Media Room

PETALING JAYA (Jan 22): The Kuala Lumpur office market is likely to remain subdued due to supply glut, with developments such as Tun Razak Exchange (TRX), Merdeka PNB 118 and Sapura Tower nearing completion, said property consultancies Edmund Tie & Co (SEA) Pte Ltd and Nawawi Tie Leung Property Consultants Sdn Bhd in their “Kuala Lumpur Q4 2017: Retail sector was undergoing stress test” report.

This article first appeared in theedgemarkets.com. View source here.

The property consultancy also noted that the recently announced freeze on new office approvals will mitigate the current oversupply to a certain extent, but the impact will only be felt over the medium term.

“This is because the pipeline supply currently under construction remains high and works are not likely to stop completely,” it said.

In 4Q17, the average occupancy rate of offices in Kuala Lumpur continued to decline, dropping to 80.4% from 81.4% due to weak absorption rate in 2017, while average rental rate for prime office space maintained q-o-q at RM6.03 psf per month, and likewise the non-prime buildings at RM4.25 psf per month.

The rents also stayed flat on a y-o-y basis, while capital values of prime office buildings remained unchanged since 2016 at RM933 psf.

“Correspondingly, office yield maintained at around 6% to 6.25%, which has remained unchanged since 2015. In 2H17, there were only a handful of office buildings transacted in Kuala Lumpur. The capital market beyond Kuala Lumpur was similarly subdued with few transactions.

“However, a notable transaction in 4Q17 was the sale of Bangunan Affin Bank, Shah Alam in October 2017 for RM531 psf.

According to the report, TRX has continued to “gain traction” in 2017 with the launch of two new office buildings for Prudential and HSBC Bank beside The Exchange 106, the tallest building in Southeast Asia when completed this year.

“To be ready by 2019, Menara Prudential (NLA: 560,000 sq ft) at TRX is reported to have secured close to 90% pre-commitment as of date,” it added.

STRUCTURAL changes in technology, socio-demography and consumer shopping habits are impacting the retail sector and industry players.

However, according to research firm Nawawi Tie Leung Property Consultants Sdn Bhd (NTL), the commercial property segment will continue to grow despite weak consumer sentiment.

This article appeared in the New Strait Times website on January 18, 2018. View source here.

In its report entitled “Retail Sector: Time for a re-rating?”, NTL states that new supply continues to be strong and is expected to remain so in the next three years with no loss of enthusiasm commercially by developers to build more.

As of the third quarter of last year, total retail stock in Klang Valley stood at 61 million sq ft. The estimated pipeline supply for retail space under construction is around 16 million sq ft across 23 projects.

“This implies overall growth of 26 percent to the current stock,” it said.

NTL said a proxy indication of the health of the sector is retail space per capita, which currently stands at 8.1 sq ft in the Klang Valley and at mid-range compared to other global cities or countries, notwithstanding some theoretical challenges on whether these figures can be truly comparable and where a healthy ratio figure lies.

 

“These findings contradicts the media’s notion that the retail sector in the Klang Valley is suffering from a combination of various factors, from the typical oversupply of space to the weaker and fickle sentiment of consumers.

“What is worrying is perhaps the average occupancy rate, which has been falling marginally over the last six years and is now hovering at a five-year low of 86 per cent.”

NTL pointed out that the underlying trend is of more concern as some of the newer malls have been struggling to establish market shares. which are getting more fragmentary and diminishing.

SLOW RETAIL GROWTH

“In recent years, we have witnessed a mall closure, namely the SSTwo in Petaling Jaya, and increasing occupancy stress, low footfall and retailers’ turnover in some of the newer (and older) malls, matched by slower or, worse, no rental growth and increasing need to provide for tenants’ incentives,” NTL said.

It has identified some of the key factors that contributed to the whole scenario — the rise of e-commerce, consumers shifting to digital experience from conspicuous consumption, ageing population which has an impact on retail spending and the emergence of driverless mobiles stores which can be hailed to one’s doorsteps.

 

For investment perspective, comparing to the office sector, NTL deemed that retail assets are a higher risk, thus their yields traditionally reflect a premium of two to three per cent over the office yield. Trends, such as urban sprawl, looser planning control and the rise in the number of motor vehicles, are known to be affecting retail assets.

“However, post-2008, ample liquidity has given rise to asset inflation and chased yield downward to a current state whereby yields for prime retail and commercial assets are at parity,” it said.

