Not spared the effects of the global financial crisis and economic slowdown, the upmarket segment of the housing property market has seen a return of buying interest of late. Despite the renewed optimism, there are a few downside risks: To do well in this niche market, developers need to understand their target market and be prepared to pull out all the stops to win buyers.

Like the property market in general, upmarket properties were not spared the effects of the global financial crisis. Knight Frank Malaysia in its report of the Kuala Lumpur property market for 1H2009 says the high-end condo market in KL softened amidst sluggish sales performance and downward decline in prices and rents. The property consultants say this was particularly evident for projects located in the city where transactions almost came to a halt with asking prices declining.

The report adds that selected high-end condominiums that are priced above RM1,000 psf are seeing a higher contraction in asking prices, with a sharp decline of about 20% compared with peak prices in 2008. “We also note that there are owners holding firm to their asking prices despite pressure from buyers for price reductions. This has inevitably resulted in a longer gestation period for units to be transacted. Asking rents have also continued to decline in view of the high number of completions during the review period. The first half of this year witnessed a continuing correction in rents which declined about 5% to 10%, compared with the second half of 2008,” says the report (see table).

Bangsar(left), Mont'Kiara (below) and Ampang (bottom) are among the traditional addresses associated with high-end homes but as the road network improved, developers began looking for opportunities beyond these enclaves. Photo by Mohd IzwanAccording to the report, the high-end condo market in KL was quiet during 1Q2009, with developers and buyers playing the “waiting” game; the former waiting for the right timing to launch their projects and the latter prospecting for a good buy or a fire sale amidst the weak market sentiment.

Henry Butcher Marketing Sdn Bhd COO Tang Chee Meng however points out that compared to the low and medium-cost housing segment, luxury residential properties still performed better. “Demand for landed luxury properties was still strong but weaker for high-rise luxury properties,” he says. The sales of the luxury properties was boosted by the various incentives offered by the developers, in particular the high loan margins, low down payment and no interest during construction schemes, he adds.

Photo by Haris HassanThe sombre mood at the start of the year began to lift towards the end of 2Q2009 and in 3Q2009, says Knight Frank managing director Eric Ooi, adding that a more active market for secondary sales and rental market was seen. Some new launches like E&O Property Development Bhd’s St Mary Residences received overwhelming response, with more than 80% sales recorded during the soft launch of East Tower (169 units), mainly due to its competitive pricing.

Tang adds that there have been more enquiries for luxury condos in the KLCC area over the past few months, albeit for smaller units, especially those which have existing tenancies. “Investors are back in the market but are selective and more cautious, especially when they have an abundance of units to choose from,” he says.

Photo by Lee Lay KinIJM Land Bhd, which is developing the 71-unit low-rise, low-density condo called Ampersand in Jalan Kia Peng attests to the return of buyer interest. Managing director Datuk Soam Heng Choon says that while there was a slowdown earlier in the year, from the middle of the year prospective buyers have been coming to its sales office and enquiring about the remaining units.

Gamuda Land group marketing and branding senior general manager, Angela Tham also reports improved market sentiment from end of 1Q2009. “Although our sales from August to September 2008 were very bad for us, our sales took an upswing from March this year. Our semidees and bungalows in Kota Kemuning were all snapped up. We enjoyed no less than 13% increase in price here. The same goes for Valencia. We also did very well for Bandar Botanic,” she says of its projects in the Klang Valley.

Ivory Properties Group, which is developing a few high-end properties in Penang such as 10 Island Resort and The Peak, says sentiment is also improving in the island. Executive director Datuk Seri Nazir Ariff says: “In recent months we’ve observed investors and buyers queuing up for new property launches in the island.”

Going forward, property consultants and property developers say that while the market seems to be showing a return of interest towards upmarket homes, there are a few downside risks. Linear Estates chief executive Siva Shanker reckons that with the economy improving, take-up for high-end properties will grow. “The dampener however will be when mortgage rates go up as this will increase the repayments,” he says.

Property consultants also warn of the possible oversupply of luxury homes, in particular high-end condos. “Despite the renewed optimism, the impending new supply by end-2009 and 2010 is a downside factor,” cautions Ooi. With the luxury property market becoming increasingly competitive, Ooi expects to see more innovation in product development. “New products are now in tune with changes in lifestyle desires and trends as seen in launches in the last few years.”

What is a luxury property?

Siva says the definition of a luxury property is different today than what it was 20 years ago. “Traditionally it meant a luxury location — for example, Kenny Hills, Damansara Heights and Bangsar — where if you told someone that you lived in Damansara Heights for example, it gave the impression of luxury living although you could have been living in a 30-year-old property,” he says. Siva adds that rising property prices in these addresses and improvement in accessibility meant that developers began to look for opportunities beyond these traditional luxury enclaves. “Packaged developments in far-off locations sold at high prices and developers saw that there was pent-up demand for such properties,” he says, adding that the first such development was Country Heights in Kajang.

Tang reckons that the term “luxury property” was probably first introduced in the market in the late 1990s or early 2000s. “I remember the term was used to differentiate high-end condos and apartments from the rest of the offerings in the market.

By themselves, the terms ‘detached house’ and ‘bungalow’ give an impression of an upmarket property. However, the same cannot be said about the labels ‘condominium’ and ‘apartment’. There was no longer an exclusive feeling attached to these labels as the terms were also used to describe projects which were priced below RM100,000. In order to position their projects correctly in the minds of the public and to elevate their status above other medium-cost projects, developers added the term ‘luxury’ to their condo and apartment projects.”

For Tang, a luxury property is one that it is situated in an upmarket location, has high quality building specifications and is pegged at a price that is beyond the affordability of the average salaried man. “A mansion put up in the midst of a low-income neighbourhood would, in my view, not be a luxury property,” he says.

