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Good read for condo investment from the STAR on 9 Aug 2014:
Poser on condo market
BY THEAN LEE CHENG
JOHN, 45, is considering buying a second condominium unit. He bought his first unit for about RM200,000 more than 10 years ago. He is considering upgrading to a bigger unit.
Other than location, he has concluded that the other factor to be considered would be the price point. It must not be a lot more than RM500,000.
Whether one is 30 or 50 years old, half-a-million ringgit seems to be the magic number among house buyers these days.
The problem is, RM500,000 will probably buy John and other like-minded folk a studio unit or a 400-square-feet Small Office, Home Office (SoHo) or variants of it.
John knows the property market is not as hot as before. In fact, he is hoping for prices to dip in order to pick up a choice unit.
The overall property market is consolidating. The pace and degree of increases in prices is certainly not as high as before. This consolidation in the property market has brought into focus a couple of issues besetting the market, specifically, the condominium sub-segment.
For a number of years now, property consultants have lamented the glut in condominium units in the country, particularly in the Klang Valley and subsequently in Johor.
That grouse continues unabated today. But other than shouting from the rooftops about a general glut and the current buyers’ market, property consultants are narrowing down to specifics bedeviling the condominium sector.
Possibly the most glaring of issues, says Raine & Horne executive director Lim Lian Hong, is the high number of units of 2,000 sq ft and above and the dearth of takers, be it buyers or tenants.
He says anything 2,000 sq ft and above is difficult to sell and rent. This is “particularly prevalent” in the Klang Valley.
Whether it is buying or renting, they are staying away from large units, as the bigger the built-up, the higher the price, he says.
“Two factors determine the market today – units with a built-up area of 1,000 sq ft or a ringgit value at the RM500,000 level. This situation has resulted in developers generally planning for their projects based on these two criteria,” says Lim.
“Up to RM700,000, we still think it is affordable. Anything above that is very difficult to sell and banks are finding it tougher to give loans. These are the determining factors today,” he says. Lim says he does not know how long this situation will prevail.
These two criteria upon which buyers base their purchases on is particularly glaring in locations in Mont’ Kiara and the Kuala Lumpur City Centre (KLCC).
The outcome is that buyers are buying into one-bedroom units of about 700 sq ft in Mont’ Kiara (with a monthly rental of between RM2,500 and RM3,500) and developers are building small units of less than 1,000 sq ft in the KLCC area for about RM1mil.
The point is, with an average monthly rental of RM3,000, a young Malaysian may as well buy his/her own unit. Which means, the owner of a one-bedder will be seeking a foreigner to rent the place.
Multiplying usage
Lim says developers are also discovering that their strategy of multiplying usage, which has seen the launch of mixed-use commercial units such as SoHos, SoFos, SoVos - essentially small offices, home offices - may not be as workable as initially thought.
“Developers thought that by multiplying usage – either for residential or office use – they could sell. But this has not been the case,” says Lim.
“They are finding out that they cannot mix the two,” he says.
He points out that this dual mix - as when one occupant uses it as an office and his neighbour uses it as a home - is not beneficial for the overall market.
Many of the issues in the high-rise residential market - mixed usage, prohibitive prices and lack of takers - have resulted in saturation in the market. This has invariably led to the current consolidation facing this residential segment, says PPC International managing director Siders Sittampalam.
“Greater KL is undergoing a broad base consolidation,” says Sittampalam, who is also the president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector.
He says the market saw a tremendous number of launches in 2011, “one too many for the market to absorb”.
The amount of funds in circulation, coupled with the ease of lending, resulted in “every subsequent launch being priced higher than the next”, a phenomenon not seen in the 1980s, Sittampalam says.
Prices went up in 2009/10 but had a very steep increase in 2011, with the overall market conditions facilitating multiple launches by developers.
Because the physical supply was not there then, that false sense of “smooth sailing” prevalent in the 2011/12 period may reverse this year and next, Sittampalam adds. Come this year and next, many of these units will be ready for occupation and will be placed on the rental market, he says. The time may come when a reality check is inevitable.