NTL also refuted that there is more diversity of tenants to choose from within the retail sector, especially anchor tenants that historically make or break the success of a mall. When it comes to leasing terms, both sectors are comparable in duration and payment terms locally.

To sum it up, NTL stressed that the retail sector will continue to be very much impacted by ongoing structural changes in the market, and not a normal supply-demand disequilibrium that in the past could be resolved through the passage of time, rising affluence and population.

It also noted that real estate investors will need to re-examine their implicit assumptions on what should and would be a reasonable entry return.

“With e-commerce an existential threat, a substantial number of malls can be expected to fall casualty and the prospect of successfully changing usages is not likely to be easy nor cheap.

“While the stores of the future will likely be a hybrid, an augmented retail that bridge the world of online with offline, the physical store is not going to vanish anytime soon,” NTL concluded.

KUALA LUMPUR: The average occupancy rate of retail space in the Klang Valley, which has been falling marginally over the last six years, is now hovering at a five-year low of 86%, said real estate services firm Nawawi Tie Leung [Property Consultants] Sdn Bhd (NTL).

This article first appeared in The Edge Financial Daily, on December 6, 2017 and then subsequently posted on theedgemarkets.com. View source here.

Despite this, a new supply of retail properties continues to be strong and is expected to remain so over the next three years “with no loss of enthusiasm commercially by developers to build more”, NTL said in a report released yesterday

“As of 3Q17 (third quarter of 2017), total retail stock in [the] Klang Valley stood at 61 million sq ft and estimated pipeline supply for those under construction is currently estimated at 16 million sq ft, comprising 23 projects,” the firm said. “This implies an overall growth of 26% to current stock.”

NTL said competitive demand from real estate investors has continued to drive yield downwards to a current state whereby yield for prime retail and commercial assets are at parity.

It added that while the traditional yield gap to reflect different risk profile between office and retail properties has “narrowed or disappeared altogether”, it does not provide more diversity of tenants to choose from.

“The market share is controlled by limited key players in several subsegments such as hypermarket, supermarket and cinema, and there have been constant mergers and consolidations.

“In recent years, we have witnessed a mall closure in Petaling Jaya, and increasing occupancy stress, low footfall and retailers’ turnover, in some of the newer [and older] malls, matched by slower or worse, no rental growth and [an] increasing need to provide for tenants’ incentives,” said NTL.

The firm also argued that the retail sector has not benefited from new trends such as urban sprawl, looser planning control, and the rise of the automobile which contributed to the rise of neighbourhood and regional suburban malls.

“Some of the newer malls have been struggling to establish market share that is getting more fragmentary and diminishing. “Construction of [the] mass rapid transit network has spurred a wave of transit-oriented developments, and more retail space supply can be expected along the train ride, resulting in overlapping catchments and intensified competition,” it added.

With the rise of e-commerce, experiential retail and a shift towards an ageing population, NTL suggested that real estate investors may need to re-examine their assumptions on what is “a reasonable entry return” on the retail property segment.

“It is and will continue to be very much impacted by the ongoing structural changes in the market, and not a normal supply-demand disequilibrium, that in the past could be resolved through the passage of time, rising affluence and population,” the firm said.

THE grande dame of Malaysian roads — Old Klang Road or Jalan Klang Lama — has maintained its vitality, not just as an arterial road in Kuala Lumpur city but also as a property hotspot.

This article first appeared in EdgeProp.my pullout on Nov 10, 2017 and then subsequently posted on theedgemarkets.com. View source here.

The estimated 11km thoroughfare is one of the oldest in the Klang Valley, linking Kuala Lumpur to Port Klang. In fact, it has existed even before the Federal Highway.

As a long-standing mature suburb, the Old Klang Road area has in recent years resurfaced as a magnet for new high-rise residential property projects. The area is currently experiencing a development spurt, albeit vertically, to counter the narrowing availability of land in the vicinity.

The reason for its popularity is its prime and strategic location between KL and Petaling Jaya, providing great accessibility for residents, says One Sunterra Properties Sdn Bhd executive director Lydia Mun.

“Even though the houses here are mainly made up of high rises and landed units aged more than 20 years, the freehold land tenure at a prime location with relatively reasonable house prices has placed Old Klang Road among the most established property hotspots in the Klang Valley,” offers Mun.

