indepth

Challenging times for KLCC condo market

For most new homebuyers, properties in Kuala Lumpur City Centre (KLCC) are probably “obnoxiously overpriced” or simply “not for ordinary people”.

However, the upmarket KLCC address is not only for buyers with deep pockets. According to theedgeproperty.com data, property prices in KLCC have generally stagnated over the past two years, even if the average transacted price has remained above RM1,000 psf since the first quarter of 2013 (1Q2013).

Analysis of non-landed residences in KLCC shows that the average price softened slightly to RM1,052 psf in 3Q2014, down 2.2% from RM1,076 psf  year-on-year. (See Chart 1). Compared with its peak of RM1,167 psf in 4Q2013, the average price dropped 9.9%.

“The number of overall transactions in KLCC fell or was rather flat in 2014.
Prior to the implementation of the Goods and Services Tax, many buyers adopted a wait-and-see attitude, leading to the drop in transactions. Owners with weak holding power may resort to dropping their asking prices,” says Zerin Properties head of private wealth Terence Yap.

   

However, Yap is optimistic that demand for good, built developments remains strong, even though most of the smaller apartments have seen prices fall below the RM1 million price range during the review period.

“The prices of some [KLCC] condos are very attractive right now. This is the best time to pick up a property [there]. The market will slowly recover in the second half of 2015,” says Yap. 

There are indeed bargains to be found in the KLCC area. Data by theedgeproperty.com for the period between 3Q2013 and 3Q2014 shows that a 3-bedroom unit at The Orion changed hands for only RM354,000, or RM497 psf. Interestingly, two of The Orion’s units were transacted below market price, at RM261 psf and RM272 psf, during the 12 months to 3Q2014.

However, theedgeproperty.com also found that The Orion has the highest rental yields in the area, at 6.7%. It is also the cheapest project to rent in the area, with an average monthly rate of only RM2.76 psf.

   

This could be because The Orion is a high-density condominium located on Jalan Tun Razak, away from KLCC’s Petronas Twin Towers area. It has 36-storeys of 202 units of standard condominiums, duplexes and penthouses. Completed in September, 2006, The Orion was launched at RM316 psf in 2004. It offers units with a built-up area of between 1,161 sq ft and 1,629 sq ft.

The Orion is not the only affordable product in the area. According to transaction data for the 12 months to 3Q2014, among the least expensive non-landed residences in KLCC were Menara Avenue at RM550 psf, Crown Regency at RM727 psf, 2 Hampshire at RM789 psf and Dua Residency at RM863 psf. (See Chart 2)

Yap says their location and age are the main reasons these five projects are the least expensive high-rises in KLCC for the recorded period.

“Besides the age of the developments, it is also a bit of a long walk to KLCC. For Menara Avenue and Crown Regency, their facilities need sprucing up,” says Yap.

“The Orion is located on the fringes of Jalan Tun Razak; Menara Avenue is situated next to relatively dated office buildings such as Menara TM Asia Life and Megan Avenue 1; and Crown Regency is located on Jalan P Ramlee.”

KGV International Property Consultants executive director Anthony Chua agrees with Yap that it is an opportune time to search for property in the KLCC area.

“Generally, property prices have dropped because of reduced demand, but I don’t see a substantial change in prices at the moment, even in the next 12 months.

“If The Orion, Menara Avenue, Crown Regency, 2 Hampshire and Dua Residency fit what you are looking for, I would think now is a good time [to buy, because] overall property prices will continue on the uptrend in the long run. Prices are likely to grow in the future.”

Highest transacted price

The KLCC area remains the country’s most expensive address. The Binjai on The Park recorded the highest transacted price during the review period with an average unit price of RM5 million. The average price psf in 3Q2014 was RM2,005 psf. Knight Frank Malaysia managing director Sarkunan Subramaniam says the average price psf hit RM2,200 in March this year. 

The Binjai is a luxury condominium developed by Layar Intan Sdn Bhd, a subsidiary of KLCC Property Holdings Bhd. The 44-storey development located on Jalan Binjai has 171 units and was completed at end-2008.

“The Binjai on The Park is the only residential component within the renowned KLCC development overlooking the KLCC Park,” says Sarkunan. “Together with Fraser Place and Marc Residence, The Binjai is located near the 100-acre KLCC development with iconic landmarks such as the Petronas Twin Towers and the regional shopping mall of Suria KLCC.”

The Binjai, Fraser Place, Marc Residence, Vipod Residence and The Pearl KLCC are the top five most expensive non-landed residences based on average price psf in KLCC.

According to data by theedgeproperty.com, Hampshire Place recorded the highest growth for average price psf, rising 10.5% in 3Q2014 to RM1,139 psf from a year ago.

