Downward trend in prices and rents

Prices and rents of residential properties  particularly high-end high-rises, on the secondary market in the Klang Valley are expected to slide further. As the global financial crisis is beginning to impact the market here, says Allan Soo, managing director of Regroup Associates.

He says the market’s apparent resilience so far has a lot to do with the slower pace of our market, the time lag between the property sector and the movements in the economy, plus the time lag between the local property market and those in other parts of the region. “We are going into recession a little later and most likely will come out of it a little later as well,” says Soo when presenting The Edge/Regroup Klang Valley Housing Property Monitor for 4Q2008.

The resilience is also because there is no oversupply except in the high-end high-rise sector in certain locations.

Nevertheless, high-end high-rise homes such as in KLCC and Mont’Kiara may not suffer a major crash. “We did not enjoy a long boom like our neighbours nor did we reach dizzying heights in terms of pricing. It is difficult to predict the support level but we certainly are on a slide and we will not see prices bottoming out as yet,” says Soo.

Among the more resilient property types in the Klang Valley are landed properties in hot areas like Bangsar, Taman Tun Dr Ismail (TTDI) and parts of Puchong where, Soo believes prices will stay strong as few units come onto the market.

“It’s a demand-supply scenario. On top of that, this product segment caters for the broad upper middle class who are least affected by the market. Of course, if the downturn is protracted, there will be some impact on prices even here, but the impact will be less drastic compared with the high-end high-rise segment,” he adds.

On the tax deduction on housing loan interest under the recent RM60 billion stimulus package announced by the government, Soo does not expect it to spur demand for houses as the deduction will translate into savings rather than a reduction in upfront purchase costs.

“It is as they said — a tax relief, so the effect will be to ease the burden rather than to push demand. Hence, I do not see much impact,” he says.

Furthermore, with the total number of residential accommodation at 1.5 million units in the Klang Valley matching the population of 6.3 million — and with an average household size of 4.5 to 5 persons — the housing market does not need much push or support with it. “That is part of the reason the market remains resilient and why some areas seem to flourish,” says Soo.

“Most players would hope that the government can help stimulate the sector, particularly the high-end high-rise segment, but the latter is really a case of market forces and you cannot create demand at that level with a stimulus package,” he adds.

However, Soo proposes a fiscal stimulus that will tackle the Kuala Lumpur traffic and public transport infrastructure.

“This will boost the economy and have positive effects on the property sector as many suburbs become more accessible and traffic jam-free. We should consider using part of the stimulus package to immediately add the proposed new lines and stations to the LRT network and in fact extend it further than what has been proposed, so that it covers most of the Klang Valley, including the city centre itself,” he says.

“In the mid-1980s, construction of the North-South expressway helped buoy the economy during a recession. A comprehensive LRT system now will not only be a strong boost for our economy but will be a long-term solution to our city’s woes, improve our environment, and boost the tourism, financial and property industries,” he adds.

Landed properties

The secondary residential market retreated because of weak sentiment in 4Q2008 as the mood swung decidedly south, and there was a general acknowledgement that Malaysia would not be spared the global economic downturn.

Location remained the main reason demand was sustained for landed properties in most of the areas under review during 4Q2008.  Buyers continued to “wait and see”, resulting in fewer transactions, especially towards the end of 2008.

Prices generally remained flat for landed properties in TTDI during 4Q2008 although prices of 1-storey, 22ft x 80ft terraced houses in Jalan Abang Haji Openg rose 4.7% in 4Q2008 from the previous quarter.

Asking prices for 2-storey terraced houses in TTDI’s Datuk Sulaiman and Zaaba areas in December were still high at RM800,000 and RM580,000 respectively, indicating a resilience to price drops in the area.

Monthly rents for 1-storey terraced houses were unchanged at RM1,300 from 3Q2008, while rents for 2-storey terraced houses also remained unchanged at RM1,800.

