MPI Market Report – May 2011

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MPI Market Report – May 2011

  1. 1. FACILITAT ING & PROMO T I N G I N VE ST M E N T F O R M A L AY S I A N R E A L E S TAT E | www.malaysiapropertyinc.comTHE RETAIL MARKETIN MALAYSIARenewed International Interest in MalaysianRetail Centres Augurs Well For This Sector May 2011 issue 12by Afiq Syarifuddin COVER STORY The resurgence of international interest The Retail Market In Malaysia in Malaysian malls can be attributed to growing foreign tourist receipts SPOTLIGHT amounted to RM56.5 billion, of which Mapping Malaysian Real Estate shopping accounted for almost 30% in 2010. POLICY Getting Past Irregular Regulations Currently, there are 300 retail centres in Malaysia offering a total of 114 CEO’S SPACE million sq ft of space and enjoying a Removing the Blights On Our healthy average occupancy of 80.2%. Landscape Of these, more than 40% consisting of IN A NUTSHELL 50.6 million sq ft of available space are Residential Sector Continues Strong located in the Greater Kuala Lumpur Growth Trend (GKL) area. Most of these are locatedEmpire Shopping Gallery, Subang Jaya within the city centre, where they enjoy GRAPHICALLY SPEAKING an average occupancy rate of 84.2%. Average Price of Property in Selected States, 1Q2006-1Q2011MGPA Asia Developments, a private Over the next two years, another 3.2equity real estate investment advisory million sq ft of retail space is expected tocompany, purchased an integrated come onboard in GKL alone. While many tor of RCMC Sdn Bhd, mentioned thatdevelopment comprising a hotel, office are predicting an oversupply situation one of the reasons for the interest intower and retail mall in Kuala Lumpur’s for the retail sector with this influx of suburban malls in Malaysia is becausecity centre in 2007. new space, optimists point out that the the urban sprawl has generated government’s Economic Transformation residential and commercial precinctsA year later, German fund manager SEB Programme (ETP) is expected to spur that are under-served by the retailAsset Management AG entered into a the economy. This will in turn, have a sector. Some developers that havejoint-venture with Malaysian company positive impact on all sectors, including capitalised on the demand for a retailPuncakdana Group to develop the retail. component to serve a rapidly growingsuburban Citta Mall in Ara Damansara catchment population have enjoyedin Petaling Jaya, a city that is a key Richard Chan, advisor of the Malaysian huge success with their malls.constituent of GKL. Association for Shopping and Highrise Complex Management (PPK) and direc- (continued next page)Pramerica Real Estate Investors (Asia)Pte Ltd also decided on the strategyof building a new suburban mall withthe construction of SS Two Mall, also inPetaling Jaya.Last year, Li Ka Shing’s Cheung Kong(Holdings) Ltd purchased AeonBandaraya Melaka from a Malaysiancompany, IJM Land at USD 122million. The conglomerate throughits Singapore-based ARA AssetManagement Ltd, which manages AsiaDragon Fund II with a fund size USD1 billion, has also recently launched 1Mont’Kiara Mall (1MK) worth RM333million. SStwo Mall, Petaling Jaya
  2. 2. COVER STORY 2(from previous page) Figure 2: Selected Institutional Fund Stakeholders in Malaysian Retail DevelopmentOne of the stars in the rapidly growinglist of suburban malls is The Curvelocated on the fringe of Petaling Jaya. Institutional Total Fund Size Launch Projects / AcquisitionsThe mall attracts a steady stream of Funds (US$m) Datecustomers from the surrounding areasof Taman Tun Dr Ismail, Sri Damansara,Kota Damansara, Kepong, Tropicana TMW Asia Property Fund 113.3 2005 Seremban Parade, Ipoh Paradeand other parts of PJ and KL that are & Klang Paradefurther afield. SEB Asian Property 93.3 2008 Citta Mall, Ara DamansaraOther suburban malls that have also SICAV-FIS Fundbeen enjoying a good measure of successare Subang Parade, Empire Shopping ARA Asia Dragon Fund 122.0 2010 Aeon Bandaraya Melaka, MelakaGallery and Sunway Pyramid, cateringto the core catchments of Subang Jaya Asian Retail Mall Fund II 58.0 2010 SSTwo Mall, Petaling Jayaand Bandar Sunway. 