Interest from property investors, homebuyers and property developers surged with the development of Bandar Malaysia and the announcement of the proposed KL-Singapore High-Speed Rail, which is located within a stone’s throw to the northern part of Old Klang Road, she says.

“The construction of the MRT (Mass Rapid Transit) 2 has also helped to spur demand for housing here,” she tells EdgeProp.my. The 52km MRT 2 Sungai Buloh-Serdang-Putrajaya Line will consist of 37 stations. It is expected to complete in 2022 with Bandar Malaysia and Kuchai Lama stations located nearest to Old Klang Road.

Not only that, it is also close to Mid Valley City and upcoming mega malls at the south of Old Klang Road such as Pavilion Bukit Jalil and Paradigm Garden City at Taman OUG. These are also pull factors for investors and homebuyers, Mun adds.

Added to that is the fact that the busy thoroughfare, which was once notorious for its traffic congestion, has seen improved traffic flow with the widening of the road to a six-lane carriageway, notes Nawawi Tie Leung Real Estate Consultants Sdn Bhd managing director Eddy Wong.

“Prices [of homes in Old Klang Road] are also reasonable and it is well served with amenities in the neighbourhood, with Mid Valley Megamall located close by,” he says.

Non-landed housing prices

Among the non-landed homes in Old Klang Road, VERVE Suites KL South probably commands the highest price psf at an average RM1,000 psf.

According to Eddy, the prices of secondary non-landed homes along Old Klang Road range from RM400 to RM500 psf.

“New developments are being launched between RM600 to RM800 psf depending on concept, amenities and location, to as high as RM1,000 psf at VERVE Suites KL South,” he says.

Developed by Bukit Kiara Properties Sdn Bhd (BKP), the freehold VERVE Suites KL South comprises two towers housing 321 serviced suites, 45 Small-office Home-office (SoHo) units and three retail units.

The launch price for the serviced suites back in 2013 was about RM1,100 psf, according to BKP. The prices for the SoHo units with built-ups ranging from 517 to 1,776 sq ft are from RM722,600.

One Sunterra’s Mun notes that new non-landed residential launches are priced around RM800 to RM900 psf for those located close to the Federal Highway or Mid Valley City, and RM550 to RM700 psf for those located in the southern portion closer to Jalan Puchong.

“There are several ongoing developments in the Old Klang Road area currently. The existing road infrastructure would not be able to accommodate the higher traffic volume in future when these new projects are completed and occupied [despite the widening of the road].

“Hence, the traffic condition at Old Klang Road is likely to get worse. However, we hope the completion of the MRT 2 will help ease the traffic problem here,” she says.

Indeed, long-time resident in the area and real estate negotiator at Allhomes Properties Sdn Bhd (formerly known as 1TPE Realty Sdn Bhd) Shimry Wong shares that traffic congestion is rearing its head again in the area and is rapidly getting worse.

“Also, say you’re coming from Mid Valley City to VERVE Suites KL South, you’ll need to do a big U-turn in front of the Jalan Gembira junction in order to get to the opposite side.

“But people still flock to live in Old Klang Road because of its accessibility and central location,” she notes.

Shimry also recalls that it was the opening of Mid Valley Megamall in late-1999 that revived Old Klang Road as that was when people started to look into buying a property and living in the area.

“That was when the amenities started to flourish, and that made living in Old Klang Road much more desirable,” she adds.

Based on EdgeProp.my’s data, between 2012 and 2016, the average transacted price psf for non-landed homes in Old Klang Road has seen a compound annual growth rate of 14%.

In 2015, Old Klang Road recorded 466 non-landed residential transactions on the secondary market at an average price of RM421 psf or RM417,847. The transaction volume dropped 49% to 236 transactions in 2016 but the average transacted price psf rose 5% to RM444 psf while the average transacted absolute price was RM445,588. In the first half of 2017, the average transacted price rose further to RM467 psf, although with the overall market slowdown, prices seem to have moderated in 2Q17 to an average transacted price of about RM386 psf.

The highest average transacted price recorded was RM493 psf in 4Q13 when 169 transactions were recorded.

More growth ahead

One end of Old Klang Road links to the New Pantai Expressway and Petaling Jaya, while the other end leads up to Jalan Syed Putra and beyond.

Nawawi Tie Leung’s Eddy shares that its direct link to mature neighbourhoods of Kuchai Lama and Taman Desa also offers many alternative routes in and out of the area.

