CONTINUING MOMENTUM MAY BE DOUBTFUL
by Lim Lay Ying
Property Times, New Straits Times
09th October 2004

Real estate developers are experiencing an adrenalin rush these days as they find themselves surrounded with news that property markets across the region are beginning to stir.

As prices begin their rebound, property markets are finding favour again after they took a couple of hits since the Asian financial crisis began in 1997. Real estate prices in several markets in Southeast Asia are emerging from long slumps. The star performer so far is the luxury residential market which has demonstrated strong growth in both values and sales response.

According to a survey compiled by Knight Frank Hong Kong Ltd., Bangkok’s luxury condominiums are expected to appreciate 5 to 10 per cent before the year comes to a close while landed residences are expected to gain 5 per cent in value over the same period. Already, condominiums in Bangkok’s central business district (CBD) are about 20 per cent higher on the average than during the previous property peak in 1996/97.

In Singapore, although property prices have yet to rebound very strongly, pickup in transactions for the luxury end of the market has not gone unnoticed. Homes in this category are expected to rise up to 5 per cent in value in the second half of this year.

Luxury condominiums in Jakarta are also predicted to surge by up to 5 per cent, while in Manila, a two-tier market has developed. Older luxury condominiums are selling at discounts while new developments are selling at comparatively higher prices – and faster too. So far though, the property price rebound has been modest.

Rising prices

Back home, Kuala Lumpur’s luxury residential market has also displayed visible signs of improvement. In the prime city centre locations, prices have generally risen by over 20 per cent since the nation’s economy collapsed in 1997/1998.

Luxury residential values in the exclusive embassy zone of Jalan Ampang-U-thant hardly budged despite the then bad economic picture. They maintained their RM500 to RM550-a-square-foot levels even when demand contracted. Today, prices have moved up to around RM600 to RM700 per square foot – triggered by new developments such as Dua Residency by E&O Properties, Marc Serviced Residence by Beverly Tower Devt. Sdn. Bhd., and K-Residence by KL Landmarks Sdn. Bhd.

And they are still edging upwards, owing to escalating construction costs and land prices which are a lot higher than in the past. Prices have so far found support at levels of between RM700 to RM750 a square foot at these blue-chip locations. However, developer KLCC Holdings Bhd intends to raise the bar to over RM1,000 per square foot with The Binjai, an ultra-exclusive condominium development located on The Park at KLCC.

Luxury condominium developments up north in Penang Island have also displayed gradual growth in prices. Along the “golden mile” of Gurney Drive, a much sought-after location (and address) by the expatriate community, foreign investors, and well-heeled Malaysians, prices and rents have been inching up because of the limited supply and strong demand.

11, Gurney Drive, fashioned to be in the same league as The Ascot in Kuala Lumpur, has sold all but two of its 63 units of condominiums. Prices range between RM1.0million and RM1.8million, except for the sole 8,000-square-feet penthouse which costs RM3.3million. Millenium Tower, Regency, and Silverton, also sea-front super-condominium projects, have all performed impressively and are popular amongst the foreign tenant market.

Bullish sentiment

The bullish sentiment is evident not just amongst niche players, but also throughout the real estate industry in the country. Lately, developers at large have been noticed to be stepping up efforts to capitalize on the improved market situation by increasing the number of project launches.

Island & Peninsular Bhd (I&P) for instance, has earmarked some projects from its newly acquired land for launching within the next couple of years. This year alone, the number of planned project launches from the company’s existing land bank tripled to about 40 from last year’s fifteen launches.

The aim of the hefty number launches – 25 from its Bandar Kinrara housing project in Puchong and 15 from the company’s northern projects in Penang, is explained as a strategy to make up for the “lost” earnings from its plantation arm, Austral Enterprises Bhd, which has been sold to Golden Hope Plantations Bhd.

By year-end (or early next year at the latest) I&P will lead the industry in terms of size of land bank which will enlarge to 19,053 acres from the current 3,034 acres. Approximately 66 per cent (12,000 acres) of this expanded land bank are located within the Klang Valley area.

They include amongst others, the 1,388-acre Haron Estate in Shah Alam, some 500 acres in Cheras and Bukit Jalil, over 1,200 acres in Bangi, 2,800 acres in Nilai, and many more in Klang, Kajang, and Morib.

Clouds on the horizon

With such an extensive land bank and in anticipation of an upturn in the property industry cycle, I&P has increased the number of projects to be launched next year. An average of almost six project launches will be conducted each month until its financial year ends in January (31st) 2006. In total, there will be 70 launches made up of 5,100 units of low-cost to high-end properties, which are expected to generate a turnover of RM500million.

And I&P will not be playing the game alone. The other big time real estate players in the Klang Valley such as MK Land, IOI Properties, SP Setia, Gamuda, Sunway, etc, are also gearing up to claim their share of the pie.

There is now more construction activity than at any time since the crisis, and once again, cranes are filling up the skylines everywhere. But while there seem to be more demand and more buyers for properties, the continuing momentum in the industry however is uncertain.

While everything points to a recovery in real estate, there are some clouds on the horizon at the same time, as in all the other Southeast Asian markets. Unsold (and completed) stock still prevails while more are being added on, and even more worrying are the external forces of high oil prices, the impact from the slowdown in China, and the interest rate factor – all of which can bring upon devastating effects on the real estate industry.