KUALA LUMPUR – The high-end residential segment, particularly strata units, is heading towards a price correction this year after a rapid rise in prices driven by the now-banned Developer Interest Bearing Scheme (DIBS).

CBRE-WTW managing director Foo Gee Jen said prices of high-end stratified residential properties would see a 10% to 15% correction this year, while landed residential properties may see a correction of not more than 10%, if at all.

“You have to go back to the history of what happened two to three years ago. Whenever developers offer a project, a lot of DIBS and so forth were catered to stratified properties. For landed properties there were no issues in selling so there’s not so much mark-up in terms of pricing for landed properties but a lot of mark up for stratified properties,” Foo told reporters at the 2017 Asia Pacific Real Estate Market Outlook briefing yesterday.

Some of the units bought with DIBS and other forms of rebates are back in the market today, at prices that are much lower than the original selling prices two years ago, and Foo said this is particularly apparent in Johor Baru, Kuala Lumpur and Kota Kinabalu.

Looking at the subsale market, Foo observed that sellers are a lot more realistic today and the gap between asking and concluded prices is narrowing.

“I believe strongly that the price correction has started. A lot more developers are taking note of that. A lot of them are suffering, some of the high-end products are not moving and if you go into their showroom it is very quiet.”

According to CBRE-WTW Research, the total number of luxury condominiums in Kuala Lumpur amounted to 37,824 units as of end-2016 and 86% of existing luxury condominiums are in the RM700-RM1,000 psf range, which could decline to 64% by 2019.
Upscale condominiums priced RM1,001-RM1,500 psf are expected to see the greatest growth averaging 4,000 units per year, making up 23% of total condominiums by 2019.

Within the residential segment, Foo said the biggest challenge is for SOHO/SOVO (small office home office/serviced office virtual office) units where occupancy rates are very low due to oversupply, and will remain so until infrastructure projects are completed in three to four years’ time.

“If all the infrastructure are put in place, living in the city becomes a lot more sexier. Then people will come back to fill up this space. I think people will not mind paying a bit more in terms of rental to compensate for toll, petrol and travelling time,” he said.

“I hope to boost this (SOHO/SOVO segment). Some of them will be able to convert to Airbnb, at least the market will be healthier than a firesale,” he added.

Overall, the residential property segment is expected to be flattish this year in terms of volume and lower in terms of value as more developers shift into affordable housing.

“The only good sign is a lot more developers will venture into affordable housing. If the government pushes hard enough in terms of supply of PR1MA homes and others, the residential segment, I think, will see a slight improvement but overall if you add up the rest, commercial and others, I think it (volume) will be very flat,” said Foo.

– Sundaily