Kuching

WITH its vibrant economy and rising property prices, Sarawak’s capital city Kuching is well positioned to become the state’s most popular residential destination for investors and owner-occupiers.

Declared a city in 1988, the picturesque Kuching has since become a major gateway for travellers to Borneo and is best known for its multicultural heritage, handicraft and cuisine.

Thanks to its strategic location in the southwest tip of the state and along the Sarawak River, Kuching has become the state’s most populous city and garnered much attention in recent times for the steady growth of its real estate market, especially the residential segment.

According to the National Property Information Centre (Napic), as at 4Q2015, Sarawak’s All House Price Index had risen 7.2% year on year to 232.5 points, which represented RM391,994.

Total residential property transactions in the state grew 2.7% y-o-y to 5,519 units in 1H2015, of which Kuching contributed 42% or 2,323 units, says Rahim & Co.

A changing skyline

The gradual rise of new landmarks in Kuching has not only boosted its property market but also transformed its skyline.

Mixed-use developments have cropped in Kuching over the years. “We have hotels, such as Hotel 360 Waterfront, Majestic Tower Hotel, Hotel Tabung Haji, Hotel UCSI, and Hotel Promenade, while ICOM Square and Trinity Hub were just completed,” says C H Williams WTW (Sarawak branch) director Robert Kang Sung Ting.

The city boasts a number of malls, such as Boulevard, Spring, Vivacity, City One, Plaza Merdeka and Summer Malls, and Giant and Mydin hypermarkets. “Vivacity Megamall was just completed while AEON Mall is coming up,” says Kang.

There are also plenty of old landmarks in Kuching, including the Sarawak Museum, Orchid Garden, the Main Bazaar with its heritage buildings and old shophouses and the Kuching Waterfront.

According to Rahim & Co (Sarawak) director Donald Lam, notable upcoming developments in Kuching include the 500-acre Borneo Samariang Resort City in Bandar Baru Samariang, which has an estimated gross development value of about RM2 billion and whose developer is Sentoria Group Bhd. “Others are Moneta De Borneo, Aeroville and Metrocity Square,” he says. 

Located in the BDC commercial centre in the city, Moneta De Borneo is a mixed-use development by Vanatium Land. It offers commercial and plaza malls, shopoffices, residences and hotels, comprising 2,000 properties. 

Aeroville in Stutong Baru business centre is a 18.9-acre mixed-use development by Lee On Construction that consists of 3-storey shoplots and a shopping plaza. The 183-acre MetroCity Square, meanwhile, is a mixed-use development in Matang’s new central business district. It has a GDV of RM300 million and comprises an 8-storey corporate office tower, a shopping mall, small offices/home offices, boutiques and shopoffices. 

Although landed properties are most sought after in Kuching, there has been a notable rise in the number of high-rise residences, for example Rex, Roxy, Jazz Suites, Liberty Grove, Gala City, Rivervale Residence and The Tropics.

WTW’s Kang says the catalyst for Kuching’s growth, especially its property prices, is its expanding workforce.

“The income-earning group accounts for more than 40% of the relatively young Kuching population. This has increased the demand of working couples and young families for homes,” he points out.

Malaysia Institute of Estate Agents (MIEA) Sarawak president Alex Ting, concurs. “To boost their values, properties in Kuching would have to be in good locations and have great facilities and maintenance. Other key drivers would be new infrastructure and less stringent banking policies,” he says.

A growing target market

Despite the growth in the different segments of Kuching’s real estate market, landed properties are generally preferred to non-landed properties.

According to the Sarawak Property Bulletin 2H2015 by C H William Talhar and Yeo Sdn Bhd (WTW),
2-storey terraced houses continued to dominate the landed residential sector, followed by 2-storey semi-detached houses.

The bulletin notes that the prices of housing units in prime locations in Kuching remained high — at over RM550,000 for 2-storey terraced units and more than RM1 million for semidees.

The take-up rates in the new housing projects seemed to be slower in 2015, but market transactions on the secondary market increased. The bulletin also highlights that the demand for reasonably priced housing of below RM500,000 remained strong in the second half of 2015. Housing areas in Kuching also recorded high occupancy rates of around 90% and rents were maintained, as in the previous year.

