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Saturday, February 13, 2010

Challenging times for condominium segment

There is an oft-quoted line: what goes up, must come down. With the anticipated recovery in the property sector, the focus now turns to the condominium market. Over the last decade or so, this segment has increasingly become a very big sub-segment of the property market.

The overall perception today is that there is a general oversupply of condominiums and serviced apartments. Because of this overhang of more than 90%, the market is expected to be rather challenging this year.

According to the National Property Information Centre (Napic), in the last 24 months the oversupply exceeded 90% for both the luxury and non-luxury category. This is significant when compared with other sub-segments of the property market, namely detached units (zero overhang), semi-detached (1%) and terraced housing (3%).

Henry Butcher Marketing Sdn Bhd chief operating officer Tang Chee Meng says if one were to look at the stock of residential properties coming onstream, the bulk in Penang, Selangor and Kuala Lumpur are condominiums. Because land is scarce, developers are trying to maximise land use.

In a recent talk on the luxury condominium market, he says his main concern is the oversupply in KLCC and Mont’Kiara. Tang is focusing on the luxury segment of RM700 per sq ft and above.

He says there are difficulties in renting out the larger units because there is a scarcity of expatriates.

The number of skilled, trained and professional foreigners entering the country has been dwindling since early last year. Although the situation may reverse, for the next year or so this seems unlikely.

There are other issues haunting this segment. The recent return of the real property gains tax (RPGT) and a possible future increases have also resulted in wary resignation.

Incidentally, sales of luxury condominiums were boosted by the suspension of RPGT in 2006. Besides the RPGT, the possible rise in interest rate is another cause for potential buyers to be more circumspect.

Investment options

At the global level, the weak and uncertain economic situation has also lowered the level of interest among foreign investors.

“There are more attractive investment options offered by overseas properties where prices have dropped more significantly and currency exchange rates have become more favourable,” says Tang.

He says although some have reported that up to 40% of their units have been sold to foreigners, the percentage of Malaysia’s properties bought by professional foreigners is actually less than 3%, taking into consideration the middle and high-end category.

“Some of them have been living here for many years. They are not speculators or investors. We are not seeing foreign investors coming back in a big way. Most of the buying is done by locals at the moment and they go for smaller units so the large units are difficult to sell. They also prefer to buy units that come with tenants,” he says.

He says the completion of several new projects in the KLCC area has also put further pressure on occupancy and rental rates.

There are luxury condominiums in other locations like Bangsar, U-Thant and Damansara Heights but they do not boast such massive numbers. Tang, therefore, expects the market in Bangsar and Damansara Heights to recover fast.

Giving an overall picture of the situation around the KLCC and Mont’Kiara area, Elvin Fernandez, managing director of Khong & Jaafar group of companies, says the KLCC and Mont’Kiara condo market is high-end that appeals to modern singles or households that prefer city centre living that one may buy to stay or to invest in. City centre living is a growing long-term trend as opposed to the suburban living. Notwithstanding that broad trend, the micro factors insofar as Kuala Lumpur’s high-end condo is concerned, the financial crisis has rocked this market quite a bit.

“Although many believe the global crisis is behind us, equally as many believe the issues and problems that caused and came with the crisis will continue to impact us as we go forward.

“City centre condos are presently pressured by low rental yields of below 5% net. That is not sufficiently attractive as it ought to be more than 5% to commensurate with long term and sustainable risks in the hierarchy of risks within and outside the property market,” he says.

Suburban condominiums, on the other hand, are higher density substitutes for landed properties.

Landed properties are preferred and the low initial net yields reflect this, but with the scarcity of land in suburban areas, particularly just outside the city centre areas, higher density housing is an increasingly acceptable substitute.

The pricing and returns of suburban condos will follow the substitute landed except that a slightly higher risk will prevail and this will translate to a higher expected net yield.Higher yield also means a lower unit value.

While net yields for landed houses in prime locations may be 2% to 3% net at present (they ought to be moving to higher numbers going forward) the long-term sustainable net yield for suburban condos should rightly be about 6% net and above.

Change in conditions

Taking the cue from the current market conditions, over at Mont’Kiara, Sunrise Bhd being the biggest player there, says it will not be giving emphasis to large units of 2,000 sq ft and above.

Incidentally, these two locations – KLCC and Mont’Kiara – have come under scrutiny because of their sheer numbers which go into several thousands.

Says Sunrise executive chairman Tong Kooi Ong: “The profile of the Mont’Kiara resident has changed. The old strategy of selling to Malaysians and renting to a professional foreigner worked many years ago. It will be a sunset industry if we follow this strategy today and this is obvious if you look carefully at the tenancy market.”

“There is a shift in the expatriate population and this will affect the property market. The average occupancy is 75% in Mont’Kiara. Now it takes about two years to fill a condo; last time, we could have filled it up faster. Our buyers have become residents themselves. If you cannot get RM15K a month, why buy a RM3mil unit? The guy who buys a RM3mil unit is not renting it. He is buying to stay,” he adds.

At its peak, owners have reported exuberant yields of double-digit with 9% being on the conservative side. Today, the yield has dropped to about 5%.

