It is undeniable that many in the local property market felt the impact of the global financial tsunami. From 4Q2008, the outlook was dim as interest in properties waned. However, some properties have proven to be more resilient despite a drop in prices and transactions during the worst of the recession, such as bungalows in prime locations. After a mild dip in transaction and prices, the numbers appear to be on the rise again in 3Q2009.
John Manuel, principal of Carey Real Estate, reports that sales of bungalows in prime areas of the Klang Valley have risen by about 40% since the later part of 2Q2009. Prices have also increased by 10% since 2Q2009. A bungalow in a prime location, with an average size of 5,000 sq ft, is now tagged at close to RM4 million, almost comparable to the same period last year.
“The market is more confident and there is more interest. However, it is not exactly buzzing like it used to be before the economic meltdown,” says Manuel.
Shawn Fernandez, senior consultant of Fernstate Sdn Bhd, says transactions have risen to about 25% for the agency. “There was a slight drop in sales from November 2008 and since July 2009, the numbers are slowly moving back to normal. As for the prices, they have been relatively steady throughout the recession,” says Fernandez.
Owners holding on
Manuel has an explanation as to why some properties are more resilient. “Owners are not panicking... they are not in a hurry to sell because they know the value of their properties and they can afford to hold on,” he says.
“This is aided by the popularity of locations such as Bangsar and Damansara Heights in Kuala Lumpur. There were owners who are willing to slightly lower their asking price in the face of a softening market then but a good number held firm.”
Fernandez elaborates: “One reason why owners were not desperate to sell during the recession was that the interest rates were lower, thus reducing the cost of keeping the property. There was no real pressure for them to reduce the price.” Fernandez cites a 2-storey bungalow with a built-up of 3,400 sq ft in Damanasara Heights that was put on the market in November 2008 at RM3.5 million. The owners refused to drastically lower the selling price despite a few offers and as the market took a more positive turn in July, the bungalow was finally sold at a price close to what the owners wanted.
According to Adrian Wang, managing director of CBD Properties, other newer areas, such as Mutiara Damansara in Petaling Jaya, have been able to maintain their market value despite fewer enquiries. “The prices are driven by locals because of a few reasons. For one, there is growing interest in modern-design, gated residences. Mutiara Damansara also offers a well-planned township with plenty of amenities — you have everything from shopping malls to cinemas. There is good capital appreciation as well,” says Wang.
A basic 2-storey bungalow in Mutiara Damansara with a built-up of 4,200 sq ft can command a selling price of RM3.5 million and rent of RM10,000, adds Wang.
Fernandez is a little less optimistic about Mutiara Damansara. “Yes, the area is booming and the properties are selling very well but, at the same time, we have not really seen good secondary values. However, Mutiara Damansara has good infrastructure, which is always a good draw and I do believe the secondary value will appreciate though it will take some time.”
Sometimes, it’s a case of supply versus demand, says Wang. For example, bungalows in Kuala Lumpur’s Taman Tun Dr Ismail (TTDI) are able to maintain their prices because there are limited units in the area. An old bungalow in TTDI with a built-up of 4,000 sq ft can still command RM3.9 million to RM4.2 million.
The same goes for bungalows in the older parts of Petaling Jaya such as Section 5. “Limited units, high demand, good prices, good location, good value. Section 5 may not offer gated residences and new developments but it is an established area with consistent growth,” says Fernandez. The price of a bungalow with a land area of between 4,500 and 8,000 sq ft ranges from about RM1.2 million to RM1.5 million.
Manuel points out that there are always buyers in the market. There are two types of buyers — those familiar with the market and have the means, and those looking for a fire sale. “The bargain hunters are always hanging around, waiting for the perfect bargain. Then there are those looking for a good investment. They are willing to pay, provided the property is located in a good location and in good condition. They will snap it up if the price is fair.”
This is proven by Carey Real Estate’s recent sale of two bungalows in Damansara Heights. Both properties are basic 2-storey bungalows with a land area of 7,500 sq ft, and were going for RM3.1 million. The properties were sold within a week. However, Manuel says, “In general, most bungalows in a good location will take about a month to sell. A year ago, it could be sold within a week.”
Drop in yields
There is also a slight drop in rental yields compared to the same period last year. Carey Real Estate’s Manuel says the current yield stands at about 4%, a drop from 4.5% to 5% last year.
According to Fernandez, a fair number of bungalows are usually tenanted by expatriates but with multinational corporations (MNCs) undertaking cost-cutting measures following the global recession, there has been a decline in the number of expatriates in the country. With less demand, owners have to reduce their rents.
Says CBD Properties’ Wang, “MNCs are reducing the housing allowance for expatriates. Furthermore, some of the companies no longer pay for family allowances. Therefore, the expats will come here without their family and rent condos instead of bungalows. They don’t need the space since their families are not with them and the rent for a condo is much lower. Some companies house their employees in cheaper dwellings.”
Wang says the market is showing signs of recovery. CBD Properties has been seeing more enquiries in the past two months, especially for bungalows in Damansara Heights, Bangsar and Mutiara Damansara. The current concept that appeals to buyers is low-density, gated residences. Wang also notes a growing interest in the green design concept. “Residences using eco-friendly systems are attracting those who are environmentally conscious.”
Carey Real Estate’s Manuel is more cautious on the outlook for the next six months. “If the market performs at the current pace, then it should get better as we go along. Many buyers are still dependent on loans, which is why the banks need to relax their regulations. While I agree the market is doing better, I still believe it will take two to three years to recover.”
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 778, Oct 26 – Nov 1, 2009.
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