Residential sector to be key driver in property market

KUALA LUMPUR: The residential sector is expected to remain the key driver of the property market, real estate consultancy DTZ Research said.

In its 'Property Times Kuala Lumpur Q3 2010' report on Oct 12, the consultancy said demand for high-end residential properties in popular locations is relatively good, despite concerns of oversupply in the city centre following the completion of Hampshire Properties Sdn Bhd's Hamsphire Place and Bandar Raya Developments Bhd's (BDRB) The Troika.

"Strong take-up rates in new high-end developments such as Vox Tower of the Verve Suites, 6 Capsquare and Surian Residences in Mutiara Damansara, Petaling Jaya indicate that the residential sector remains resilient, with benchmark pricings achieved in their respective localities," it said.

For instance, Vox Tower saw 100 of its 250 units sold in a week, while BDRB's 6 Capsquare achieved a 65% take-up rate.

Prices of upscale condominiums psf rose by 8.7% from the previous quarter to RM600, while average rental rates also rose 3.5% to RM3.66 psf per month.

"Transactions involving mid-end residential properties may receive a booster as eligible members of the Employees Provident Fund (EPF) are now entitled for a higher home loan under the "Flexible Housing Withdrawal" scheme starting Aug 1.

"There is still substantial future supply of over 10,000 prime condominium units pending completion between 4Q2010 and 2012 in Kuala Lumpur. Nevertheless, prices of properties in well sought-after locations are increasing," it added.

DTZ also said the sector stood to benefit from the recently unveiled Economic Transformation Plan (ETP), which aims to boost the total population of Greater Kuala Lumpur to 10 million (including 500,000 expatriates and returning Malaysians) by 2020 from the current 6.4 million.

Meanwhile, the mid-term outlook for the office sector remains weak on the back of slow demand for spaces despite the improving economic climate.

DTZ pointed out that there was "no lack of new office projects being announced, most of which are of a speculative nature without pre-committed demand in place".

"Going forward, the market will continue to experience the potential of oversupply of space and increased competition among landlords," it said.

DTZ expected another 878,000 sq ft of new office space to come onstream by the end of the year, while 13.7 million sq ft of new office space is expected to be built between 4Q2010 and 2014, effectively causing rents to head downwards in favour of tenants.

Currently, occupancy rates in the city's office buildings have declined slighly to 87.1% from 87.9% in the previous quarter as new buildings are not fully occupied. Similarly, rents dipped slightly to RM5.98 from RM6 from the previous quarter.

A total of five new office buildings bearing 1.44 million sq ft of net lettable area (NLA) were completed during this quarter.

However, DTZ is banking on the ETP to create 3.3 million new jobs by 2020 to boost future office demand.

Meanwhile, the outlook for the retail market remained "competitive" underpinned by an incoming supply of 1.78 million sq ft by the year's end, it said.

"Average occupancy is expected to fall marginally as the take-up rate of new centres experience a slow start. Rentals of new shopping centres especially those at suburban locations will be faced with some downward pressure due to competition from already established regional shopping centres," it said.

DTZ said the wholesale and retail sector is poised to benefit from "special attention" as it has been identified as one of the National Key Economic Areas (NKEAs). This would include market liberalisation that could attract more foreign retailers into the market, adding more life to the sector.

During the quarter, occupancy rates stayed at 91% while rental rates were stable, with prime retail areas recording slightly higher rents of between 3% and 5%.