100.0 2010 KOMTAR 1st Avenue, PenangAmcorp Mall, situated beside theFederal Highway, an arterial road that Source: MPI Researchlinks Kuala Lumpur, Petaling Jaya, Shah compared with city centre malls in GKL to rent out more than 75 % of spaceAlam and Klang, is another suburban also provide a more affordable entry upon opening, with a minimum rent-mall that experienced a renaissance of level into the market. free period offered, there is a bettersorts after the completion of the Light chance of sustainability for the mall.Rail Transit station within walking However, Chan said investors will have A prompt return to optimum rentaldistance of it. to use the following as yardsticks to rates thereafter is imperative to ensure evaluate the profitability of any mall, profitability.Chan added that the success of these suburban or otherwise: occupancymalls can be largely attributed to a rate, optimum income at market rates, Chan also mentioned that ageing,viable retail formula comprising good ageing, consumer traffic and lean which relates to the arrears in rentmanagement, location, accessibility operational costs. owing to mall owners, is one of the(they are serviced by a network of key factors for a good shopping mall.highways), tenant mix and a critical Chan pointed out that high occupancy Ideally, there should not be a lapse ofmass of customers with spending power. in a mall does not necessarily ensure more than a couple of months in rental profitability unless all tenants are paid by tenants to the mall owners asThe success of these malls points to the paying rent at optimum rates. Some this will impact the overall income, andfact that suburban malls are a viable malls offer long rent-free periods to hence, the profitability. Tenancies thatinvestment option for corporations ensure take-up of space, which in the lag three to five months behind are alooking to capitalise on Malaysia’s retail long-term leads to a dip in revenue sign that businesses are suffering andsector. Their lower acquisition costs collection. If the management is able could give an indication of the overall performance of the mall.Figure 1: Overview of Selected Malls in Greater Kuala Lumpur The mall’s operational costs should Property Value* Net Lettable Estimated Local Average also not exceed 30% of the optimum (US$m) Area (NLA) Catchment Rent rent that can be collected at 100% (sq.ft) Population (US$/sq.ft) occupancy, he added. City Centre Chan advocates that the consistency of the clientele’s visits and their spending KLCC 1,100.00 1,007,868 1,600,000 3.84 - 23.32 habits within the mall should be Mid Valley Megamall 640.00 1,700,000 5,200,000 3.16 - 13.67 researched as these visitors’s spending Pavillion 1,000.00 1,370,000 1,600,000 2.01 - 30.66 habits tend to reflect the tenant mix most suitable for the mall. Suburban In summary, Malaysians’ voracious The Curve 434.20 660,000 450,000 1.79 - 2.93 appetite for new retail, F&B and Subang Parade 347.00 499,581 500,000 0.60 - 18.87 entertainment experiences is expected SS2 Mall 180.00 470,000 430,000 - to contribute to the steady growth of Bangsar Shopping Centre 270.20 223,000 45,000 - the retail sector in 2011. For investors, it should not be a question of whetherSource: MPI Research to invest or not, just which location to * Property value as reported in their latest Annual Report invest in.