Known as a one-product, one-location developer, Tong says the company will be going into different locations offering different projects from now on. It recently signed a joint venture with the Sime Darby group to go into commercial development in Bukit Jelutong, Shah Alam. The company has secured more than 50% bookings, valued at about RM500mil, when it launched condominium project MK 28 in December last year. The average selling price of RM785 psf was also higher than expected. Tong says the company will continue to develop MK 20 and 22, both condominiums, in that area later on.

S. K. Brothers Realty (M) Sdn Bhd general manager Chan Ai Cheng says Mont’Kiara is very developed. The appeal here is the international schools. In light of the number of completed projects of late, she is aware of unit owners in certain projects there who are facing challenges in securing tenants and had to reduce rentals after the units remained untenanted for close to a year.

“Generally, it would seem like supply outweighing demand. However, not all units are facing the same challenge,” she says.

The U-Thant area will have its niche appeal and following while KLCC properties will tend to be more speculative as they attract not only locals but foreigners as well, although, for the time being, the foreign market has dried up.

On the other hand, the Petaling Jaya condominium market appeals more to locals and this will continue to be mainly a family-based, owner-occupier market.

“PJ properties are seen to be resilient because of strong local demand. Some projects are thriving and are in hot demand while places like Pavillion Residences keep raising prices. Selected established condominiums like Hampshire Residence remain well occupied,” she says.

The Selangor Dredging group, which recently launched the second phase of Five Stones, has an overall take-up rate of 66% for the 192 units in Block D and E. Over at Damansara Perdana, if there is no issue with leasehold, Chan says it is possible to get units at attractive prices and there are many options to choose from. As more projects enter the market, developers will have to keep improving. We are already seeing this in Ara Hills, by Sime UEP group, which have provided a high-voltage perimeter fencing as an added safety feature, she says.

By The Star (by Thean Lee Cheng)

Super-niche projects still drawing buyers

An indoor shot of the living room area at Zephyr Point on Basong

The local high-end residential property segment seems to be making quite a comeback, with developers eagerly launching their projects and some already raking in quick sales.

Last month, Urban Hallmark Properties Sdn Bhd (UHP) previewed its Zephyr Point on Basong in Damansara Heights, a niche high-end residential development comprising just seven units – three penthouses and four villas.

The three-level villas have built-ups ranging from 8,000 sq ft to 10,000 sq ft while the three penthouses sized from 10,000 sq ft to 12,000 sq ft are spread on a single level.

The project is expected to be launched between April and May, with the final purchase price of the homes to be determined then. However, with an indicative pricing of RM1,200 psf, each unit is expected to fetch a cool RM10mil onwards.

UHP managing director Datuk Jeffrey Ng says as the company was targeting high net worth individuals and corporations, price would not be an issue.

“The main issue here is whether they perceive the purchase is a value buy at this point in time and whether they are convinced that the property will enjoy capital appreciation in the future.

“Undoubtedly there will be demand for the super high end properties due to scarcity in prime residential locations,” he tells StarBizWeek in an e-mail.

Ng says the high net individuals it was targeting comprised local upper class Malaysian buyers from surrounding locations or even expatriates.

“When comparing the pricing of properties within the same region such as Singapore, Hong Kong, Bangkok and Jakarta, property prices in Malaysia are still considered very cheap and provides a good investment opportunity.”

Ng says UHP was also in the process of appointing foreign real estate consultants to target our local expats who plan to return to Malaysia soon.

On how quickly he expects the homes to be taken up, Ng says: “We would expect the properties to be sold at a conservative pace given the price point and the profile of buyers targeted.”

The Zephyr Point homes come with low emission laminated/ tempered glazing glass (for areas facing west only); the use of heavy duty commercial grade aluminium windows and full height sliding doors; salt water infinity pool; salt water spas (in the Villas) and a fully equipped gymnasium.

The homes are also wi-fi ready, have fully ducted air-conditioning and come with a private lock-up garage as well as a drivers waiting lounge. Each unit comes with a private home office sized between 300 sq ft and 500 sq ft, located on a special dedicated floor known as Breezeway. The Breezeway also hosts the residents’ function lounge and entertainment foyer, overlooking a fully equipped gym and infinity pool.

Given the super high price of the homes, one still has to beg the question as to whether people will still buy – given that the world is still recovering from a global economic turmoil.

Ho Chin Soon Research Sdn Bhd director Ho Chin Soon says there would always be purchasers for super-niche projects.

“There are always people that can still buy and given that there are so few units (at Zephyr Point), the developer will already have the people (buyers) in mind.”

Ho says it was more than likely that the purchasers would buy the properties for themselves rather than rent them out.

“At RM10mil, you can imagine the cost of rent. Who’s going to pay so much a month?”

Knight Frank Malaysia executive director Sarkunan Subramaniam concurs that there would always be purchasers for niche, high-end products.

“The super rich are not affected by economic times. They usually have their investments well protected and in a downturn, they become a lot more prudent in their spending. When the time is right, they will know when to buy. Of course, location (of properties) is critical and the Damansara area is a good location.”