While the more favoured end seems to be the one leading to KL city centre, Eddy believes that eventually both ends of the road will be fully developed.

“What is most appealing is its central location and its connectivity, plus the facilities and amenities in the neighbourhood,” he adds.

However, despite the mushrooming of new developments along the crowded Old Klang Road, Eddy thinks there is still good potential for price growth in the area.

On the other hand, Mun expects prices of non-landed homes in Old Klang Road to remain stable in the next two to three years due to the current lacklustre economic and property market climate as well as the impending supply of new condominiums in the area.

Meanwhile, Shimry says there are still pockets of land for development and redevelopment along Old Klang Road. Hence, she foresees more high-rise developments coming up there in the future.

Among the incoming supply are Avara Seputeh by Ba Sheng Sdn Bhd, 9 Seputeh by Malaysian Resources Corp Bhd, CitiZen 2 by Binastra Land Sdn Bhd, SoHo units within VERVE Suites KL South by BKP and a yet-to-be-named integrated development by Kerjaya Prospek Bhd.

Recently completed residential projects in the area include The Petalz by Exsim Development Sdn Bhd (565 condo units) and Southbank Residence by UOA Development Bhd (674 units).

According to Shimry, the new launches along Old Klang Road will still be “well received” by homebuyers, especially first-time homebuyers who are looking to stay near to the city centre.

“It’s about the location. People still want to move to this area as it is a mature township with a wide array of amenities and facilities,” she says.

HOUSING-related measures in Budget 2018 were largely within expectations barring a few surprises. One of them was the proposed extension of step-up financing — first introduced by the 1Malaysia People’s Housing (PR1MA) scheme — to private sector developers.

This article first appeared in The Edge Malaysia Weekly, on October 30, 2017 – November 05, 2017 and then subsequently posted on theedgemarkets.com. View source here.

In essence, PR1MA’s step-up financing entails lower monthly instalments for first-time buyers under the scheme for the first five years. It also includes withdrawal of funds from Account 2 of buyers’ Employees Provident Fund savings for PR1MA mortgage purposes up to retirement or end of tenure.

Private developers, via the Real Estate and Housing Developers’ Association (Rehda), among others, have been calling for the scheme to be widened to the private sector’s affordable home offerings as a way to bridge the affordability gap for first-time buyers.

“In a way, this will make it a bit easier to buy a home, especially if you’re at the starting stages of your career. I would view it positively. It helps, especially if you’re a first-time buyer,” says Brian Koh, executive director of Nawawi Tie Leung Real Estate Consultants.

To ensure its effectiveness in aiding the targeted segment of Malaysians, though, the government is expected to work closely with private sector developers to prevent potential abuses, says Foo Gee Jen, managing director of property consultancy CBRE-WTW.

“To me, this has to be done with a central depository system (CDS) to track homeownership to make sure it benefits only first-time homebuyers, for example. The CDS, I believe, is still a work in progress,” says Foo.

On the flip side, however, it is unclear how much impact this measure may have on private sector developers.

While such a scheme may offer an additional lifeline at a time when many are struggling with sales, it ultimately comes down to a choice between sales and margins — the reality is that margins are much thinner in affordable properties in general, says Sarah Lim, head of equity research at Kenanga Investment Bank.

More clarity may arise when the criteria for the scheme are made clear by the government.

“Whether it is positive for listed property developers under our coverage would depend on the criteria set, so it’s something to watch. I don’t think the criteria will be very different from PR1MA, for example, with pricing set at RM450,000 and below, depending on location,” says Lim.

In any case, she does not expect the measure to power a drastic turnaround in the property sector but concedes that it may help make the recovery process more manageable for some developers who have affordable property offerings in their product mix.

“Developers who are already primarily in the affordable homes category may benefit, although we are cognisant of increasing competition from government housing supply,” adds Lim.

That said, Sarkunan Subramaniam, managing director of Knight Frank Malaysia, thinks more details are needed on how the scheme works for private developers. He suggests that a taxation-based approach may be more effective.

“An easier way would have been if there was a tax incentive given to the developers when they build affordable homes. That would have been more fruitful,” he says.

 

More tax relief on rental income

Another surprise in the federal budget announcement last Friday was a proposed 50% tax exemption on rental income received by resident individuals not exceeding RM2,000 a month, effective 2018 to 2020.

