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It was not too long ago when luxury condo prices in the KLCC enclave were escalating at a dizzying pace. Sentiments have, however, cooled with prices treading south since the global financial crisis broke late last year. Exactly how low have prices dipped? Will values slide further?
Recently, Savills Rahim & Co said asking prices in KLCC for completed developments have generally dipped by 15% to 20% with a further decline by as much as 30% in the coming months. Its managing director Robert Ang also says the real impact of the market will only be felt towards 2Q and 3Q 2009 when it is clear as to whether the stimulus packages of the European and US governments are effective. If these do not work, he adds, then there is no way to predict how low prices will go.
There is also the oversupply issue to contend with. According to Savills Rahim & Co’s estimates, some 1,500 luxury condo units came onstream in the KLCC area since 2007, with at least another 1,000 units to be completed in the next two years. Still, prices may not drop drastically due to land scarcity in the city centre, says Ang who sees current compressed yields of 4% to 5% picking up to the 2006 levels of 6% to 7% as prices dip.
The market is generally quiet, due in part to the wait-and-see attitude of potential investors.
Allan Soo, managing director of Regroup Associates, also sees KLCC condo prices continuing to slide as the impact of the financial crisis on the property market deepens in the next few months until possibly to next year.
According to Regroup’s data based on transactions, prices have dropped between 5% and 10%in 4Q2008 from 3Q. “Generally speaking, the industry is saying the drop is between 15% and 20%, but you don’t see the drop so quickly as there is a time lapse. We will see the exact numbers in 1Q2009. We think prices are going to drop another 10% to 20%, for sure. It could be worse but right now it’s like gazing into a crystal ball,” says Soo.
Though KLCC condo prices had spiked just before the economic crisis late last year, the level pales in comparison to how prices have been pushed up in markets like Hong Kong and Singapore. Consequently, the drop in Malaysia may be less severe than in these other markets.
“The Malaysian market never really went into a big boom like the markets in Hong Kong and Singapore. We had a very short boom in 2007 and then it went off. But it lasted three years in Hong Kong and Singapore and they went all the way up, really high. Our prices didn’t really go up that high,” Soo tells City & Country.
When KLCC condo prices started moving up in 2005, one of the first projects there, Stonor Park, was going for RM500 to RM600 psf before moving up to RM800 psf in early 2006. By mid-2006, prices were at RM1,000 psf. Then from late 2006 to 2007, values of premium condos doubled to RM2,000 psf and even more, Soo recalls.
“So, when you think about it, it was really during that short period that prices spiked. Because of that, in some ways we were lucky. If our boom had continued for two more years, we would have hit RM3,000 psf and the crash would have been tremendous. If we do crash now, we will have a softer landing than with Hong Kong or Singapore,” says Soo. Currently, average asking prices vary between RM600 and RM1,800 psf, depending on the project.
Consultants contacted by City & Country say it is a good time to go shopping for a KLCC condo. “Malaysians are actually considered rich. You’ll be surprised that up to 1H2008, there were still funds coming to Malaysia to buy our properties. But six months later, people come to Malaysia hoping to sell us properties. So, it’s the reverse simply because they think we are quite secure compared with the other countries. They think we got money. And it is not surprising because if you see a list of who has been buying what in Australia and Singapore and Hong Kong in the last few months, there is a significant number of Malaysians,” says Soo.
Besides choosing a good location, Soo advises buyers to go for quality products. “You really need to look at the profile of the developer. In times of crisis, the weaker developers may close down and this may lead to long-term problems. For a condominium project especially, a good management makes all the difference to values,” he says.
Taking a more bullish view of the KLCC market is Zerin Properties’ head of private wealth - real estate Terence Yap, who believes the price slide is beginning to taper off. Prices, he says, have retreated about 15% from the 2007 level and at worst, there will be just another slide of up to 5%.
Zerin’s data on KLCC property values, based on asking prices, are now averaging RM700 to RM1,100 psf. Yap says that unlike the other markets in Malaysia, foreign investors make up about 31% of the KLCC market and when the subprime crisis hit Singapore and Hong Kong late last year, speculative buyers from these countries started cashing out but selling has slowed from last October.
“I think prices have bottomed out. Interest in KLCC has been rising again since the beginning of the year. We noticed many opportunistic buyers, both local and foreign, trying to purchase condos not just in KLCC but also in Sentul and Mont’Kiara,” says Yap, adding that these buyers could also be motivated by the lower interest rates.
Although more investors from countries like Iran, Iraq, Pakistan, Sri Lanka, India and China are scouting around for buys, the market is still very much locally driven. In fact, Yap says most existing developments enjoy good occupancy, at an average of 60% to 70%.
Zerin estimates the current supply of KLCC condos at about 4,000, with new supply of those under construction at about 3,700. New launches may be delayed considering the current economy.
A real estate agent familiar with the KLCC condo market, Elaine Chong of Oriental Realty, says current asking prices vary with the projects. She says some are seeing a 5% to 10% dip while others have gone down by more than 30%.
Chong says there is a project where units went as high as RM2,500 psf early last year but are now available for less than RM1,800 psf (units in Marc Residences, which used to be priced from RM1,300 to RM1,400 psf, are now on the market at below RM1,000 psf), she says.
“I know a number of foreign investors who own 10 to 20 units in the KLCC area. In fact, there is an investor who owns more than 100 condos here so these are the kind of investors who are waiting to sell as long as they can earn a profit,” she adds.
However, Chong too is seeing signs of investors returning to the market to bargain hunt. “The market right now is a willing-buyer willing-seller market. Before the crisis, sellers were rather stuck up, with some refusing to sell at anything less than the asking price,” she says, adding that the KLCC condo market will undergo further correction in the next four to six months.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 745, March 9-15, 2009.
