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Saturday, May 5, 2012

Where is the market heading?

An aerial view of Damansara Heights. There is a clear profile between the buyers of new expensive locations versus the established locations like this area, Bangsar and Bukit Tunku.

As one scans through the classified advertisements, a bungalow in Sg Long, Cheras, about 20km from the city centre, is advertised for RM3mil. In Kepong, Kuala Lumpur, terraced housing with built-ups of between 5,000 sq ft and 6,000 sq ft, which is about the size of semi-detached units, in a gated and guarded community were sold for between RM3mil and RM4mil. Corner units are priced about RM5mil.

In the high-rise residential sector, the situation is the same. The prices in the same gated and guarded environment is advertised at RM650 per sq ft. In Ara Damansara, a new project is priced at RM700 per sq ft. On a per sq ft basis, the prices of new properties located in the peripherals are creeping up to match the prices in older and sought-after locations like Bangsar and Damansara Heights, one of the most upmarket residential areas in Kuala Lumpur.

The above situation may be the answer why sales of new launches are a bit slow today, as some developers have discovered as they take their launches to the market. This is particularly so for those offering high-end residential category, both landed and high-rise.

Property professionals say there are a couple of reasons for this wait-and-see attitude by buyers.

Mani: ‘The sellers do not realise that when they hit a certain price tag, the choice opens up.’

Valuer and property manager Datuk Mani Usilappan of Mani Usilappan Chartered Surveyors says buyers are still digesting the hefty price rise of the last couple of years.

But while that is still going on, something else is happening and that is the pricing of today's new launches, says Mani in a telephone interview.

“I can understand why prices in Bangsar are between RM700 and RM800 per sq ft, I don't have the answer why prices in the peripherals are RM600 per sq ft and above. I want to know, and I am sure others also want to know. We have never come across the situation that we are in today, and we, as valuers, also want to know the answer,” he says.

He says many of today's new launches are way above the secondary market. The price of new launches today should be closely linked to the secondary market in that area.

“The prices of new launches are to have a close relationship with the secondary market. But today, the primary market prices seem to be higher and the secondary market seems to be moving lower.”

He says in Kajang, a new double-storey is priced between RM400,000 and RM500,000 while the older units are less than RM400,000. “The house may be new, but why would anyone want to buy something off plan at that price when he can buy something priced lower and which is already built?”

This may be the reason why people are taking a longer time to decide whether to buy or not. And when they do buy, it is because they need a house in that location to stay. For those who are buying to rent, he does not think the rental will justify the price. Mani, however, adds that there are quite a number of people who are looking for capital gains, and no longer at yields, and may still buy.

A property consultant who declined to be named says when prices of new properties in the peripherals creep up to match the pricing in Bangsar and Damanasara Heights, buyers who have that kind of money have a lot more choices.

“Once you hit that line and above, developers, or sellers in the secondary market, are creeping into somebody else's market that is better located and is more prestigious.

“A developer may be offering a new house but why would anyone who have that sort of money want to drive through hundreds of condominiums to get to his bungalow? It may be a new house, but to people who have that kind of money, new is not an important factor. The most important factor is still location,” he says.

He says there are pockets of bungalows which are RM3mil and RM5mil and located far away from the city centre and he finds such pricing incomprehensible despite the house being new or beautifully renovated.

On developers who justify their pricing because of the guarded and guarded features, he says this is a concept being sold today, but the over-riding factor is still location.

“A guarded and guarded community may have a 20% to 30% premium, but it will still open up the minds and choices of potential buyers, that he now have a choice in Bangsar or Damansara Heights. The basis of pricing depends on location, not concept,” he says.

“Once you hit RM3mil to RM4mil in some peripheral locations, you (be it the seller or developer) are in trouble, as banks will not support such valuations.”

He says there is a clear profile between the buyers of these new expensive locations versus the established locations the likes of Bangsar, Damansara Heights and Bukit Tunku (Kenny Hills).

“The buyers are young and most of these newer locations do not have a history. They tend to take huge loans compared with buyers in Damansara Heights and Bangsar who are older, and who opt for smaller loans,” he says.

On the slow sales even in the secondary markets like Bangsar and Damansara Heights today, he says the market is saturated. Traditionally, locations like Damansara Heights, Bukit Tunku and Mont' Kiara are the preferred choices of the expatriate community but many of them have left. Coupled with that are the new pockets of developments in these upmarket areas as well as new ones in KL Sentral.

“Bangsar, KL Sentral and Damansara Heights are all within close vicinity of each other. The properties launched in KL Sentral may be different but it is still properties. There are just too many new developments being launched today, and there are only so many young people in town to take up these new launches as well as the older ones,” he says.

He reckons the same situation is happening in Cheras, where new units are priced higher than older ones. A semi-detached is priced at RM1.5mil to RM2mil, the reasoning is that a bungalow should be between RM3mil and RM4mil.

“The sellers do not realise that when they hit a certain price tag, the choice opens up and the potential buyer will think at that price, he may as well live in Bangsar or Damansara Heights.

Foo: 'It would be commendable if they are able to sell 50 % of them (high-end landed units).'

Property consultant C H Williams Talhar & Wong MD Foo Gee Jen says the cautious attitude of buyers are reflected in some ways by the developers themselves.

“If you look at launches of high-end landed properties, these are few and far between. The number of units released are also small, maybe between 50 and 80 units. It would be commendable if they are able to sell 50 % of them,” says Foo.

He says in the high-end high-rise residential sector, there is an oversupply which explains why buyers can afford to look around. If you look at the past six to nine months, there is a trend that the sales is weakening. The seller who is asking for RM1mil is now asking for RM900,000.

“Six to nine months ago, it was the reverse, sellers were pushing prices up. In some locations, the price of new launches are higher than the existing properties.

“People are beginning to ask: why do I need to buy something off the plan when the ready units are almost at the same price as the new launches?”

He concludes: “Buyers have become more educated and cautious.”

He says the this situation of slowing sales is not helped by tenants moving from the older condominiums to new ones at the same rates of rental as this creates quite a bit of vacancy and bring down the yield, he says. The price of a house depends on the yield and household income.

Another reason for the slower sales is financing as banks lend according to valuation and these valuations may not be according to market rate, says an agent who declined to be quoted.

As to the direction of the housing market, all of them say buyers will wait for the election if their intention is to invest.

By The Star

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