A recent Real Estate and Housing Developers’ Association Malaysia (Rehda) survey predicted an increase in Kuala Lumpur property prices by between 15 and 30 per cent for 2011. Nationwide, the average increase is expected to be around 13 per cent, according to Rehda’s president Datuk Michael Yam. The research findings were based on feedback from 135 Rehda members, mostly property developers. “Overall, market sentiment is positive, new launches are anticipated to rise in Q1 2011 and prices would go up as costs are predicted to increase,“ Yam said.
But then along came a tsunami that devastated Japan on March 11 and suddenly all bets were off. To make matters worse, political unrest in the Middle East and fears of rising oil prices are dampening buyer confidence. Despite these factors, contrary to what many developers are saying, namely that prices will skyrocket due to the rising cost of building materials, real estate agency Khong & Jaafar’s managing director Elvin Fernandez was reported as saying that the residential sub-sector would not see insane run-ups in prices like last year due to either global and local factors.
“Uncertainties in oil prices and measures taken by Bank Negara (Malaysia’s central bank and credit regulator) to curb rising property prices will see prices within the residential property sector holding”, he said.
The downside
Bank Negara recently issued a ruling requiring house buyers to put a minimum down payment of 30 per cent on any third property purchase in a move to curb speculative investments. RAM Rating Services Bhd’s head of financial institutions ratings Promod Dass said: “Although the full impact of this move has yet to filter through given the short time since its implementation, loan applications for residential property purchases have started slowing down.” But some experts are saying that the curbs are too mild to prevent speculative buying. “Any individual who is purchasing a third residential property is either likely to be affluent or a reasonably savvy property speculator,” said Malaysian Rating Corp vice-president and head of financial institutions ratings Anandakumar Jegarasasingam. “If property speculation is to be curbed, the authorities should perhaps explore more direct measures involving taxes and prudential restrictions”.
There are also fears of an oversupply of commercial office space for 2011 resulting in lower rental rates. According to a report by DTZ Research, office rentals continued to face downward pressure with average prime office rents dropping marginally from RM5.98 per sq ft per month in Q3 2010 to RM5.97 per sq ft in Q4 2010. DTZ said there was about 13.23 million sq ft of new office space in the pipeline between 2011 and 2013, the majority of which are scheduled for completion in 2012.
Malaysia is currently gripped by political dramas with more suspense and cliffhangers than the best written soap operas. Rumours are rife that the incumbent prime minister Datuk Seri Najib Tun Razak, who came to power in 2009, may call for snap general elections soon. His deadline is April 2013 and he has to do it sooner rather than later to quell political dissent. The ruling government risks losing its mandate in the next general elections if issues like crime, corruption and poor administration of justice, among others, are not swiftly tackled.
The upside
Despite these uncertainties, well-located and reasonably-priced developments by established developers in Malaysia still draw interest. When YTL Land launched its latest condominium project two months ago, The Capers at Sentul, it was met with an overwhelming response. Just minutes from downtown Kuala Lumpur and a stone’s throw from an upcoming MRT station, about 80 per cent of the units were snapped up on the launch day itself, mainly by local investors.
Meanwhile, the government is doing its best to attract foreign direct investments (FDI). According to a recent United Nations Conference on Trade and Development (UNCTAD) report, FDI inflows into Malaysia totalled US$7 billion in 2010, compared with US$1.4 billion in 2009, representing an impressive growth of over 400 per cent. Whether an increase in FDI will subsequently result in demand for more prime office and upscale residential units, remains to be seen.
Mass rapid tension
Kuala Lumpur’s mass rapid transit (MRT) system, one of the largest projects in the country costing well over RM36 billion (US$12 billion), is due to start construction by the second half of the year. The entire MRT line is estimated to run a total of 150km with other lines to be added at later stages. Lobbying has already started with developers, property owners and residents debating on how the MRT line should be aligned, where it should go underground and where the stations should be located. Many, especially developers with vested interest, would like us to think that having an MRT station in the vicinity will immediately boost the value of the property concerned.
But think again. Some residents are concerned with noise, pollution and traffic congestion. Unlike compact cities like Singapore or Hong Kong where commuters are used to an efficient public transportation system and driving a car is impractical due to scarcity of parking space, Kuala Lumpur residents have been driving for as long as they can remember. And since it does not seem like the crime rate will be reduced anytime soon, many may stick to driving for personal safety reasons leaving only the lower-income group to take public transportation. It may take a decade or so to get used to the idea of commuting by MRT. For the time being, if you live in an upscale neighbourhood, an MRT line running through it may be more bane than boon. And if you are a retailer of high-end products or services, you would not be expecting your customers to be arriving by MRT, at least not in Kuala Lumpur.
Analysts say that Singapore’s commercial real estate sector will outperform Hong Kong’s in the medium term, with dramatic increases in office rents in Hong Kong this year and next.