“Nobody questioned it then (in 2011) and the developers’ role was to sell,” he says.
In certain high-density areas, Sittampalam has seen a drop in pricing and rent since the middle of last year. The total volume of transactions has also contracted, he says.
In Mont’ Kiara, the more popular sizes are those with smaller built-up areas, with a pricing of about RM500 per sq ft, he says.
He says that location is characterised by a wide price range, variety in sizes and quality, with newer developments priced between RM800 and RM900 per sq ft and the older units about half that price.
“There is a huge discrepancy (there) because you are looking at entirely different levels of housing in terms of quality and amenities,” he says. Density issues have also given rise to congestion.
Rental per sq ft has also been on the decline from RM3.20 psf to RM2.80 psf or less in some developments in Mont’ Kiara. However, the positive side about Mont’ Kiara condominiums is that they offer amenities and security.
Sittampalam says a fully furnished three-bedroom 1,200 sq ft built-up unit in Mont’ Kiara may fetch a monthly rent of about RM3,600 compared with a double-storey house in Taman Tun Dr Ismail for RM3,500 and a Bangsar house for RM3,800.
Sittampalam and Lim’s comments differ markedly from Carey Properties managing director Nixon Paul, who is of the opinion that Mont’ Kiara prices are trending upwards after hitting a consolidation patch last year.
“Prices in Mont’ Kiara are moving up, especially for units with a built-up area of between 1,500 and 2,000 sq ft, the reason being that people are buying for their own occupation. Those who want to remain within close vicinity of Bangsar and Hartamas find landed housing too prohibitive because prices have risen dramatically, so a Mont’ Kiara condominium unit is an alternative,” says Paul.
A double-storey landed unit in the Hartamas area is priced at about RM1.8mil, while Mont’ Kiara landed units are priced from RM4mil upwards.
Both Sittampalam and Paul say it is not possible to compare the Mont’ Kiara condo market with that of KLCC’s, as the latter is a city centre location with prices being two to 2.5 times that of Mont’ Kiara’s.
“KLCC is predominantly an investors’ market and the foreigners’ focal point is the Petronas Twin Towers. There is oversupply there too,” says Paul.
He says there are several projects in Mont’ Kiara which only have units with built-up areas starting from about 3,000 sq ft. These condominium blocks are facing huge challenges. An MK11 unit, with a built-up of 3,317 sq ft, was advertised for a monthly rental of RM12,000. An MK10 unit, with a built-up of 3,668 sq ft, was put on sale for RM3.25mil. Such asking prices are proving to be rather prohibitive.
In its latest report, CBRE Malaysia’s 2014 first-quarter report says activities in the high-end secondary condominium market remain “moderate”.
The report says they continue to see “a slight increase in the average price” for secondary transactions in KLCC, Bangsar and Mont’ Kiara (up 0.97% quarter-on-quarter to RM826 psf). Price movements during the period were most significant in Mont’ Kiara, followed by KLCC and Bangsar. Capital values in Mont’ Kiara and Bangsar have climbed by 14% and 15.63%, respectively, since the beginning of 2011. This suggests that investors continue to view opportunities in the secondary market of these prime markets compared with rising prices in the primary market.
However, the rental market remains a concern, the report says.
C H Williams Talhar & Wong’s Property Market 2014 says the supply of luxury condominiums had been rising at an average of 20% per year from 2008 to the end of 2013, representing one of the fastest-growing property segments in the period.
In 2008, there were 10,674 units in prime areas in the Klang Valley. This rose to 26,816 units by the end of 2013, an increase of 151%.
C H Williams says looking forward, the total supply will rise rapidly this year to 32,020 units, with the majority of them concentrated in KLCC, Mont’ Kiara, Ampang Hilir/U-Thant and Bangsar.
Vacancy also rose from 26% in 2008 to 35% in 2012. With the increase in the net take-up in 2013, the vacancy rate fell to 32% in 2013.
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Aug 8 2014, 08:56 PM
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