Developers however stress that while so-called luxury properties have million-ringgit price tags, the price alone does not define an upmarket property. UEM Land Holdings Bhd managing director and CEO Wan Abdullah Wan Ibrahim says luxury lies in the value proposition. And these, he adds, have been addressed at its waterfront development, Puteri Harbour in Nusajaya, Johor. “Here, we’ve put forward a first-class location, our own urban design guidelines, security features that are second to none, high-speed broadband and landscaping (but to name a few),” he says.

For entrepreneur Hamidon Abdullah, luxury is about responding to the lifestyle of the target market. Hamidon who is the chairman of Serai Saujana Development Sdn Bhd — the developer of the gated and guarded Serai Saujana in Saujana Resort, Subang — stresses that affordability has its standards. “It is the environment, the space that we are giving in the most eco-friendly and cost-effective manner. It is all about putting our best foot forward for our buyers,” he adds.

Ooi says when evaluating an upmarket property, close attention has to be paid to the product features. “The macro aspect will look at items such as accessibility to the project, provision of recreational facilities, good landscaping, car park facilities, security features, developer’s reputation and property management team. The micro aspect will look at the detailing of the unit itself in terms of spacious unit sizing, good layout, views, imported or high quality finishes, branded fittings (kitchen cabinets, electrical appliances), high ceiling and private lift lobby. Some differentiation features will also raise the benchmark,” he points out.

A rising trend?

Is the development of luxury properties a rising trend then? Tang reckons it is. “As Malaysians become more affluent and more widely travelled and exposed to overseas trends and quality of life, there is an inevitable increase in expectations for better quality living standards back home. Their expectations and requirements become more exacting and developers will need to refine their offerings to cater to the needs of this growing group of property buyers,” he says. He believes that this segment of the property market will grow in importance, especially as it offers better profit margins and more room for product innovation and creativity to property developers.

Ooi concurs, pointing out that many proposed projects slated for launch are teaming up with five and six-star hospitality providers, raising the bar for luxury properties. These include Four Seasons Place, Ritz Carlton Residences and St Regis Kuala Lumpur. “The rising development trend in the city centre has also raised the bar for suburban high-end condos in terms of product features and finishes,” he points out.

In developing luxury properties, he says, developers should be aware that the higher income group has more options available to choose from (including properties from overseas) and are more discerning in their tastes and expectations. “In developing luxury properties, developers must be customer-centric in all aspects, in order to develop products that are acceptable by the well-travelled and well-heeled as this group of buyers also own luxury properties elsewhere such as Singapore and Hong Kong.

“Developers should have a good understanding of local preferences and should not import ideas wholesale from overseas without conducting thorough research on the local market. The quality of workmanship is very crucial as the buyers are usually more critical and vocal and would not be as acquiescent as the lower income group.

“The location for the project must be one which is accepted by the target buyer, although some luxury projects have succeeded despite their locations not being considered prime locations. These projects overcome the shortcoming of a lesser location by incorporating outstanding designs and unique concepts and by adopting an appealing pricing strategy, especially during the initial stages,” he says, pointing to Sierramas, Country Heights and Gita Bayu as examples.

Linear Estates’ Siva agrees, pointing out that one of the most important factors is in creating a great look and feel for the development whether through the marketing collaterals or the show unit. He says that at times even if a project is less accessible compared with neighbouring developments, the former can still command a premium if attention has been paid to the branding and the look and feel of the development.

In this respect, Tang says a fully furnished show house is very important to help convince potential buyers that the product is indeed a superior product as they will be able to see for themselves the actual quality, which words or pictures will never be able to accurately describe. “At the same time, work on the site must commence as buyers are always wary about the developer’s ability to carry out and complete the project,” he adds.

Not without challenges
Having marketed luxury projects, Henry Butcher’s Tang says the challenges are varied. “Sometimes it was a case where the developer’s pricing was above prevailing market levels due to the developer’s high land costs. The challenge was to convince potential buyers that the product was worth the price that he was paying for. The higher pricing can sometimes be justified by incorporating better quality finishes and superior packaging than other competitive projects,” he adds.

Developers say getting the lifestyle proposition across to the target market can be a challenge. KH Land Sdn Bhd, the developer of Kenny Heights in KL, says one of its biggest challenges has been getting its concept across to prospective buyers. “Lifestyle can be quite abstract which is why in all our activities, we try to communicate our vision of what Kenny Heights will be like once it’s completed,” says head of marketing Jennifer Chow.

Naza TTDI Sdn Bhd senior general manager of marketing and sales and quality assurance Myrzela Sabtu adds that reaching out to as wide a qualified target market as possible while still maintaining an air of exclusivity which befits all luxury properties requires a fine balancing act, and a close coordination of all communication and marketing channels. For the developer of The Valley TTDI Ampang, another challenge faced is in surpassing the benchmarks set with its previous projects. “Luxury buyers don’t want to be confronted with the ‘same old, same old’ when purchasing a property. They expect to be surprised, to be delighted, and it is in this aspect where we focused a lot of our resources on,” she says.

Setting high benchmarks is also a priority for players new to the luxury property scene. Delta Elegance Sdn Bhd says to overcome the challenge of not having an established track record in this niche segment, it emphasised on quality and workmanship at its bungalows at Bayu Kemensah in Kemensah Heights, Ampang. “Buyers’ needs are increasingly changing because they are constantly travelling the world over and are having higher expectations. This is why we emphasise on quality and workmanship,” says director CS Yu.

This article appeared in Luxury Living, the special focus pullout of The Edge Malaysia, Issue 782, Nov 23-29, 2009.