The residential rental market in Sarawak stayed stable with increases noted in selected schemes last year, says Napic. Single and 2-storey low-cost terraced houses recorded rent increases due to their limited availability on the market. “However, in recent years, we have seen non-landed properties gaining in popularity and catching up in numbers,” says Kang.

“For landed properties in Kuching, the average rent psf is between 80 sen and RM1 with a 2% to 3% annual gross yield,” says Kang, adding that the average price psf for landed properties in Kuching is between RM300 and RM350.

Nevertheless, non-landed properties in Kuching have also seen a steady rise. “For non-landed properties in Kuching, the average rent psf is about RM1 to RM1.40 with a 4% to 5% annual gross yield,” Kang remarks.

As for the non-landed segment, De’ Jewels units are priced between RM700,000 and RM1.13 million each, says Rahim & Co Research. Other developments have also seen prices of more than RM1 million. “Rental yields have so far been quite moderate in Kuching. Residential yields [of between 2% and 3%] have been the ongoing trend if you compare them to each segment’s capital value,” says Rahim & Co’s Lam. “The target market for rent is mostly the locals and not so much the expatriates.”

In Kuching, residential properties seem to be the domain of the upper-middle class. “However, recent high prices have put most properties out of the reach of even this group,” observes Kang. “The target market in Kuching is young families and couples and retirees.”

He adds: “In the past, Kuching saw mostly owner-occupiers. But now, there has been an increase in investors from the neighbouring towns, such as Sibu. In fact, some of these investors come from overseas as the Kuching property market continues to expand and become more varied. Nonetheless, the market is still dominated by owner-occupiers.

“It is also worth noting that there is a growing upper-middle class in Kuching. This group of buyers and investors is more affluent and wants modern sleek designs, conveniences and security. Thus, the increased interest in apartments and condominiums in Kuching.”

KangTingLam

On the advantages of living in Kuching, Kang says, “There is less traffic and congestion, which cuts down travel time within the city. Kuching also has a friendly and close-knit community and boasts lush greenery and a clean environment.”

MIEA’s Ting concurs. “Kuching definitely has friendly people, lots of food and it is safe. Rent is cheap, resulting in a lower cost of living. There are also plenty of international schools and universities in the city.”

However, there are a number of drawbacks in living in Sarawak. Says Kang, “Kuching lacks connectivity to other parts of Malaysia and other countries. It’s out of the international loop. These logistics issues may hamper business potentials. This may cause higher travelling costs due to relatively greater distances. The net disposable income is also lower due to lower incomes but higher cost of goods and services than in the peninsula, which contributes to a lower standard of living.”

Challenges

According to Ting, there are potential challenges that could limit price growth in Kuching’s real estate market. “For one, the local government controls the price of low-cost units. For example, intermediate units are priced at RM80,000 and corner units at RM100,000. [This category caters for the lower-income group, which means it may not impact the overall market.] Another factor is bank lending tightening. There is also the potential of an oversupply of apartments and shophouses in certain areas of Kuching,” he points out.

According to Napic, the primary market saw the launch of 3,736 landed and high-rise homes last year, down 16.5% from 2014. Condominiums and apartments formed the majority of total new launches, at 1,602 units.

Napic also notes that construction in Sarawak softened in tandem with slower market activity. Last year, completion in the residential segment was 38.5% lower y-o-y with 3,672 units. Starts and new planned supply also decreased — by 37.4% (2015: 6,472 units) and 61.2% (2015: 4,221 units) y-o-y respectively.

Another concern has to do with demand in Kuching. “Demand is heavily dependent on the local population, which is small, especially on a person per sq km basis, which does not create much buying demand. There is a pressing need to provide affordable and reasonably priced housing for the masses in Kuching,” says Kang.

MIEA’s Ting believes there are certain steps that can be taken by the developers and the government to boost the state’s property market. “For the developers, perhaps it would be good to build more community-
oriented developments. Building better infrastructure, such as roads and highways, implementing better public transport and more suburban self-contained centres would also help in boosting Kuching’s property market,” he says.

 

A promising future

The future looks bright for Kuching, according to C H Williams WTW (Sarawak branch) director Robert Kang Sung Ting.