Hampshire Place is another luxury residential property in the KLCC vicinity, located on Persiaran Hampshire. Developed by Tan & Tan Developments Bhd, the freehold development consists of two blocks of 186 units. It was launched in 2007 at a selling price of RM600 psf.

Marc Residence and Fraser Place also saw significant price growth at 8.9% and 6.5% respectively, to RM1,446 psf and RM1,482 psf. These projects have been quite successful with buyers, with their compact units being the most popular.

“The Binjai, Marc Residence and Fraser Place are popular with expatriates and long-stay guests in KLCC due to their strategic location and level of services, amenities and facilities,” says Sarkunan.

   

Pressure on rents

While condominiums in the KLCC area are generally targeted at the high-end and expatriate markets, rental rates can vary quite widely across properties. During the 12 months to 3Q2014, rental rates ranged from RM3.50 psf to RM5 psf, and reached as high as RM6 psf at Vipod Residences and The Binjai.

According to data collated by theedgeproperty.com, The Orion had the highest asking rental yield of 6.7% and an average asking monthly rent of RM2.76 psf. It was followed by The Meritz (6%), Hampshire Residences (5.3%), Parkview Service Apartment (5.3%) and Crown Regency (5.3%).

KGV International’s Chua notes that current rental yields range between 3% and 5%, a slight drop from previously due mainly to the subdued overall market. 

Meanwhile Zerin’s Yap has also observed a slight overall drop in rentals recently. “We are seeing a slight drop in rents as many units become available after oil and gas companies reduced their staff strength.

“Smaller apartments enjoy higher rents psf but this is offset by a higher purchase price psf. Generally, most large condominiums in KLCC are rented out for between RM3 psf and RM3.50 psf while smaller ones go for between RM4.50 psf and RM6 psf,” says Yap.

However, he thinks the current weak yields are only a short-term trend and expects a more buoyant market towards the end of the year. 

Moving forward

Sarkunan believes the high existing supply of units in the high-rise, high-end residential segment in KLCC will continue to challenge yields.

“In total, some 1,732 units [were completed] in 2014. The market will be challenging, particularly in locations where there is weak occupational demand from expatriates and locals. There will be heightened competition between unit owners in both the sales and rental markets. Besides, the slew of cooling measures and the weak state of the economy have further dampened the high-end, high-rise residential market in KLCC,” says Sarkunan.

However, he expects the price trend in KLCC to remain relatively stable, with marginal declines in selected developments as well as in locations where there are significant new completions.

Yap says good quality developments will continue to enjoy stable prices or even price appreciation.

“Most properties that enjoy good price growth are smaller apartments because they are more affordable in absolute terms. Strong demand for such properties has pushed the prices of these units up,” he says.

Many of the new launches in KLCC are branded properties such as The Residences, Ritz-Carlton Residences, Four Seasons Place and Pavilion Suites, which sell for above RM2,500 psf. “This may create a domino effect of raising prices of older and smaller apartments in the vicinity,” says Yap.

In the long run, Sarkunan says, the ongoing infrastructure works, proposed transit-oriented developments and the completion of branded residences will have a positive effect on the KLCC property market and raise its profile as a bustling, cosmopolitan enclave.

Prime land

KLCC or Kuala Lumpur City Centre comprises prime plots of land and premium properties right in the middle of the capital. The area is located around Jalan Ampang, Jalan P Ramlee, Jalan Binjai, Jalan Kia Peng and Jalan Pinang.

KLCC is one of the most instantly recognisable properties for its backdrop of the Petronas Twin Towers. In the years since they were built, the concepts of sustainability, sensitivity to place, climate and walkability have become major influences on large-scale developments world wide.

KLCC was mooted as the premier urban development in the country.The plan was to maximise its value by creating an integrated master plan development that drew on the existing assets at the site.

The Petronas Twin Towers have been the landmarks of KLCC since their completion in 1998. They were the tallest buildings in the world and remain the tallest twin towers and are one of the most-photographed and visited sites in the country. 

The 1,480ft-tall buildings are owned by KLCC Property Holdings Bhd and built on the site that was once home to the Kuala Lumpur race course.

The US$1.6 billion (RM5.79 billion) structure was designed by a team of architects led by Cesar Pelli, comprising Deejay Cerico, JC Guinto and Dominic Saibo. The structure’s floor plate is based on simple Islamic geometric forms of two interlocking squares, creating a shape of eight-pointed stars. They describe the important Islamic principles of “unity within unity, harmony, stability and rationality”.

This article first appeared in The Edge Property, the property pullout of The Edge Financial Daily, on May 22, 2015. Get the full pullout here and view video here. For a quick and brief analysis of the property market in KLCC:
PROPERTY SNAPSHOT Prices in KLCC stagnate
PROPERTY SNAPSHOT What’s affordable in KLCC?
PROPERTY SNAPSHOT What are developments priced in KLCC?
PROPERTY SNAPSHOT What’s hot in KLCC?

 

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