2015 is expected to be a challenging year ahead for the Malaysian property market. Still, there are opportunities to be sought by both locals and foreign investors
By Khalil Adis
I was walking around KLCC and Bukit Bintang one night and noticed that despite the bright lights emitting from Malaysia’s iconic Petronas Twin Towers, it stands in stark contrast to the many vacant units at the nearby luxurious condominiums.
I recall covering the KL property market back in 2008 when some of the units in KLCC were launched as ‘bungalows in the sky’.
One particularly iconic development that I had visited has units as big as 4,000 sq ft
While living in such apartments is definitely a dream for many, alas, it is out of reach for the majority of Malaysians.
Coupled with the Lehman’s Brothers crisis during the same year, developers suddenly realised that such units were indeed hard to move as they aren’t affordable to locals while foreign buying had somewhat waned.
Still, there were some high net worth Malaysians and foreigners who had purchased units there as ‘trophy properties’ and to rent them out.
Sadly, that didn’t quite happen.
In this article, I will be sharing with you tips and strategies should you wish to invest in Kuala Lumpur or Selangor in 2015 in the hope that you will minimise your mistakes.
Most homes in the Klang Valley area are already averaging more than RM600, 000 and are out of reach for first-time homeowners.
Therefore, this market will primarily be driven by middle income and well-to-do locals as well as foreign investors.
Properties in prime areas are priced from around RM2, 000 per sq ft onwards.
Last year, Kuala Lumpur’s prime areas witnessed a flurry of high-end condominium launches last year in Bukit Bintang and KLCC like Harrod’s and Banyan Tree averaging at RM3, 000 per sq ft.
Despite the prestige of such brand names, many locals tend to shy away from such projects due to overall quantum price.
However, high net worth Malaysians may still snap up such projects as these are considered ‘trophy properties’.
Even so, they are not likely to live in the area, preferring to rent it out or use it as their holiday homes.
For foreigners, these projects will be very popular due to the increase in minimum purchase price and their location right smack in the city centre.
On 1 March 2014, the minimum purchase price for foreigners buying properties in Kuala Lumpur was increased from RM500, 000 to RM1 million.
Hence, if we use RM2, 500 per sq. ft. as a price gauge, a studio apartment of 500 sq. ft. can easily fetch RM1.25 million.
According to DTZ Research, the third quarter of 2014 saw ahealthy amount of new supply with the completion of another five high-end residential projects adding a total of 574 units to the market.
For the first three quarters of 2014, a total of 1,892 units have been completed.
The new completions in the third quarter were mostly locatedin the city centre, namely Brunsfield Residence@U-Thant (93units), Madge Mansions (52 units), One@Bukit Ceylon (354units) and an unnamed high-end residential development at UThant by Bandar Park Sdn Bhd (12 units).
Only one development, Kenny Hills Residence (63 units) is located outside the city centre.
Data from DTZ Research also shows that another 4,604 highend residential units are expected to enter the market by the end of 2014.
Amongst the major developments expected to be completed in the fourth quarter of 2014 are The Elements (1,040 units) by Elite Forward, Sky Residence-Phase 2: Celesta & Divina (450] units) by SP Setia and Icon Residence (260 units) by Mah Sing Group.
For locals who are thinking of buying a home in the KlangValley area, it is best to get small units like a studio as they can be easily rented out and sold to both locals and foreigners as their quantum price will be within the range for both locals andforeigners.
In addition, such units are limited in supply making them a rare find.
According to DTZ Research, the high-end residential market in Kuala Lumpur saw marginal growth in the rental values.
Average rents increased 0.7 per cent quarter-on-quarter, from RM3.59 per sq ft per month in the second quarter to RM3.61 per sq ft per month in the third quarter.
Moving forward, average rents are expected to fall due to the almost 6,000 supply of new units will be coming on-stream in city centre from 2016 onwards.
Also, data from National Property and Information Centre(NAPIC), showed that Kuala Lumpur has an existing stock of 434,484 units with an incoming supply of 53,394 units as of thefourth quarter of 2014.
All these factors will put pressure on rental yields.
For those who are thinking of renting out their properties, it is best to take a long-term investment horizon by focusing on capital appreciation.
The luxury sector also saw marginal growth in capital values.
According to DTZ Research, average capital values increased 0.7 per cent quarter-on-quarter, from RM758 per sq ft in the second quarter of 2014 to RM763 per sq ft. in the third quarter.
This is expected to increase marginally, barring any economic crisis.
Areas near the MRT extension, spanning from Sungei Buloh to Kajang Line are expected to be popular among locals as it will ease their commute time to Klang Valley, where many jobs are located at.
In addition, there are still affordable properties that can be found here from below RM600,000 – well within the affordability price range for locals.
For locals, buying a property near the upcoming MRT stations will increase the overall desirability, rental attractiveness, and capital values of your property as they will be in demand once the MRT line is completed in 2017.
For foreigners, they might skip Selangor altogether.
This is because there seems to be some sort of anomaly in Selangor’s property market as the minimum purchase price for foreigners has been increased to RM2 million effective 1 September 2014 in Zones 1 and 2.
The two zones include the Petaling, Gombak, Hulu Langat, Sepang, Klang, Kuala Selangor and Kuala Langat districts.
This is rather odd as the entry price in these areas are well below RM1 million.
As Selangor is located outside the Klang Valley area, the minimum purchase price here should follow Kuala Lumpur’s as not many foreigners will need a big space just to qualify for the RM2 million ruling.
In view of this, foreigners may be better off buying a property in Kuala Lumpur instead where the entry price is around RM1 million.
According to data from NAPIC, Selangor will have the largest incoming supply for new homes in Malaysia as at the fourth quarter of 2014 bringing it to a total of 157,450 units.
Those who are thinking of renting out their units will face great competition once these units come on-stream in 2016 to 2017.
Therefore, properties that are located close to the MRT lines will be very much in demand and can command higher asking price.
Properties near to upcoming MRT stations with interchange stations such as Kwasa Damansara in Kota Damansara, Sungei Buloh and Kajang will be highly sought after.
Kwasa Land Sdn Bhd is currently building a township in Kwasa Damansara for bumiputeras measuring 2,330 acres.
The township will be served by two MRT stations and four expressways – NKVE, Guthrie, NSE and the proposed Dash Highway.
In Kajang, a PR1MA housing project near the Kajang KTM and MRT stations are in the supply pipeline to be launched in the future starting from around RM158,000.
Properties near to MRT stations generally command a five to 10 per cent premium in pricing compared to others.
Download KL/Selangor Infographic here
This article was first published on Property Insight in its June 2015 issue.