“The outlook for the city is good, especially since it is the state capital and administrative centre. There will be continued developments in Kuching with more mixed-use projects offering more variety. Thus, there will be more strata-titled properties, such as retail and commercial street mall units, SoHos, apartments and townhouses,” he says.

He feels the developers and the local government could implement certain strategies to boost the market. “The development density should be increased from the present eight units per acre to help ease the burden of the developers in building more affordable housing. Improving connectivity and logistics, for example increasing and improving the number of flights and infrastructure, will also help,” he says.

Ting reckons that residential property prices in Kuching will stabilise in the future. “Construction cost will continue to increase together with land prices. House prices can only go higher. Nonetheless, the government’s impending announcement to increase density may stabilise house prices in the short term.”

Meanwhile, there is a shortage of affordable landed and non-landed housing in Kuching. “The market might see a saturation in upper-middle-end apartments or condominiums targeting the upper-middle-income group, judging from the large number of ongoing and new launches in the market,” says Kang.

Malaysia Institute of Estate Agents (MIEA) Sarawak president Alex Ting agrees. He says, “Currently, there is high demand for affordable housing in Kuching.”

The Statistics Department says the median household income in Sarawak has increased 10.8% per annum, amounting to RM3,778 as at 2014.

“Currently, Perbadanan PR1MA Malaysia is actively assembling more units in Sarawak and also looking for more land. For low-cost housing, what is considered affordable in Kuching is between RM50,000 (for intermediate units) and RM59,000 (for corner units),” says Rahim & Co (Sarawak) director Donald Lam.

He believes land classification plays a crucial role in land value and future developments in Kuching. “Under the state’s Land Code, there is a section on land classification. There are two categories — Mixed Zone Land (MZL) and Native Areas Land (NAL). MZL allows all Sarawak citizens to buy land. In contrast, NAL permits purchases only by the indigenous people of Sarawak. In terms of value and marketability, MZL would command a wider market and higher prices compared with NAL as the latter is not open to all citizens,” he says.

“At present, there are restrictions on foreigners buying landed properties in Sarawak due to the provisions of the Sarawak Land Code. Foreigners who wish to invest in Sarawak have to be familiar with the restriction on foreign ownership in properties, particularly Sections 13A-13F of the Sarawak Land Code, and the criteria under the Malaysia My Second Home Programme. 

Buying land with development potential in Kuching would be a wise choice, according to Lam. “In good times, such land will attract a lot of interest from property developers and the development can be carried out on a joint-venture basis,” he says. 

Ting concurs. “There is still plenty of land in the outskirts of Kuching, especially NAL. Current government policy on the reclassification of NAL to MZL dampens the former’s prices,” he says.

Kang points out, “Vacant development land in and around the immediate city centre of Kuching is scarce and limited and can only be found in random pockets. However, land is still plentiful in the suburban and outskirts and would be catalysed whenever road infrastructure is mooted in the areas.”

On the Kuching market’s potential, he says, “The market in Kuching is still comparatively young and small compared with its Peninsular Malaysia counterparts. So, investing in properties that can be kept for the medium to long term would be best as Kuching is not a fast-moving market. It is stable and less speculative and has been growing steadily over the years with notable acceleration in the last five years or so. Any properties in prime locations with good earnings potential in Kuching would fare well.”

Ting advises investors to buy in good locations in Kuching as he believes the prices will continue to rise. “Invest in landed properties [such as terraced houses], especially in the Tabuan Jaya suburb,” he says.

Rahim & Co’s Lam concurs. “Tabuan Jaya seems to be the popular choice of location. The driver and developer of the area is Ibraco Bhd, whose portfolio includes high-rises, The Park Residence and Stutong Heights, and detached house development Tabuan Tranquility. The Tabuan area attracts prospective investors, especially city dwellers. However, this area is notable for being rather expensive. Some of the standard prices include RM600,000 to RM700,000 for 2-storey terraced houses (intermediate units), from RM700,000 to RM800,000 for corner units, and RM1 million and above for semi-detached houses.

“The overall sluggish market does impact the property market in Kuching, especially when loans are harder to come by. Developers here are indeed facing challenges in selling units and naturally certain launches are being delayed.

Landmarks

This article first appeared in City & Country, a pullout of The Edge Malaysia Weekly, on June 27, 2016. Subscribe here for your personal copy.

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