SKYROCKETING PRICES: Prices of high-end condos in the KLCC area continues to scale new heights. Could it breach the RM5,000 per sq ft mark?
New record
Amidst the slower property market, a segment of the market namely, the high-end luxury condos or super penthouses has continued to defy market expectations with prices hitting the roof. The market was abuzz with news last week that two units of 11,900 sq ft penthouses at Four Seasons Place in the KLCC (Kuala Lumpur City Centre) area were being booked at a new record price of RM37 million per unit which works out to a stunning RM3,026 per sq ft. The previous record was held by the Binjai On The Park at RM2,900 per sq ft which were also super penthouses in the KLCC area.
These eye-catching figures beg the question – are these one-off, isolated cases or will prices of luxury condos, especially in the KLCC area, continue to go through the roof? Gavin Tee, Founder and President of SwhengTee International Real Estate Investors Club forecasted in 2011 during one of his property seminars that prices of luxury condos in Kuala Lumpur might hit RM5,000 per sq ft by 2016. Commenting on last week’s Four Seasons Place transaction, he is the least bit surprised by this phenomenon and continues to hold on to his belief that prices of luxury condos in KLCC area will rise even further.
Breaching RM5,000 psf?
According to Tee, Greater KL is set to become an international property hotspot by 2015 and prices will definitely heat up in a couple of years’ time. “What I said in early 2011 still stands. I believe that with the expected booming of the overall property market in Greater KL in a few years’ time, condominium prices in KL will likely hit record prices by 2015. I had predicted prices of premium condos to breach the RM5,000 per sq ft mark by 2016 but it could reach that price level much earlier, or even go beyond that if the property market really takes off.”
Touching on the inevitable subject of the coming general election and its potential impact on the property market, Tee remains optimistic by pointing out that although the property market in KL has slowed down a bit recently, prices of exclusive projects such as the Four Seasons Place are still picking up. “2013 is election year. I think it will take a bit of time for the Malaysian economy to move into gear post-election, probably up to six months. Nevertheless, a lot of infrastructural projects such as the MRT (Mass Rapid Transit) are already being executed while blueprints for big projects such as the TRX (Tun Razak Exchange) are in the pipeline. Many major foreign investors are waiting to come in by the end of the year while waiting for the new government to settle in with their new teams, cabinets and policies, ” continues Tee.
Tourism factor
To a certain extent, Tee says that this period of settling-in by the new government, regardless of which party wins, will also slow the pace of the property market somewhat in the short-term but he points out at another factor – the growth of the tourism industry - that supports his firm belief that prices of luxury condos will continue its upward trend in the long run.
“Malaysia’s tourism is one of the fastest growing industries in the country. In fact, if you consider some of the high-end serviced apartments in major tourist attractions like Pangkor Island or Cameron Highlands, rental rates for some of these serviced apartments or hotels have increased a lot in the past few years and are continuing to rise. Rentals can go up to RM1,000 per night, or even higher during peak season. So, if you calculate based on an estimate of 6 per cent rental yield, translated into real terms, some of these apartments may already have hit RM5,000 per sq ft,” explains Tee.
Premium brand
See Kok Loong, Director of Metro Homes Sdn Bhd agrees with some of Tee’s assessment of the high-end condominium market. “I think it’s a fantastic development and especially with a renowned brand like Four Seasons Place, it can only be a good thing because it gives a certain aura or cachet to the local property market. The property owner is also assured of high quality and standards associated with a premium brand,” says See.
The realtor adds that some of the market factors driving the prices of these luxury condos are inflation, the MRT and other future infrastructural projects such as the proposed High- Speed Rail (HSR) link between Kuala Lumpur and Singapore. See says that prices of luxury condos, as shown in last week’s Four Seasons Place transaction, would highly likely continue to rise although he is less certain than Tee as to whether it might reach the RM5,000 per sq ft mark.
“It will be difficult to reach RM5,000 per sq ft level but the price would probably hover around RM3,000 to RM4,000 per sq ft, mainly due to the rising construction costs and shortage of land at prime locations.”
According to See, he does not see the bubble bursting on the prices of these luxury condos any time soon because “they are premium, branded products and are usually sold to high net-worth clients with long-term holding power. With the increasing globalisation of the economy, we should be attracting more investors and property buyers from other parts of the world like Hong Kong and Singapore. Only by doing this would we be able to sustain prices at these levels,” observes See.
Mismatch in rental?
Nevertheless, there are those who prefer to temper expectations that are bound to rise with these recent developments and are cautious about the spiralling prices of high-end condos which they opine is not a good general gauge or reflection of the overall property market.
Ishmael Ho, Director of Ho Chin Soon Research comments that the sale of the penthouses at such ‘astronomical figures’ is not a surprise because in terms of value, the KLCC area is currently where many high-end property purchases are concentrated. But will prices move even further upwards? “I don’t know. Value is always relative in that sense. The main question is who are the people setting such prices? People who are buying in these areas are not your average purchasers - they are cash-rich. They can buy and hold. Whether it will set a benchmark or not, I don’t know,” says Ho.
Datuk Ng Seing Liong, Managing Director of Kota Kelang Development Sdn Bhd also echoes these sentiments. “To me, whether the prices will increase or not will depend on whether there will be rentals to match these kinds of prices. I always look at yields and returns as they are fundamentally important. If there are no returns, it will be difficult to sustain these price levels,” Ng says, adding that the property market in KLCC is very speculative. - Additional reporting by Khairie Hisyam Aliman
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