City & Country: Formula for value creation

What are the factors that can add value to a property? Location, accessibility, amenities and branding, said Ho Chin Soon, director of Ho Chin Soon Research Sdn Bhd, during The Edge Investment Forum on Real Estate 2010 held on April 10 in Kuala Lumpur.

Neighbourhoods and townships with amenities such as hospitals, shopping complexes, educational facilities as well as their accessibility to major highways are essential for capital appreciation, he said.

At the micro level, extending a kitchen to offer both wet and dry areas, for instance, will also add value to a property, he explained. “Where I live, my street is a cul-de-sac and my neighbours planted trees and even maintain them. I am so happy with that as the value of my property has also gone up even though I do not live in a great location,” quipped Ho, who spoke on “Value creation in property investment”.

For an idea of how certain popular addresses in the Klang Valley have fared in recent times, The Edge picked six locations, both mature and new developments, for Ho to sample their capital appreciation trends.

Ho sees the Kuala Lumpur City Centre area remaining Malaysia's No 1 location for condominiums, mainly due to the presence of the iconic Petronas Twin TowersThe six are: Mutiara Damansara, Taman Tun Dr Ismail (TTDI), Mont’Kiara, Desa ParkCity, Setia Alam and Bandar Puchong Jaya/Bandar Puteri in Puchong. The results of the sampling (see charts on page 14) point to a higher rate of capital appreciation in the newer projects. In contrast, value appreciation in matured areas like the popular TTDI was considerably lower.

For instance, the 2-storey link homes in Adiva, one of the phases in KL’s Desa ParkCity, have been enjoying annual capital appreciation of 8.9%. “A 2,023 sq ft unit was RM541,000 in 2003 and it has jumped to the current value of RM980,000. The 3-storey link homes there were RM678,000 in 2003 and their current value is RM1.3 million. That’s a 9.7% increase in capital appreciation per year,” he said.

In Bandar Puteri, Puchong, the values of the Primrose-type 2-storey link homes climbed 14.2% every year. The 22 x 75 ft homes, Ho said, cost RM499,000 in 2008 and they are now worth RM650,000.

Over in Shah Alam’s Setia Alam, the 2-storey type Afzelia homes were sold for RM446,000 in 2008. Today, these are worth RM580,000, or a capital appreciation of 14% per year.

In Mutiara Damansara, the 3-storey superlink homes in Phase 1F enjoyed a 15.5% capital appreciation per year. Priced in 2007 at RM1.2 million, these are now worth about RM1.85 million, Ho said.

He stayed firm on the first-tier locations identified in his Locational Centre of Gravity (LCG) map for the Klang Valley. Petaling Jaya New Town is identified as the centre of gravity because of its infrastructure developments and accessibility to other areas of the Klang Valley. First-tier locations sit within a 15km radius of the centre and include Kuala Lumpur, Cheras, Puchong, Sungai Buloh, Subang Jaya and Ampang.

But Ho considers S P Setia’s project, Setia Alam, first tier despite it being identified as second-tier location on the LCG. “I consider it first-tier due to the infrastructure there. They [the developer] spent a lot of money to build the highway,” he explained.

The developer recently launched a co-branding exercise with national budget carrier FireFly, and Ho cited this as an example of a branding exercise that adds value to both the companies.

Condominium development pattern and beyond
Ho sees the Kuala Lumpur City Centre (KLCC) area remaining Malaysia’s No 1 location for condominiums, mainly due to the presence of the iconic Petronas Twin Towers.

Sixteen years ago, Bangsar was Malaysia’s champion of condo locations, followed by the Golden Triangle in KL, before Mont’Kiara took over. Ho said it was the move by the KL mayor back in the 1990s to breathe life into the nightlife of KL city that encouraged the building of high-rise residences in the city centre. Most condo projects have been built in the vicinity of the Petronas Twin Towers and the KLCC development.

While the increasing supply of condos in Mont’Kiara has been a subject of debate of late, Ho believes its condominium market is sustainable.

He explained: “The area’s growth rate is at 16% per year on a compound basis, from five projects to 56 projects within 16 years. Over the next two years, this rate will increase by 2% to 3%.
“Mont’Kiara is actually an extension of Bangsar, and it has now extended to Segambut Dalam and possibly even Desa ParkCity one day. Desa ParkCity itself will have 5,500 condo units when it is fully completed.

“High-end condo Mont’Kiara Damai by developer Sunrise Bhd saw a 5.9% a year capital appreciation. In 2001 the asking price for Mont’Kiara Damai was RM388 psf and in 2010, it has increased to RM650 psf. Meanwhile, the average price of 10 Mont’Kiara, by the same developer, rose 6.9% per year from RM520 psf in 2006 to RM680 psf in 2010,” said Ho.

He noted a shift in land use in the Klang Valley. “In 2002, for every five terraced houses, there were five high-rise units in KL. Last year, it changed to four terraced houses to six high-rise units. This means that if someone says he is from KL, chances are he lives in a high-rise development and not a landed property,” he explained.

A similar trend is seen in Selangor. In 2002 for every eight terraced houses, there were two high-rise units. Last year, for every seven terraced houses, there were three high-rise units.
Future townships/growth locations
Ho said in order for a new township to be successful, or even to emulate Desa ParkCity in Kuala Lumpur, it has to be sizeable, a few hundred acres at least, in order for the developer to create a well-planned development. If the new township is say 300 to 400 acres in size, the developer can plan where the water feature should be, what type of gated community, where the high-rise units should be built, and so on, he said.

Where would these be?

For projects 50 acres and more in size, Ho identified Clearwater group’s Bluwater Estate in Seri Kembangan, Gamuda Land’s Jade Hill in Kajang, IOI Properties’s 16 Sierra in Puchong, Sunway City’s South Quay in Sunway and Mah Sing’s Garden Residence in Cyberjaya.

I&P Group’s Alam Impian in Shah Alam and Sunway City’s Cahaya SPK are on tier two of Ho’s LCG map but he sees the two townships as tier-one projects.

He also identifies two growth locations: Equine Capital Bhd’s Equine Park and its surroundings in Seri Kembangan, and Kemensah Heights in Kuala Lumpur. He does not expect the LCG to expand any time soon despite the development activities in the north.

On buying commercial property, Ho stressed that one must pay attention to its micro-location. Those fronting the main road may fare well, but others may be a risky investment. “So pay attention to where you buy — even in shopping complexes,” he explained.

Asked by a participant about Kota Kemuning in Shah Alam, Ho said Kota Kemuning is off the Kesas Highway and the development is not big enough to be self-sustaining. The population is also not big enough for commercial shophouses, he added.

Ho was also asked for his comments on the airport city area (Salak Tinggi) and Labu in Negeri Sembilan. “Anything outside the second tier [generally] of the LCG, is considered a retirement home; so don’t go!” he lightheartedly told the amused crowd. 

To a question on the prospects of Rawang in Selangor, Ho said: “Bukit Lagong (in Selayang) is actually blocking Rawang. A few parcels of land are being cleared near Bukit Lagong now. You have to wait for maybe one or two cycles before you see better growth in Rawang. A new highway is also coming up, but whether it will be able to trigger Rawang, I do not know yet.”

Lastly, Ho replied to a question on the impact of the recent announcement of government plans to develop 3,000 acres of federal land (including Rubber Research Institute of Malaysia land) into a new hub for the Klang Valley on a joint venture basis with the Employees Provident Fund in Sungai Buloh: “It is the last prime piece of land in the area. The government should have a social objective and plan for an LRT connection to Petaling Jaya and Kuala Lumpur to make it more accessible for everyone.”

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 802, April 19-25, 2010

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