  3. 3. COVER STORY 3A TALE OF TWO CENTRES across from the Curve. The theme park is linked via a pedestrian bridge at the First Floor to The Curve. When the 400-room Royale Bintang Damansara Hotel is completed by the end of 2011, it will house an indoor Ice- Skating Rink. The hotel will also be able to accommodate the high demand for tourist hotel rooms that the present hotel is unable to meet. This new hospitality element will also be a plus point in giving The Curve the edge over competition that is expected to come from new shopping centres that are expected to open in the vicinity in the near future. The Boustead Group as a whole hasThe Curve, Mutiara Damansara always taken a long term view as opposed to short term gains in all itsThe Curve With a net lettable area of 680,000 investments. The strategy for the sq ft, the Curve is sizeable enough Curve and e@Curve are no different.The Curve’s architecture which to house more than 10 mini-anchors The returns realised are in the form ofincorporates both an indoor mall and (over 10,000 sq ft each in size) and rental revenue and fair value gains froman al fresco food street has earned it the another 250 leading fashion and food appreciation in the value of the Curvelabel of the first “Pedestrianised Mall” retailers. Together with e@Curve, the and e@Curve annually. Dato’ Ghazaliin the country. entertainment themed shopping mall mentioned that the Group does not next door which has a lettable size of rule out any acquisitions or disposalsBoustead group property division 220,000 sq ft, the combined strength of if there are opportunities available atdirector Dato’ Ghazali Mohd Ali 900,000 sq ft makes this a formidable the right price and terms acceptable tosaid with most successful retail shopping destination indeed. the Boustead Group as there have beenprojects, location is crucial in order to many interested suitors over the years.attract shoppers with high spending The Curve management strive to engagepropensity. Boustead is the developer with retailers on a regular basis to ensureof The Curve, a retail mall located only the best retailers are retained inwithin 10 minutes of precincts that the Curve and e@Curve to ensure thathold some of the country’s highest the mall retains its pole position as ahousehold incomes. The approach to vibrant and attractive lifestyle shoppingMutiara Damansara, where the Curve and dining destination.is located, is via five access points thatlead off major highways such as the LDP, The traffic congestion created bySprint Highway and North Klang Valley vehicles going into the mall duringExpressway. the weekends is a happy problem for shopping mall owners as it means thatAnother attraction of The Curve is its shopper volume is high. Retailers willphysical linkage to other niche retail also be happy as it means more businesscentres. Presently, there are two on- for them! While this is still an issue Thegrade crossings to the IKEA Home Curve has to contend with, Ghazali saysFurnishing Store and IPC (formerly Ikano the Mass Rail Transit service whichPower Centre), an underground link to is expected to be operational in fiveIKEA, an overhead pedestrian bridge years’ time, is expected to alleviate theto IPC and two overhead pedestrian problem. “The most successful propertybridges to e@Curve. projects, location is crucial in Another factor expected to enhance order to attract the shoppersThe Curve is also connected to Tesco The Curve’s attractiveness as an with high spending propensity”on-grade and to Curve NX via another entertainment and shoppingoverhead pedestrian bridge. Connection destination is the forthcoming opening Dato’ Ghazali Mohd Alito the 28-storey Surian Tower office of the award-winning Indoor Childrens’ Director, Property Division,block is via e@Curve. These connections Role Playing Theme Park, “KidZania” in Boustead Groupare critical in driving traffic to the Curve. November 2011 in the Curve NX. located
