and only in strategic locations where they were confident of sales.

Chung said the property sector was market driven and developers and government planners of high-end mega property projects should take note of this fact.

A local property consultant concurred with Chung, saying that any mega property project worth billions of ringgit must be well planned and carefully thought through.

“Many of the prime properties in the city are bought for investment by individuals and institutions expecting attractive yields and favourable capital gains over time.

“Currently, we still have an oversupply of prime properties, especially in the high-end segment, that do not give the expected yields. As such demand for such properties is low,” he said.

And with more high-end mega property projects expected to come onstream, the current oversupply position would get worse and likely depress the prices of properties that are currently unsold and even affect rental prices, according to the local property consultant.

“We believe there is a need to perform a comprehensive impact assessment on the Malaysian property market before any funds are used to finance mega high-end property projects worth billions, which may very well end-up as white elephants,” he said.

He added that the fall in property prices in Dubai was a lesson for everyone, including Malaysia, noting that the prices of prime properties in Dubai had fallen 50% or more since the debt crisis.

The property consultant also criticised the banks that had funded the Dubai projects, questioning whether they had performed sufficient due diligence on the commercial viability of the projects.

By The Star (by Danny Yap)

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