According to official documents, the proposed tax exemption is conditional on rental income received not exceeding RM2,000 per residential home. The rental arrangement must also be under a legal tenancy agreement.

It may kill two birds with one stone, says Foo of CBRE-WTW. On the one hand, people in the higher-income tax bracket may be encouraged to buy more investment properties to rent out, which in turn could help ease pressure from unsold and overhang units in the market.

“At the same time, the [cap at RM2,000 monthly rental] will benefit the M40 at that price level. Having more rental properties in the market will ease the pressure on the M40 [by giving them more flexibility on] whether to buy or rent, as opposed to just feeling pressured to buy a home,” says Foo, referring to the middle 40% of Malaysia’s households with a monthly income of between RM3,860 and RM8,319.

However, Koh of Nawawi Tie Leung feels the measure may not be necessary.

“In the rental market, there is plenty of supply; it’s just a matter of pricing. Why do you need to subsidise those who can afford to buy properties?” he remarks. “The property market is so hot because there is too much money chasing up property prices.”

Bukit Jalil first rose to prominence when the Commonwealth Games was held there in 1998. Since then, it has maintained a high profile — various musical events and exhibitions held there have attracted huge crowds, as did the recent Southeast Asian Games.

This article first appeared in City & Country, The Edge Malaysia Weekly, on October 16, 2017 – October 22, 2017 and then subsequently posted on theedgemarkets.com. View source here.

While hosting international sporting events has had a significant role in transforming the area, it is undeniable that property developers have played a big part in hastening the pace of growth. This is due its proximity to Kuala Lumpur City Centre and easy accessibility. Bukit Jalil is accessible via the Shah Alam Expressway, Bukit Jalil Expressway, Maju Expressway and Kuala Lumpur-Seremban Highway. There are also several light rail transit stations nearby, namely Bukit Jalil, Sri Petaling, Awan Besar and Muhibbah.

Real estate consultants tell City & Country that Bukit Jalil City and Kuala Lumpur Sports City have sparked a second wave of development in the area, and an upcoming development — Bukit Jalil Sentral — will sustain the momentum.

“Bukit Jalil City or, to be more specific, Pavilion Bukit Jalil, and the regeneration of Bukit Jalil National Sports Complex [into Kuala Lumpur Sports City] have given fresh impetus to the development of the area,” says CCO & Associates director Chan Wai Seen.

 

Accessibility and amenities

Landed and high-rise developments have been mushrooming in Bukit Jalil.

Berjaya Land Bhd, a pioneer developer in Bukit Jalil, launched its first project there — exclusive houses and the 18-hole Bukit Jalil Golf & Country Resort — in the 1980s.

Then, it developed high-rises, namely Savanna and Savanna 2, Covillea, KM1 East and West, Greenfields, Arena Green and Green Avenue. Its ongoing project is The Link 2 mixed-use development, which comprises serviced apartments, 4 and 6-storey shops and shoplets. Phase 1 is sold out while Phase 2 is now open for registration.

VPC Alliance (M) Sdn Bhd managing director James Wong notes that projects that came up in Bukit Jalil between 1999 and 2010 were the Sri Rakyat Apartments, Jalil Damai Apartments, The Ritz shopoffices and Jalil Sutera, all developed by Bukit Jalil Development Sdn Bhd, a subsidiary of Ho Hup Construction Co Bhd.

Earlier residential developments include Vista Komanwel A, B and C, which made up the Commonwealth Games Village in 1998. The blocks were completed in 1997, he says.

Bukit Jalil has also attracted various educational institutions. They include Asia Pacific University (formerly known as Asia Pacific Institute of Information Technology), International Medical University, FTMS (Financial Training & Management Services) Global College and Technology Park Malaysia College.

This has boosted the worker and student population there, thus raising the demand for housing in the vicinity. Seeing the vast opportunities, many developers have rushed in to grab a slice of the pie.

The landscape of Bukit Jalil has changed tremendously over the years as more and more developments came up.

Saleha Yusoff, director of research and consulting at Nawawi Tie Leung Property Consultants Sdn Bhd, notes that major developments such as Bukit Jalil City and KL Sports City have been a catalyst for its further transformation.

The 50-acre freehold Bukit Jalil City, jointly developed by Malton Bhd and Ho Hup, will house the Pavilion Bukit Jalil mall upon its completion in the fourth quarter of 2020.