  4. 4. COVER STORY 4Suria KLCC, Kuala Lumpur City CentreSuria KLCC He added that understanding its 4% to5% due to on-going renovation customers well made it possible for the work. Construction of an additionalSuria KLCC is ranked number four in centre to have the highest productivity 130,000 sq ft of retail space is expectedterms of productivity in South East per square foot in the country, to enhance the mall’s appeal, especiallyAsia, says Suria KLCC Sdn Bhd chief generating sales of around RM2 billion when it is going to house the firstexecutive officer Andrew Brien. What last year. Although competition has Armani Cafe, larger space for Cartier andmany are not aware of, however, is that comes from the many neighbourhood a larger departmental store. Suria KLCCthe company does not only manage malls mushrooming in the suburbs of is committed to bring in 25 new retailersthe high-performance Suria KLCC but Kuala Lumpur, they still don’t have what into the mall.also Alamanda Putrajaya, the flagship Suria KLCC has. Due to this, almost twoneighbourhood mall of Putrajaya, and dozen Number One stores are located inMesra Mall, which is located in Kemasik, Suria KLCC.Terengganu. “We don’t have to be the biggest kid inLast year Suria KLCC , Alamanda town to be the best kid in town,” saysPutrajaya and Mesra Mall generated Brien. To date, Suria KLCC has brought in10.2%, 17.6% and 17.5% in specialty 40 new brands into Kuala Lumpur.sales growth respectively. Investors In terms of retail mix, Brien mentionedusually look at specialty sales growth that Suria KLCC is continuouslyto gauge the success of a mall. looking to plug the gaps that will ensure customer satisfaction and thatThe key to the making of a good shopping it usually takes three to five yearsmall starts with understanding the planning for tenants to come in.customers, Brien says. He mentionsthat the company put a lot more into He said that as a strategy to drive “Investors usually look atresearch compared with other shopping traffic to the upper floors, Suria KLCC specialty sales growth tomalls to understand its customer base. positioned their F&B section and gauge how successful a mall”Extensive research shows that Suria renowned bookstore Kinokuniya on theKLCC’s customer base is predominantly uppermost floor. Andrew Brienfemale and that 80% of consumer Chief Executive Officer,traffic is local, while the remainder are Brien admitted that this year, Suria Suria KLCCforeigners. KLCC will only see moderate growth of
  5. 5. SPOTLIGHT 5MAPPING and south of Bukit Bintang, mainly the Kuala Lumpur International Financial into the market and it will correct by itself. I think the authorities shouldMALAYSIAN District (KLIFD), Warisan Merdeka and the RMAF Airbase Project in Sungai Besi; develop a mechanism to continuously monitor and try to curb this situation asREAL ESTATE • Three major MRT Stations are located in the southern Golden Triangle. They are BB-Pudu, Pavilion and the KLIFD empty buildings will portray a negative image to the investor.by S.Sulocana site; and MPI: To what extent do you think the • I foresee more parts of the Bukit Economic Transformation Programme Bintang area being converted for (ETP) will influence the Property development. Market? HCS: The Greater Kuala Lumpur Another upcoming area would be development is one of the most Cyberjaya. More and more developers important initiatives to drive the a scurrying to secure landbanks as economy because wealth is generated Cyberjaya is slowly turning into a self- in concentrated urban cities. Kuala sustaining suburban township similar Lumpur contributes eight times the to DesaPark City. GDP of any other geographic cluster in Malaysia. People are now more interested inHo Chin Soon is the pioneer in producing buying homes in suburban areas closer The most exciting project in the Greaterreal estate-based maps in Malaysia. to their workplace and away from KL development is the high speed rail toHe started producing maps 21 years the hustle and bustle of the city. An Singapore and the MRT System. Theseago and now a Ho Chin Soon map is a attractive feature of Cyberjaya is that two projects will spur developmentmust have for Malaysian companies, travel time to Kuala Lumpur is only 20 of the surrounding areas and increaseinvestors and home buyers. minutes through the Maju Expressway. commercial and residential activities.Ho has produced maps of Kuala Lumpur, The authorities have changed the The designation of specific areas toJohor, Penang and Singapore and has plot ratio and allowed high density specific activities, for example, Financialwritten four books: Location, Timing & d e v e l o p m e n t , a t t ra c t i n g m o r e Hub (Kuala Lumpur InternationalBranding, Iskandar Malaysia, Penang developers to build in this area. SP Setia, Financial District), Shopping Area (JalanIsland and Greater KL: The Rise of Bukit Mah Sing and Glomac are some of the Ampang to Jalan Bukit Bintang) andBintang. MPI caught up with him to gain 12 or so developers that have started Central Business District (KL Sentral)some insight into the current and future residential and commercial projects are important to create focus andtrends of the real estate market. there. rejuvenate these areas.MPI: