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City&Country: Low to mid-range homes the favourites

A poll by City & Country conducted among auctioneers reveals that low to mid-range auction properties, especially landed properties below RM500,000 in the outer fringes of Klang Valley, have been selling well over the past two months. Upscale residences above RM800,000 on the auction market have remained largely untouched.

Auctioneers have noted a bargain-hunting trend and believe it could very well be an indicator of more cautious and prudent consumer spending for the rest of the year. “Based on our recent transactions, we’ve noticed a surge in demand for low-end apartments going for below RM150,000,” says Foong Cho Wai, auctioneer at Ng Chan Mau and Co Sdn Bhd.

Commenting on the demographics of this emerging group, Foong says 70% of those who opt for these properties are bumiputera buyers below the age of 40, many of whom are newly weds buying the property for their own use. Generally, they come from the middle-income group and work in the private sector.

“A 650 sq ft low-cost flat in Bukit Beruntung, Rawang, which was fetching RM8,000 on the auction market three years ago, is now going for almost RM20,000,” Foong says, adding that several similar units in the vicinity have been snapped up.

Why the sudden interest in low-end properties on the auction market in areas that were previously considered unattractive?

As Foong explains, the prices of newly launched properties in the Klang Valley are out of the reach of the middle-income group now. But instead of giving up on the idea of owning a property, this group has turned to the auction market. However, they restrict their buying to areas such as Kepong, Kajang, Sungai Long, Rawang and Puchong.

Government initiatives to slow the rise in property prices announced in Budget 2012, such as the 5% hike in Real Property Gains Tax and maximum loan to value of 70% for third homes, have been put in place and are working according to plan, but at the cost of slowing down the auction market.

All auctioneers have noted waning interest among investor buyers since the start of the year. Factors such as the eurozone crisis, tightening of bank loans and hike in interest rates are forcing prospective buyers to think twice before parting with their money.

Danny Tan, auctioneer at Property Auction House, puts it simply: “Coming up with RM40,000 or RM50,000 in cash is daunting even for a seasoned speculator, what more for the Average Joe.”

While demand for mid-range condos still remains healthy due to their affordability, Tan confirms that there has been a 10% to 15% drop in the sales of upscale condos and attributes the lack of interest to the drop in rental yield due to low occupancy rates. Rising maintenance charges are also deterring prospective buyers.

“Certain condos are charging as much as 75 sen psf. Of course, no one would be happy paying a total of RM750 every month for maintenance for a 1,000 sq ft home, especially if the person knows that the market rate was about 25 sen psf six years ago,” Tan explains.

The market for upscale condos is not set to turn rosy anytime soon. According to data released by Knight Frank Malaysia at the Fifth Malaysian Property summit last month, another 7,355 units are expected to enter the KL City and KL City fringe markets by next year, bringing the total supply to 36,719 units spread over the KL city centre (36.68%), Ampang Hilir/ U-Thant (12.54%), Mont’Kiara/ Sri Hartamas (35.32%) and Bangsar/Damansara Heights (15.46%).

Clarance Fernandez of MMR Auctioneers expects 2012 to be slow for the auction market as the public seems to be exercising more caution in its spending. This is a direct result of rising cost of living, which is leading to shrinking disposable income. The ongoing eurozone crisis, tightening of loan approvals and rising interest rates have not been helpful either.

“Although low to mid-range homes will continue to do well in areas such as Pinggiran Subang, Sungai Buloh and Puchong, we don’t expect prices to pick up significantly. In fact, eventually, the prices of residential units above RM1 million might even dip.”

 

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 898, Feb 20-26, 2012

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