Other developers that have projects in Bukit Jalil include Exsim Group, Trinity Group, SkyWorld Development Sdn Bhd, Aset Kayamas Sdn Bhd and WZR Property Sdn Bhd.

Soon, newcomers Malaysian Resources Corp Bhd (MRCB) and the Employees Provident Fund will be jointly developing a 76-acre tract there. This leasehold project, named Bukit Jalil Sentral, will have an estimated gross development value of RM21 billion. To be developed over 20 years, the mixed-use project will comprise serviced apartments, shopoffices, office towers, malls and hotels.

MRCB obtained the land through a privatisation agreement with the federal government for the refurbishment and upgrading of Bukit Jalil National Sports Complex for the SEA Games in August.

 

Residential segment

Saleha says the prices of residential units in Bukit Jalil, especially high-rises, have generally gone up at a compound annual growth rate of 5% to 7%.

The take-up rate of new launches has also been very good as the prices are seen to be affordable for the mid-market and upper-mid-market units, she adds.

“Bukit Jalil is now a preferred residential area not only because it is well connected by highways and public transport but also for its various amenities such as schools, institutions of higher learning and medical centres as well as an 80-acre recreational park,” she says.

Projects launched in 2016 and this year in Bukit Jalil and its surrounding areas are selling for RM530 to RM930 psf, she adds.

According to Nawawi Tie Leung Property Consultants, freehold SkyLuxe On The Park (developed by SkyWorld and located next to the park) is going for RM923 psf, compared with RM855 psf for The Park 2 (developed by Malton, within Bukit Jalil City).

The Havre (developed by Aset Kayamas, near the Muhibbah LRT station) and Paraiso, The Earth Bukit Jalil (developed by WZR Property, opposite Bukit Jalil City on the Bukit Jalil Expressway), both leasehold, are selling for RM550 psf.

According to VPC Alliance’s Wong, the average prices of neighbouring high-rise developments are RM800 psf for Millerz Square in Jalan Kelang Lama (developed by Exsim), RM600 psf for Citizen 2 in Jalan Kelang Lama (developed by Binastra), RM510 psf for The Nest Residences in Jalan Kelang Lama (developed by Nagano Development Sdn Bhd) and RM780 psf for genKL in Kuchai Lama (jointly developed by CapitaLand and Juta Asia Corp). “Generally, developments in Bukit Jalil command a slightly higher price due to their accessibility to major highways and proximity to LRT stations.”

As for the secondary market, Wong notes that of the 13 high-rise developments in Bukit Jalil sampled by the company, most saw an increase in their average transacted price last year — except for Arena Green, Covillea, Green Avenue, Jalil Damai and Vista Komanwel — compared with 2015.

“The prices of the majority of developments rose from 2012 to 2015, except for Green Avenue, which saw its transacted prices falling from 2014,” he says.

“Kiara Residence also saw a decline in transacted prices from 2013 to 2015. However, the price trend reversed slightly last year.”

Wong says the buyers comprised owner-occupiers, investors and expatriates. The owner-occupiers were mostly first-timers who bought condominiums and serviced apartments. The investors, on the other hand, were looking to rent out their properties to students and working adults, he adds.

 

Oversupply concerns

With more and more developments coming up in Bukit Jalil, the consultants have raised concerns that there may be an oversupply of residential properties, especially high-rises, in the next few years.

Saleha says this could happen as many of the projects launched several years ago will be completed between 2018 and 2020.

She notes that the gap between supply and the number of households in the Klang Valley was only 4,234 last year — total households were estimated at 1,825,617 (assuming four people per home) and the total residential stock was estimated at 1,821,383 units.

“So, based on KPKT’s (Ministry of Urban Wellbeing, Housing and Local Government) average house ownership of 68%, it means that 1,238,013 households own homes and the remaining 583,370 are either renting or staying in government quarters. Eventually, the latter will want to own a home,” she says.

“And based on the National Property Information Centre’s 2016 residential supply data, the incoming supply is 233,748 units. Therefore, there is a gap between supply and demand, especially in the mid-market segment.”

Despite the concerns, CCO & Associates’ Chan reckons that Bukit Jalil is an established area and the market should be able to absorb the new units easily in the medium term. “Nevertheless, rents and prices may undergo a correction in the short term if the market sentiment does not improve in the near future.”

