Moderate growth for 2014

KUALA LUMPUR: Genuine demand will lead the property market this year as the market is expected to cool down and stabilise with prices finding a more realistic level, according to property consultant C H William Talhar & Wong Sdn Bhd (WTW).

The volume of transactions will continue to fall on the back of reduced speculation, with prices expected to see moderate growth this year, said managing director Foo Jee Gen at the launch of WTW’s Property Market Report 2014.

Foo believes areas with good transport connectivity, and near highways, the light rapid transit (LRT) and mass rapid transit (MRT) will continue to be hotspots and foresees the second MRT line opening new areas of growth.

However, Foo said the days of double-digit growth are over as the residential market is due to grow less than 10% this year. Of particular concern is the upscale condominium market priced above RM500,000.

“About one-third of all upscale condominiums will be vacant by the end of 2014,” said Foo, adding that commercial titled residences such as Small Office Home Office (SoHos) and Small Office Versatile Office (SoVos) will be most affected.

Foo noted that the supply of high-rise residential homes in Kuala Lumpur has increased from about 11,000 units to 27,000 units since 2008. He expects the high-rise residential segment to see a correction in capital values, while occupancy rates will still not be very healthy.

The landed residential segment is expected to remain “very, very strong” from the lack of new supply and fewer speculative buyers.

“People should look into the secondary market. Purchasers can still find good buys if they do some homework,” advised Foo, pointing out that there are still affordable properties within a 40km radius of the city centre.

In the office market, the influx of new supply will continue to keep the market competitive and put pressure on yields.

Foo said the market will remain a tenant’s market and aged buildings, especially those in secondary locations, will be most affected. However, dual compliant (green-certified and MSC-status) prime office rental is expected to improve or remain stable in 2014.

About 8.21 million sq ft of office space is expected to flood the Klang Valley office market in the next two years, bringing the cumulative supply of office space to about 100 million sq ft by 2015.

“The new supply is much higher than the conservative take-up of three million sq ft per year,” said Foo.

However, the space can still be filled by bringing in more foreign businesses into Malaysia, he said.

Meanwhile, the lack of new industrial space in the Klang Valley will ensure industrial space will be the most robust player in the market, with yields of many industrial spaces at par with office premises in the surrounding areas.

“We expect to see 10% to 15% growth in the industrial sector,” said Foo, adding rents are expected to continue to rise due to insufficient supply.

The total supply of factory units as at 2013 is just 30,035 with an occupancy rate of 95%.

As for the retail market, Foo said while the growing population in the Klang Valley will support domestic spending, it may be weighted down by rising inflation and burgeoning household debts.

Lifestyle malls will become increasingly competitive, with malls in secondary locations facing pressure on yields and filling their retail space, he said.

About six million sq ft of retail space is expected to be completed this year. The largest will be the 1.3 million sq ft IOI City Mall in Bangi, which is already 70% tenanted.

Established malls such as Suria KLCC and Mid Valley Megamall are expected to continue commanding premium yields.

Faring better is the hotel sector which is expected to see a steady growth of 3% to 5% on the back of local and foreign support as well as the Visit Malaysia 2014 campaign.

In 2012, foreign tourist arrivals in the Klang Valley grew only 3%, while domestic tourist arrivals climbed 26%. Mainland Chinese arrivals rose 25% in the first half of 2013.

The sudden increase in domestic arrivals was spurred by the decision of many families to control their spending in the face of the rising cost of living, said Foo.

Foo hoped that the missing Malaysia Airlines Flight MH370 will not have a big impact on Chinese tourist arrivals.

Four hotels are scheduled to open in the Klang Valley this year, bringing another 1,487 rooms into the market. There are more luxury hotels in the pipeline in the next three to four years.

The average occupancy rate and average rental rates for hotels in the Klang Valley have remained stable so far this year, and are expected to continue to do so in the coming months. The average occupancy rate in the industry is hovering at about 70%.

This article first appeared in The Edge Financial Daily, on March 21, 2014.

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