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Tuesday, 5 January 2016

Why the Kuala Lumpur market is on the cusp | Property Report



With political instability and tougher lending rules hitting the market, the real estate sector in the Malaysian capital is going through a period of relative stasis
A cautionary tale?_Property Report_1
Caution has rarely been part of the lexicon as far as Kuala Lumpur real estate goes in recent years. While markets in nearby Singapore, Thailand and Hong Kong have stuttered, slowed and stagnated, value-for-money prices, high rental yield, favourable investment rules and increasingly sophisticated supply in the Malaysian capital made it prime quarry for buyers.
In the immediate aftermath of the Asian Economic Crisis in 1997, house prices in Kuala Lumpur fell off a cliff, with luxury detached houses slumping 37 percent between 1997 and 1999. Since then, however, the market in the city has been on an often-remarkable upward curve, easily outperforming the rest of the country and even bolstering its momentum in the wake of the Global Financial Crisis, with average residential property prices transacted during 2013 jumping more than 30 percent.
The sense of buoyancy that once marked the city out, however, has been replaced with a sense of hesitancy. This pall has been induced by everything from price disparity to the weakness of the ringgit, uncertainty over Malaysia’s political situation – where support for the ruling Barisan Nasional coalition is crumbling – and the wider global economic outlook.
“The real estate investment market is subdued due to the current economic uncertainties with the ringgit at a 16 year low, the crisis in Greece, rising costs of living and the Malaysian political fiasco,” says Sarjunan Subramaniam, managing director of Knight Frank Malaysia. “All these have had a collective contagion effect on sentiments and people are cautious.”
Perhaps the biggest factor in the current lull can be traced back to the dramatic price rises of 2013. In response the government raised taxes on property sales, while the central Negara bank stepped in to temper a growth in mortgages.
A cautionary tale?_Property Report_2
Traffic passes by the city’s popular Petaling Street
The measures were trailed as a way of curbing rising household debt. Real property gains tax was raised to 30 percent for sales of assets within the first three years of purchase.
Other measures, meanwhile, included capping maximum personal loan tenures to 10 years and that of property financing to 35 years. In addition Negara prohibited pre-approved personal financing products. The government also raised the minimum price of property that could be purchased by foreigners to MYR1 million (USD311,200) from MYR500,000 (USD131,516).
“The fundamentals of the market haven’t changed,” says Christopher Boyd, executive chairman at CBRE (Malaysia). “They are still very solid. It is just that a combination of factors has put something of a dampener on the mood. The restrictions on lending are having a major knock-on impact. The next budget in November will be very important. If the government can tweak the cooling measures in order for buyers to access equity easier, then I think we will see resurgence in the property market. If they don’t, then I can see the flat mood continuing for a while longer.”
Despite the rather downbeat feeling surrounding the market, experts are united in the belief that the Malaysian capital will remain a sound bet for investment in future. There are myriad reasons why KL remains such a desirable place to live. The infrastructure is generally good – although traffic has increasingly become an issue – and the city has all the amenities (malls, restaurants, parks, bars) of a world-class capital. Outside the city, the landscape is equally appealing, especially for lovers of golf with several excellent layouts within easy striking distance.
Several major infrastructure projects are also in the pipeline. These include an extension to the city’s existing Light Rail Transit (LRT) network, Mass Rail Transit (MRT) lines and the High Speed Rail (HSR) link between Malaysia and Singapore that will cut journey times between Kuala Lumpur and the Lion City to around 90 minutes. With Kuala Lumpur International Airport (KLIA) continuing to see remarkable growth in passenger numbers, it is clear that Kuala Lumpur’s status as a major hub in the ASEAN is under no serious threat.
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An extension to the city’s existing LRT network is currently underway
There are other causes for optimism. The completion of seven notable new projects has, according to new research by Knight Frank, contributing an additional 1,296 units and the cumulative supply of high-end condominiums in Kuala Lumpur now stands at 39,610 units. By the second half of 2015, a total of some 3,725 units form 13 further projects are expected to come on-stream.
Demand, it seems, is still strong at the top end of the residential market – especially in desirable inner-city areas such as KLCC, Bangsar and Mont Kiara.
Significant new developments include Tropicana The Residences comprising 353 units of luxury serviced apartments atop the W Hotel in KLCC and Pavilion Suites, which offers 383 units with pricing from a hefty MYR3,000 (USD788) per square foot.
To many, the elephant in the room with regard to the property market in KL is the disparity between house prices and wages in Malaysia. While the housing boom has heartened wealthy Malaysians, foreign investors and buyers who entered the market early, a total house price rise of 81 percent between early 2009 and the end of 2014 makes uncomfortable viewing for first-time buyers and low-to-middle income Malaysians.
A cautionary tale?_Property Report_4
KL’s central business district
It is an unfortunate by-product of demand continuing to outweigh supply, however, argues Boyd: “Property is keeping its value. Doom merchants are arguing that people can’t buy these properties but they keep on getting bought. Builders don’t build until they sell.”
“The fundamentals are solid where demand for good quality residences for owner occupation and investment are strong, provided pricing is seen to be discounted to previous highs and the developer has good reputation,” agrees Subramaniam of Knight Frank.
With a strong, established base to work from, the property market in Kuala Lumpur is unlikely to linger in the doldrums for an extended period. A shot in the arm, however, appears to be required to restore investor confidence to the economy. Whether that happens this year or after though is anyone’s guess.

KL’s property picks

A cautionary tale?_Property Report_Setia Sky Residences KL
Setia Sky Residences Kuala Lumpur
Developer: S P Setia Berhad
Completion: Phase 1 : 2012; Phase 2a: 2014; Phase 2b : 2016
Price: USD1,800-3,600 per sqm
Units: Alia: 211; Boheme: 211; Celeste: 225; Divina : 291
X-factor: The Sky Deck and Sky Club on 33rd floor
A cautionary tale?_Property Report_The Veo
The Veo
Developer: Sime Darby Property
Completion: Mid-2016
Price: USD1,700-1,984 per sqm)
Units: 350
X-factor: Sky garden and deck overlooking natural rainforest and the world’s longest quartz ridge
A cautionary tale?_Property Report_St Marys Residences
St Mary Residences Penthouse Suites
Developer: Mergexcel Property Development Sdn Bhd
Completion: 2012
Price: Upon request
Units: 6
X-factor: The 418-sqm triplex apartment was recently redesigned and furnished with bespoke Chinoiserie interiors by renowned firm KitaKita
A cautionary tale?_Property Report_Opus
Opus
Developer: Bina Puri
Completion: Q1 2019
Price: USD4,252-4,819 per sqm
Units: 357
X-factor: A stone’s throw from the proposed Warisan Merdeka (KL118), which will be Malaysia’s tallest building
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