 

Commercial segment

Commercial developments in Bukit Jalil comprise mostly shopoffices and shophouses such as The Link Business Centre, The Ritz and Arked Esplanad.

Chan says the high land cost has made it too expensive for developers to build shopoffices there, unless the land is sizeable. Such developments include The Earth Bukit Jalil and Bukit Jalil City, both located in the southern part of Bukit Jalil and nearer to the Bukit Jalil Expressway.

The Earth Bukit Jalil is a 15-acre leasehold development. The first phase, comprising 46 units of 4-storey shopoffices, was completed in 2015. Phase 2 is the affordable housing project, Impiana Sky Residensi, offering 508 units in a 40-storey block on 2.2 acres. Phase 3 is a condominium project comprising 762 units in two blocks called Paraiso, The Earth Bukit Jalil.

Bukit Jalil City consists of the Pavilion Bukit Jalil shopping mall, signature shopoffices, The Park Sky Residence, Park Point Shop Office and The Park 2. Phase 1 — the signature shopoffices — was completed and the units handed over to the buyers in June. The entire development is expected to be completed in 2021.

 

Moving forward

In general, the consultants are optimistic about the prospects of Bukit Jalil, especially with the upcoming Bukit Jalil Sentral development.

VPC Alliance’s Wong believes the area will become a more dynamic and vibrant township as it has been designated as an International Zone under the Kuala Lumpur Structure Plan 2020. (An International Zone means that the area will have many high-class residential properties.)

Chan expects more purpose-built office and hotel developments to come up in Bukit Jalil upon the completion of Bukit Jalil City and Pavilion Bukit Jalil. This has been the case with Pavilion Bukit Bintang, he says.

“In the short term, the focus will be on condominiums and serviced apartments. It may not be viable to develop low-rise projects,” he says.

“Selling prices of secondary projects, such as those located further away from the main developments, may range from RM500 to RM600 psf. Projects that are integrated with Pavilion Bukit Jalil are likely to command higher prices — RM800 psf and above.”

 

As leasehold properties are becoming more commonly available, it would be wise for purchasers to know what that means to owners in the long term. For many people, especially owner-occupiers, they may not mind the common leasehold tenure of 99 years as it seems like a long time away. How many people live for 100 years anyway?

This article first appeared in TheEdgeProperty.com pullout on Aug 11, 2017 and then subsequently posted on theedgemarkets.com. View source here.

So first things first — should land tenure be a deciding factor when purchasing a property?

Nawawi Tie Leung Real Estate Consultants Sdn Bhd managing director Eddy Wong says land tenure is a major consideration when purchasing a property, but there are also many other important factors to consider such as pricing, location and access to amenities.

“If you are an investor, for instance, who is buying a property for investment vis-à-vis buying for your own stay, you may sometimes prefer to buy a leasehold property because the rental yield of leasehold properties is generally higher,” he tells TheEdgeProperty.com.

Here are some pros and cons of purchasing a leasehold property:

Pros:

1. Cheaper house prices!

Assuming two properties are exactly identical where one is freehold and the other is leasehold, then the price of the leasehold property would be lower simply because the market prefers freehold properties.

“I would say it would vary anywhere between 10% and 20% if both are brand-new properties with full lease. As the lease gets shorter, the gap widens up,” says Wong.

2. Higher rental yields

Assuming that a leasehold property is cheaper than a freehold one, the lower entry cost could mean higher rental yields although one also has to take into consideration other factors such as maintenance cost and the location.

Cons:

1. Property loses value as lease shortens

One disadvantage of owning a leasehold property is that its value starts to depreciate as it gets closer to the expiry of the lease.

2. Tougher financing options

In fact, banks will usually stipulate a certain minimum number of years remaining on the lease before they are willing to accept the property as collateral for financing purposes, meaning that as the property gets older the likelihood of being able to secure financing on the property diminishes.

3. Transfer needs state consent

The other often cited disadvantage is that the transfer of leasehold properties requires state consent. In other words: bureaucracy.

Renewing the lease

The tenures of all leasehold land are renewable, unless the land is needed by the state government for public usage such as for building schools, hospitals, roads and public transport like the mass rapid transit and light rail transit.

Wong says that usually a homeowner would file their applications to renew the lease of a leasehold property when there is a major change of circumstances such as when the owner has to sell the property. The owner would then try to renew the lease in order to get a better price with a new or extended lease.