What are the growth segments MPI: What is your take on the concerns MPI: How does Malaysia fare compared(Residential/ Commercial) for 2011? of rising residential property prices in to Singapore and other regional marketsHCS: The residential sector will be quite the Klang Valley? in terms property market outlook?hot in 2011. Within the residential HCS: This is a global phenomenon and HCS: Malaysia is a safe haven with stablesegment, landed property prices we are not the only country facing this. returns! Other markets in the region areare expected to rise and high-end The prices of properties will continue to highly volatile and exposed to the globalcondominium price growth will flatten rise and are unlikely to decline. economic situation.out, with prices ranging from RM500 persq ft and above. Having said that, affordable homes are MPI: What are the characteristics that still available at KL Fringes away from should be incorporated to make theThis year will see an oversupply scenario the city. Major parts of the Rubber Malaysian Property Market attractivehappening in the office space segment Research Institute Sungai Buloh to foreign investors?but the situation will eventually development are designated for the There should be an end to flip -flopcorrects by itself. The retail segment has development of medium-cost houses policies. For instance, the Reala fashion element attached to it. The catering to rising demand for affordable Property Gains Tax was removed inattraction for one shopping centre over homes and to somewhat stabilise 2007 and then re-introduced in 2009.the next will depend on the trends and property prices. The Government should guaranteebrands it carries. that there will be no changes in such The government’s efforts to improve policies for say, 10 years, so that foreignMPI: What are the upcoming hotpots the transportation system in Greater KL investors will be comfortable andin Greater Kuala Lumpur? will encourage more people to live away confident about investing in Malaysia.HCS: The action is in the southern part of from the city as they will be able to travel All states should have consistent rulesthe Golden Triangle. In my latest book, within minutes to their workplace. and regulations. Currently, differentGreater KL: The Rise of Bukit Bintang, I states have different regulations andhave elaborated on the reasons for my MPI: How do you think industry this is creating unnecessary confusionassumption. The Bukit Bintang area will players could curb the looming office amongst foreigners and also locals.rise because: oversupply situation?• Major projects are located in the HCS: Industry players are alreadysouth portion of the Golden Triangle cautious about releasing more space
  6. 6. POLICY 6GETTING PAST Prior to that, in the period between January 2004 and January 2008, the The state of Johor, while adhering to the EPU guidline, has, for historical reasons,IRREGULAR MFIV was RM250,000, a comfortable figure for many foreign investors. chosen to levy a sum of RM10,000 on all foreign home buyers.REGULATIONS The increase came as a jolt to many prospective foreign investors looking to buy real estate in Malaysia. Some other states are giving approvals for foreign purchase under RM500,000Foreign purchasers should not be on a case-to-case basis, which works indeterred by fluctuating rules from The really keen ones still forged ahead, favour of foreign investors, but alsoowning property in Malaysia however, willing to pay upwards of contributes to confusing them as to RM500,000 to own a property here, only what the actual regulations are.by Michael A. David to come up against different policies on the MFIV set in place by the various It appears from these cases that it is theImagine, if you will, a young man setting State governments in the country. State governments that are calling theout to woo the woman of his dreams. He shots when it comes to land ownershippromises her a happy and prosperous To date, 11 of the 14 Malaysian states by foreigners. Although the Federallife and dedicates himself to taking have observed the EPU regulation Government sets the policies on foreigncare of her for the rest of her life if she by setting a MFIV of RM500,000. The property investment, particularly withwill marry him. Convinced by his sweet latest to do so was Selangor, which regard to minimum purchase price forwords and description of what could be, ammended the MFIV from RM 250,000 foreigners, the State governments haveshe accepts his proposal, expecting his to RM500,000 on 1 April 2011. the authority to overrule these