Could Kuala Lumpur's hottest property location in the vicinity of the iconic Petronas Twin Towers get adversely affected by fears from the looming US economic recession triggered by the US sub-prime crisis and the recent general election setback suffered by the ruling Barisan Nasional?
This article examines the developments in this much sought-after location where prices of high-end condominiums have doubled from RM700 per square feet a few years ago to around RM1,500 to RM2,000 per square feet depending on the project and location. The KLCC residential property market is often used as a barometer to gauge foreign interest and to compare property prices in the rest of the country.
Supply Side Developments
1. According to statistics by CH Williams Talhar & Wong, in 1995 the KLCC area had only six developments and some 928 units of high-end service residences. By 2007, the numbers had ballooned to 27 developments and some 8,000 units. Over the next three years, an additional 6,000 units are expected to come into the market. By end 2010, there could be more than 15,000 service residences in the KLCC vicinity. The KLCC area would only find its market equilibrium in three years’ time assuming no new developments are launched!
2. With thousands of new units in the pipeline, this will most likely result in an over-supply situation. The similarity of these high-end units, all within a short walking distance and who are all perfect substitutes for each other, is unlikely to result in significant capital appreciation or a sustainable rental yield.
Hence it’s extremely important for investors to invest in unique, quality and premium projects that truly stand head and shoulders above others. However, many investors may not have the financial muscle to invest in these premium developments.
3. With so many developments taking place within such a short period, some projects that are not well branded could unfortunately become white elephants. The buzzword in the KLCC area is Branding, Branding and Branding, as opposed to the traditional property mantra of Location or Pricing.
4. With oil and building material prices such as steel and cement heading north, new developments can only be launched at higher prices.
Demand Side Developments
1. Land prices in the KLCC area were around the RM600 per square feet mark three to four years ago before the upswing in the property cycle. Owing to the scarcity of land in the area, land prices will continue to rise. Hence investors can remain optimistic that real estate prices in the area can be sustained.
2. Conglomerate YTL Group recently set a new benchmark in the area. In the first week of April and barely a month after the general elections, it acquired a plot of land measuring slightly less than an acre on Jalan Stonor in the KLCC area for RM85 million or some RM2,000 per square feet beating the previous benchmark of about RM1,500 per square feet.
This latest land acquisition proves that there is indeed still more upside as YTL is considered to be one of the top ten niche developers in Malaysia.
3. Property experts expect the next price benchmark for the KLCC area to hover around the RM2,500 to RM3,000 per square feet mark, with the really good developments such as the Four Seasons hotel-cum-apartment complex, now under construction, to fetch as much as RM3,500 per square feet. Believed to be launched at an average of RM2,000 per square feet, the units at the prestigious development are said to be selling at RM3,000 per square feet now.
4. Another development that is already generating interest is the 42-storey Millennium Residences situated on Jalan Bukit Bintang next to Pavilion KL, a posh new mall competing with the well-established Suria KLCC. Although it is a bit further from the KLCC and prices have not been confirmed yet, some agents think it is unlikely to sell for under RM1,800 per square feet.
5. Foreign investors, especially from the Middle East, account for about one-third of new units purchased. For them, the high-end property market in the KLCC area is still attractive in strategically located and concept-driven projects viz a viz other countries. Many are happy not to rent out their apartments but prefer to keep them for occasional use and to hold on for capital appreciation. This could ease some of the pressure on rental yields when more units come on-stream.
For local investors, many would prefer to invest elsewhere in the country. For the price of a high-end condo in the KLCC, they can easily purchase a landed commercial property somewhere else within the Klang Valley.
Other Factors
1. With numerous residential and commercial developments taking place in KLCC area, traffic congestion, parking and flooding will worsen. Public infrastructure such as public transport needs to be improved. The situation is unlikely to get better anytime soon despite efforts by the authorities to encourage city living so that Kuala Lumpur is busy 24/7 instead of during working hours only.
2. The recent general election results have not scared investors as real estate is a long-term investment. Many property agents have reported seeing transactions increase a week after the elections. In fact with more opposition candidates being voted in, the efficiency and transparency of the civil service can only get better over time.
3. In recent years, successful developers from Singapore are venturing into Malaysia because they feel the market here has not peaked yet as Malaysia with its bigger population is still in a growth cycle.
With the KLCC area already congested and with thousands of new high-end units coming on-stream in the next few years, it will be interesting to watch developments in the KLCC property market. What happens here will have important implications for the property market in other areas within the Klang Valley and the rest of the country.
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Article Contributed by:
Milan Doshi
Financial Trainer and Best Selling Author of
“How You Can Become a Multi-Millionaire Real Estate Investor!”
For more information, visit www.milandoshi.com
Copyright 2008 by Milan Doshi