“As the lease premium is pegged to the valuation of the land, it may be advantageous to renew the lease in a down market, provided that you do have the extra cash available to pay for the renewal premium,” he says.

According to Section 103 of the National Land Code 1965, the tenant of a leasehold property has to care for the land as defined by the land legislation and may be responsible for property development and maintenance. If the state deems the tenant unfit to govern the land, the security of the tenure may be compromised. The state can then forfeit the lease for non-performance.

For strata property owners, they would need to do it collectively with other owners as well as the Management Corporation of the development as there is common property involved, adds Wong.

KUMPULAN Wang Persaraan (Diperbadankan) (KWAP) is setting up a property arm to undertake development projects as it chases higher returns by putting more money into real estate.

This article first appeared in The Edge Malaysia Weekly, on June 26, 2017 – July 02, 2017 and then subsequently posted on theedgemarkets.com. View source here.

CEO Wan Kamaruzaman Wan Ahmad tells The Edge that the Ministry of Finance has approved the proposed special purpose vehicle (SPV) and that the pension fund is working through the administrative processes with the Companies Commission of Malaysia.

While the SPV’s name has not been confirmed yet, Wan Kamaruzaman says it will undertake developments on KWAP-owned land. It intends to rope in property developers to lend their execution expertise to individual projects.

“This is where we are trying to get better returns because, obviously, we need to raise our returns via property development, but the key is execution,” Wan Kamaruzaman says. “That is why the partnership aspect is crucial — we don’t have the skill to execute.”

KWAP hopes to obtain a tax exemption for the SPV since it is also tax-exempted as provided for under the Income Tax Act 1967. The SPV will be its holding company for future development projects.

The move is part of KWAP’s asset reallocation review in 2016 to divert investments from fixed income to alternative investments, mainly property.

Following the review, conducted every three years, KWAP is looking to reduce its fixed-income exposure from 50% to 46% and increase its alternative investments from 10% to 14% of its asset base. Its equity allocation remains at 40%. The reallocation from fixed income to alternative investments reflects the new landscape of low interest rates, which, in turn, depressed yields on fixed-income holdings.

This is reflected in KWAP’s annual gross return on investment of 5.35% last year, after declining for three consecutive years. At present, the yield on KWAP’s fixed-income segment averages slightly below 4.5%, says Wan Kamaruzaman.

By comparison, the yield on property investment is generally between 5% and 7% on an income basis, excluding future capital gain prospects, says Brian Koh, executive director of property consultancy Nawawi Tie Leung.

Direct participation in the development side may provide even higher returns of “at least in the high teens if not the twenties, depending on the targeted market segment, timing and positioning”, he adds.

KWAP feels it is underinvesting in real estate. Wan Kamaruzaman says despite the 10% allocation earlier for alternative investments, the fund never hit the level before increasing the allocation to 14%.

“So, we are still trying to look at opportunities and allocate more money to the real estate space,” he adds.

In March, KWAP bought into Phase 2 of Seri Tanjung Pinang, which is being developed by Eastern & Oriental Bhd (E&O). The fund is paying RM766.02 million for 20% of the 760 acres being reclaimed for the project.

As part of the land sale, KWAP will also be a 20% shareholder of Persada Mentari Sdn Bhd, the indirect subsidiary of E&O that is undertaking the development. The deal marks KWAP’s first equity participation in an ongoing property development.

The reclamation of the parcel bought by KWAP is expected to be completed no later than March 31, 2019, according to E&O.

In 2015, KWAP bought a 0.72-acre freehold parcel in Jalan Changkat Kia Peng for RM87.92 million from Guocoland (Malaysia) Bhd. In January 2016, it completed the purchase of a 1.25-acre parcel from the federal government for RM140 million.

Asked about a possible signature development project for the upcoming property arm, Wan Kamaruzaman hints that the Penang land acquired from E&O may be a strong contender, given that it is the fund’s largest land acquisition in terms of price to date. “The land itself is worth over RM760 million and will probably keep us busy for 15 to 20 years,” he says.

Most of KWAP’s real estate portfolio is overseas. It owns seven properties in Australia, two in the UK and one in Germany, apart from two properties in Malaysia (see table).

KWAP is also weighing a restructure of its real estate portfolio. At present, all its properties are owned via direct subsidiaries but that may change down the road.

“We might form another SPV as the holding company so that all these (properties) will be under it. That’s a possibility,” says Wan Kamaruzaman.