Sarkunan also said chances of the homes being quickly snapped up were also dependent on whether the project was by a reputable developer.

Another high-end development that has seen promising take-ups is Planet Uno Sdn Bhd’s Seputeh Gardens, which will comprise 42 units of bungalows are scheduled for completion before the end 2011.

Priced from RM4.1mil to RM6.8mil, Seputeh Gardens managing director Liew Tze Yong says more than half of the homes were pre-sold even before their launch on Jan 16.

“Out of the total 42 units, 33 units were sold on the second day of the launch,” he says.

The homes are targeted at professionals, chief executive officers, and business owners, says Liew.

Each of the units has seven to nine rooms, including a study and a maid’s room. All bedrooms also come with attached bathrooms. Each home also comes with two kitchens and a laundry area.

The low-density homes come with spacious gross built-up areas ranging from 6,038 sq ft to 8,878 sq ft and land areas ranging from 4,500 sq ft to 8,200 sq ft.

Seputeh Gardens is situated at the intersection of major highways namely the Federal Highway, the New Pantai Highway, KL-Seremban Highway and also the East-West Link.

Liew says the success of the local high-end segment was dependent on location and “good architecture detailing and materials.”

The company, which is best known for its Gita Bayu development, is also studying the possibility of other high-end, niche residential projects and potential joint ventures.

By The Star (by Eugene Mahalingam)

Projects need to get moving to meet high-income goal

Competition among countries and corporations in various parts of the world is set to pick up steam in the bid to power stronger growth after the dreary past two years.

From Singapore to China and Dubai, new iconic projects are being added to drive higher value add to their economy.

Singapore’s two integrated resorts – Resorts World Sentosa and Marina Bay Sands – are set to make big waves and take a big bite of the lucrative gambling and tourism market.

Genting Bhd’s Resorts World Sentosa will open its casino to the public tomorrow in time to capture the holiday crowd over the Lunar New Year holidays. Universal Studios Singapore will open to the public in early March.

The Marina Bay Sands by Las Vegas Sands Corp has targeted for an April opening.

Malaysia has also targeted at the services-related sector to steer its economy up a few notches.

But to date there are still no specific projects that have been drawn up to promote higher growth in the services sector. It is about time to do some serious thinking and get the projects moving if it is to meet its high-income and economic growth aspirations for the people.

That will need a lot of thinking out of the box and not just leveraging on the existing assets and resources.

Tourism is certainly one of the most lucrative and high potential growth sectors for the country but there is a need for newer products and destinations to be introduced.

We can perhaps look at some interesting arts and lifestyle centres that promote Malaysian arts pieces, handicraft, performances, and culinary delights.

To be successful, these places should have the magnetism to awe visitors with their charismatic charm, unique design and ambience.

Having more iconic landmarks like the Petronas Twin Towers will also be able to do wonders for the city’s landscape and attract more visitors.

Most importantly, these projects should be functional and can add value to the people.

There is quite a long list of such places and projects dotting various parts of the world today. Most of them are steeped in history while a number of them are newly built structures.

Quite a number of these buildings are among the world’s tallest – Taipei 101 in Taiwan, Harmony Tower Shanghai and our own Petronas Twin Towers. The current world record holder is Dubai’s Burj Khalifa at 160 storeys high.

But not all are skyscrapers. Sydney is well known worldwide for its Opera House, and Harbour Bridge.

Some are just simple buildings within a unique environment like Shanghai’s popular tourist landmark, Xindianti that used to be an old community neighbourhood that has been given a new lease of life.

In fact, some parts of Malaysian cities including Kuala Lumpur, Petaling Jaya and Penang have grown quite dreary and old.

They certainly can do with some revitalisation and a new lease of life.

With effort and creativity, they can assume multiple uses during their life span. Old buildings can be remodelled and put to new uses.

There are many old buildings that are either government or private owned that have been left deserted after the tenants moved out.

Rather than let them languish and degenerate, these old buildings should be given new lease of life or be redeveloped to add value to them.

If properly planned and executed, they can generate many new economic activities and revitalise the older parts of the cities.

Many of the buildings have been built centuries ago and have survived a long legacy and history. They provide an invaluable insight into the rich culture and practices of the people during those early days.

It is important to have well thought out restoration plans for them to capture their past glory and turn them into viable places of interest that blend well with the present environment.

Deputy news editor Angie Ng appreciates the legacy of many of the old buildings in our cities and hope we may soon have our own Xindianti-equivalent to showcase to the world.

By The Star (by Angie Ng)

Sunway City contract

SUNWAY Holdings Bhd’s construction outfit, Sunway Construction Sdn Bhd, has won a RM21.5 million contract from Sunway City Bhd to build 100 units of 2-storey cluster homes and a TNB sub-station at Seksyen U10 in Shah Alam, Selangor.

In a filing to Bursa Malaysia yesterday, Sunway said the project, which is expected to be done by August 1 2011, will start contributing to earnings from this year.

The project is a related party transaction as Tan Sri Dr Cheah Fook Ling is a director and major shareholder of Sunway and SunCity.

By Business Times