policiesfamily to welcome her with open arms. and put their own in place. Sarawak, however has chosen to stickAlas, before she can set foot in his home, with its MFIV of RM300,000, which was Having said that, these differingshe is faced with pre-conditions put the value it put in place even when the regulations need not be a deterrentforward by his mother. She finds ways EPU, which comes under the purview of to foreigners looking to invest hereto conform, thinking she will be given the Federal Government, had pegged it as they can turn to Malaysia Propertythe green light to move in. But then at RM250,000. Despite the EPU decision Incorporated to clarify the rules andher young man’s father comes up with to increase it to RM500,000, Sarawak regulations for purchase. MPI, whichdifferent conditions that put a spanner continues to maintain the MFIV at plays the role of matchmaker betweenin her plans. Fed up, she tells him to RM300,000. property purchasers and vendors, isget his house in order and sort out his also a one-stop information centreparents’ contradictory dictates if she is The state of Pahang, while largely for foreign investors needing moreever to wed him and move into his home. adhering to the MFIV of RM500,000 in information on the Malaysian real most areas, has opted to increase the estate scenario.If you haven’t quite got the point to amount for purchase of property inthis story yet, it is a metaphor for three prime districts, namely Cameron It is hoped that consistency in foreignMalaysia’s efforts to woo foreigners into Highlands, Bentong and Kuantan, to property purchase guidelines is reachedpurchasing property here. The parents RM750,000. As most of the properties in at some point, but until then, investorsin this story are a representation of the these areas are pegged below this value, should look beyond to the advantagesEconomic Planning Unit (the mother) it in effect, makes them inaccessible to of owning property in Malaysia.and the State government (the father). foreign property purchasers.The lack of a common guideline betweenthe two parties on property purchase by Figure 3: Minimum Foreign Investment Values (MFIV) For Each Stateforeigners is causing no small measureof confusion in the minds of genuine State MFIV (RM) Levy (RM)investors who sincerely want to makeMalaysia their home. Kuala Lumpur, Labuan, Malacca, Negeri Sembilan, Terengganu, 500,000 Not applicablePreviously, foreigners intending to Perlis, Kedah, Penang, Perak,buy property in Malaysia needed the and Selangorapproval of the Foreign InvestmentCommittee (FIC). This prerequisite was Johor 500,000 10,000removed in January 2008 to facilitateforeign investment in Malaysian real Pahang 500,000 Not applicableesate. This has to some extent made (Cameron Highlands, Bentong, Kuantan) 750,000 Not applicableit easier for foreigners to purchaseproperty here. Sarawak 300,000 Not applicableHowever, the increase in the minimum Kelantan Not allowed to purchaseforeign investment value (MFIV) by100% to RM500,000 by the Economic Sabah Not applicablePlanning Unit (EPU), also in January2008, succeeded in countering thebenefits brought about by the removal Source: EPU, State Governmentof the need for FIC approval.
  7. 7. CEO’S SPACE 7REMOVING 10 years, while in other parts of the city, large holes appear to be permanentlyTHE BLIGHTS etched in the ground.ON OUR The most prominent of these is the old site for the Grand Duta Hyatt at theLANDSCAPE corner of Jalan Ampang and Jalan Sultan Ismail. This eyesore has been around for more than a decade since it was moth-How can we addressed the issue of balled after the 1997 financial crisis.distressed properties in the heart of Visitors coming into the city have toKuala Lumpur? pass this unfinished structure every day. A check with DBKL showed that the development order for the project is still valid but no work has been done on the site for many years, leaving it as a blight on the landscape of a fast-evolving city. A hundred metres away is the Vision City project started by RHB Capital when it was still owned by Tan Sri Grand Duta Hyatt Hotel Project Rashid Hussain. Also a victim of the 1997 financial crisis, it has remained In 2007 it was sold to Quill-Capita, a by Kumar Tharmalingam unfinished for more than a decade, an joint venture between the Malaysian unsightly shell spurned by the Korean Quill organisation and SingaporeWhy do parts of central Kuala Lumpur contractor who has vanished from the Capitaland, which paid a princely sumstill look distressed so many years after scene. of RM430 million, much to the relief ofthe 1997 