In Bangsar, prices for 1-storey terraced houses in Bangsar Park went up slightly by 1.8% to RM550,000 from RM540,000 in the preceding quarter while rents dropped to around RM1,400.  In contrast, 2-storey terraced houses in Bangsar Baru saw a marginal drop of 1% to RM880,000 in 4Q2008. Rents also eased slightly to RM2,600 from RM2,700 in 3Q2008.

Prices for landed properties in Bandar Sri Damansara held up in 4Q2008. Single-storey terraced houses continued to transact at RM250,000 whilst 2-storey terraced houses maintained prices at RM400,000. Rents remained stable at around RM700 and RM1,200 per month for 1- and 2-storey terraced houses respectively.

In Bandar Utama, 2-storey terraced houses saw prices rise to RM530,000 in 4Q2008 from RM515,000 in 3Q2008, up by 3%. Rents for 2-storey terraced houses, however, dropped to RM1,400 from RM1,600 in the preceding quarter.

The prices of 2-storey terraced houses in USJ 4 and 6 in Subang were steady in 4Q2008 at around RM300,000 and RM240,0000 respectively. Rents in USJ 6 were also stable at RM850.

In Puchong, there was a slight decrease in prices for 1-storey terraced houses in Puchong Perdana and 2-storey terraced houses in Bandar Puchong Jaya. Single-storey terraced house prices in Puchong Perdana dropped marginally by 2% from RM148,000 in 3Q2008 to RM145,000 in 4Q2008 while 1-storey terraced houses in Bandar Kinrara remained at RM180,000.

High-rise residential

The high-end high-rise market, especially in the KLCC and Mont’Kiara areas, is witnessing a rapid drop in asking prices in some developments. The support level will likely be at more than 15% below today’s prices once the market has bottomed out, says Soo.

Demand for high-end high-rise residential properties was lower in 4Q2008 compared with 3Q2008, based on fewer enquiries and transactions, adds Soo.

In the KLCC area, there were many condos/serviced apartments up for sale and asking prices dropped compared with 3Q2008. The Marc Residence, which touched RM1,300 psf in 3Q2008, was being offered RM950 psf in 4Q2008. There was a similar sign of weakening in the tenancy market in KLCC as owners competed for tenants.

The tenancy market in Mont’Kiara grew weaker as well. Rents dropped slightly compared to 3Q2008. The rent for a three-bedroom condominium unit in Lanai Kiara declined 7%, from RM3,000 per month in 3Q2008 to RM2,800 per month for 4Q2008. The secondary values of condominiums in Mont’Kiara, however, held steady although asking prices there began to drop in 4Q2008. Well-managed older condominiums such as Mont’Kiara, Pines and Mont’Kiara Sophia showed resilience in a weaker market as they cater for predominantly owner-occupiers.

Values of condominiums in TTDI remained stable in 4Q2008 as there was no drop in demand. With a limited supply of condominiums in TTDI, the market value of units in both Villa Flora and Kiara Park stood firm. At the Residence Condominium, units of around 1,800 sq ft managed to attract prices of RM700,000, unchanged from values registered in 3Q2008. However, The Plaza Condominiums above 3-storey shopoffices saw a slight decrease (about 3%) in price compared to 3Q2008.

Rents generally dropped for condominiums in TTDI. The 2+1 bedroom units in Villa Flora and Kiara Park were leased for RM2,200 per month in 4Q2008, about RM200 less than in 3Q2008.

Condominium prices in Bangsar rose, although at a slower pace. Sri Penaga condominiums rose in value from RM640,000 to RM650,000. The Cascadium also experienced a small price increase. The tenancy market in Bangsar was generally stable except for the Cascadium, which reported a drop in rent.

Apartments in USJ continued to attract demand due to their relatively affordable prices. Values of units in Subang Perdana Goodyear Court were generally unchanged. Purchasers were mainly locals but the tenancy market attracted a mix of local and foreign workers and students.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 748, March 30-April 5, 2009.