crisis? RHB Capital. The new owners are now trying to find the best solution to unlockCurrently, there is no mechanism to its potential value. DBKL has indicatedtrack if any projects in Kuala Lumpur City that a new building plan was approvedCentre are half-finished or abandoned The city centre of Kuala in 2010 and is valid till 2013.for any number of reasons. The City Hall Lumpur is an excitingof Kuala Lumpur (Dewan Bandaraya location to be in right now The most famous hole in the groundor DBKL) has cautioned that some of is perhaps Plaza Rakyat in Jalan Pudu,these projects cannot be considered and much sought-after by which was a project begun beforeabandoned as they might be in a new property developers who the financial crisis as a joint-ventureapproval phase and their building plans wish to establish their brand between DBKL and Plaza Rakyat Sdn.may be still valid. here while having regional Bhd. Due to legal complications, DBKL project bases has been unable to terminate the joint-Still, one cannot help noticing that some venture, so we can expect to see thatparts of the city centre in full view of hole in the ground for some time tothe Twin Towers even now have cladding come.veiling them from sight after more than Both the Vision City and Grand Duta Hyatt projects are within a kilometre of two other unfortunate developments that have also floundered along the way. These are Berjaya Group’s Ritz Carlton project and Y&H Tower. I suppose one can’t blame the superstitious if they decide to label this stretch of Jalan Sultan Ismail as “suey” – a Cantonese term used to refer to something or someone that is cursed. The Berjaya Group’s Ritz Carlton project at the corner of Jalan Sultan Ismail and Jalan Ampang was launched with fanfare in 2005, yet six years down the road, only the substructure has been completed. (continued next page) Abandoned Plaza Rakyat in Jalan Pudu effected DBKL - Plaza Rakyat Sdn.Bhd joint-venture
  8. 8. CEO’S SPACE 8(from previous page)Further down the road, across the sitefrom Concorde Hotel is the Y&H Towerwhich was purchased by a tenderexercise from Danaharta. Y&H is thethird developer to purchase this siteas two other previous owners wereunable to bring the project to marketand went under. The site is a difficultone as the only green lung in KualaLumpur city centre – the hill called BukitNanas -- is directly behind it. Undercurrent planning restrictions, this hillslope would require major structuralramifications.Other buildings within this location arethe old, incomplete D&P office whichis now owned by the Wing Tai Group. Vision City project, along Jalan Sultan Ismail started by RHB CapitalWing Tai has submitted fresh plans forthe project but these have still not been and developer and promoter of projects in the area that appear to beapproved. It may be 2012 before it gets Bumiputra interests in the capital, was suffering a silent death.off the ground. it necessary to sell such a site without due consideration to other government- In conclusion, construction activity isAnother of Kuala Lumpur’s barren sites linked corporations that could have the lifeblood of any growing city andthat sticks out like a sore thumb as you purchased the site? shows growth and vibrant economicdrive past is a prime parcel of land on activity. Moth-balled sites, especiallyJalan Sultan Ismail owned by UDA and The city centre of Kuala Lumpur is an those neglected for more than a decade,approved for a high rise condo before exciting location to be in right now represent low economic activity, poorUDA’s management changed hands. and much sought-after by property planning and poor enforcement by the developers who wish to establish their planning authorities.At the end of May 2011, Mutiara brand here while having regional projectGoodyear Development, a boutique bases. This site will certainly be more Perhaps it is time to put some thoughtapartment developer from Subang valuable when Capitaland re-starts the into how we can get these sites gearedJaya, purchased the site from UDA for Vision City project. It is hoped that this up for the next decade.RM215.5 million. As the premier owner will spur the resurrection of the otherFigure 4: Selected Distressed Properties Within Kuala Lumpur City Centre - Vision City’s integrated Wing Tai Group’s development project integrated development Duta Hyatt hotel project UDA Land project Berjaya Group’s - Ritz- Carlton hotel project YNH’s integrated office project Plaza Rakyat’s integrated development project Source: MPI Research
  9. 9. IN THE NUTSHELL 9RESIDENTIAL On 5 May 2011, BNM increased the overnight policy rate (OPR) by 25bp to The current BLR of 6.6% is supportive of growth in the residential real sectorSECTOR 3.0%, consequently increasing the Base Lending Rate (BLR) by 30bp to 6.6% to but further rate increases might prove otherwise.CONTINUES combat inflation. The average Malaysian residential houseSTRONG The hike is unlikely to hamper growth in the residential property segment as it is price has been increasing gradually with low volatility, indicating that the rise isGROWTH still below the 1997/98 average of 8.0% to 10.0%. During the 1997/98 financial due to demand and not to speculative buying.TREND crisis the residential property segment took a hit and gradually recovered from 2000 onwards as rates went back to anHealthy demand for houses not average of 6.0% to 7.0%. (continued next page)curbed by inflationary measures Figure 5: KL Composite Index, KL Property Index and House Price Index, 1992-2010by S.Sulocana The 1997/98 Y2K buble bust 2008 / 2009 Index Asian in 2001 & Sept 11 Subprime Index Financial Crisis terrorist attact crisisMalaysia’s GDP for the first quarter 3,500 250of 2011 declined to 4.6% comparedwith 4.8% in the previous quarter. The 3,000 2001Q2011 GDP rate is below consensusestimates of 4.9%. The reported figure 2,500indicates Malaysia will be going through 150a bumpy year ahead amidst rising 2,000inflationary pressures and commodityprices. 1,500 100Decelerating global economic growth 1,000fuelled by the escalation of fiscal 50conditions in advanced economies 500and possible global supply disruptionsfollowing the developments in Japan are 0 0expected to exacerbate the situation. 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Legend: KL Composite Index (LHS) The average Malaysian KL Property Index (LHS) residential house price has House Price Index (RHS) been increasing gradually Source: Bloomberg, NAPIC, MPI Research with low volatility, indicating that the rise is due to Figure 6: Average Malaysian Residential House Price, 2003-2010 demand and not to RM’000 speculative buying 250 200Inflation continues to rise, reaching3.2% in April 2011 and signalling apossible rate increase by Bank Negara 150Malaysia (BNM) in the second half of2011. The rise in the inflation rate is due 100to rising oil prices and subsidy cuts.The recent subsidy cuts were in sugar 50and diesel, resulting in prices increasingfrom RM1.45 to RM2.30 per kg and from 0RM1.45 to RM1.80 respectively. The 2003 2004 2005 2006 2007 2008 2009 2010government has also announced thatall subsidies will be reviewed every six Source: NAPICmonths.
  10. 10. IN THE NUTSHELL 10(from previous page) Figure 7: Malaysian GDP Growth Rate , 2001-2011f Growth (%) 8 7.2 7 6.8 6.5 5.8 5.8 6.0 6 5.4 5.3 5 4.7Rising residential property prices arenot broad-based and occur in specific 4pockets in Kuala Lumpur City Centre 3where branding has been prominent by 2either location or developer, for exampleDesa ParkCity or SP Setia. 1 0.5 -1.7 0The growth in residential properties is -1expected to be strong as Malaysia has -2a large young population entering the 2011f 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010workforce. They represent a growing -3group of prospective first time home Note: 2011f - estimated growth percentage by Economic Planning Unit (EPU) as at February 2011buyers. Source: Economic Planning Unit (EPU) Figure 8: Base Lending Rate (BLR) and Overnight Policy Rate (OPR), (%) January 2007 - May 2011 The growth in residential 7.5 properties is expected to be strong as Malaysia has a 6.0 large young population and they represent a group of 4.5 prospective first time home buyers 3.0 1.5Close to 60% of the population are below 0the age of 30 and the 10-year population Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Oct-07 Oct-08 Oct-09 Oct-10 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jul-07 Jul-08 Jul-09 Jul-10growth rate stands at 2.2%. Malaysianhas a high savings rate; householddebt-to-GDP of 76% is supported by Legend: Base Lending Rate (BLR) Overnight Policy Rate (OPR)high household deposit-to-GDP of Source: Bank Negara Malaysia (BNM)53%. A high saving rate on the back ofhealthy demand provides ample room Figure 9: Consumer Price Index (m-o-m % change) and Inflation Rate,for growth in the residential property Jan 2006 - March 2011 (%)segment. 10 8 6 4 2 0 -2 May-06 May-07 May-08 May-09 May-10 May-11 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 -4 Legend: Consumer Price Index (m-o-m % change) Inflation Rate Source: Reuters, Department of Statistics Malaysia

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