MALAYSIA BUBBLE – WHO’S SNAPPING UP ALL THESE RM1MIL STUDIO UNITS? CASH-RICH BUYERS – BUT FROM WHERE!

KUALA LUMPUR – For the average Malaysian wage earner, the idea of paying over RM1 million for a condominium unit just over 600-sq ft may sound preposterous, but that has not stopped developers from reporting roaring sales for the segment.

Due to the Malaysia’s rules that permit foreigners to buy and own property with few restrictions beyond a RM1 million minimum price, such condominiums continue to be attractive for investors looking for a safe venue to park their funds.

According to statistics from the Valuation and Property Services Department, property sales in Malaysia dipped 4.3 per cent in the first nine months of 2017.

Despite Bank Negara Malaysia’s report of an oversupply in the luxury property category, analysts and agents told Malay Mail that the luxury condominium segment has not suffered more than others.

During a visit to a high-end mixed development project near Bangsar, Malay Mail was made to understand that at least 80 per cent of the condominium units costing RM1 million each — and sized about 600 square feet — were sold within two years of its launch.

According to a salesman, most were bought outright with cash, which he said suggested that buyers picked these up for investment purposes.

He also said most were sold without needing to resort heavily to the discounts, rebates and offers that are common in the lower price categories.

Who are these buyers?

“I would say that foreigners may still be attracted to prime units around the KLCC area in the optimum region of about RM1-RM1.5 million,” former Malaysia Property Incorporated vice president David Shieh told Malay Mail.

“Not many countries in the region or around the world allow foreigners to own freehold properties. Secondly, price per square feet for Malaysian properties is still one of the lowest in the region,” he added.

He noted that foreign buyers were concentrated in the higher price categories due to the federal government’s restriction on them buying real estate valued below RM1 million.

The measures were introduced as part of Putrajaya’s plan to control spiralling home prices, in a bid to remove foreign competition to Malaysians trying to afford starter homes.

While paying over seven figures for what are essentially studio units may not appeal to those with families, property investors are more concerned about potential returns than the attractiveness of the living space.

Knight Frank Malaysia’s Kelvin Yip explained that because most such properties is located in the Kuala Lumpur’s central business district where land price is expensive, developers must reduce sizes to keep the prices within a range where there is “effective demand”.

“Purchasers understand that these are the sizes that are available within the RM1 million range and purchasers will be buying for investment as there will be demand for rental in these locations,” said the associate director of the residential sales and leasing division.

The repayment instalment for a RM1 million loan hovers between RM4,500 and RM4,800, depending on the interest rate and repayment tenure.

According to Yip and Shieh, investments in these projects could yield returns of between three and four per cent over three to four years.

“If the units have been purchased more than five years ago, then the yield would be slightly higher because if you include maintenance costs and other fees in today’s scenario, it is very difficult to break even after paying the monthly instalments,” Shieh said.

Both analysts stated that such properties were mainly sought and purchased by those with a big bank balance “who did not mind paying a little extra each month” for a greater return on investment at the end of the day.

Such buyers also tend to offload their investments to similarly cash-rich buyers, both foreign and local, preserving demand levels even as ordinary Malaysians struggle to find affordable homes.

A check revealed that most luxury condominiums in key locations along Jalan Ampang and Jalan Tun Razak are averagely priced at RM1,500 to RM2,000 per square foot, while rental is between RM5 and RM8 per square foot.

In the suburbs of Petaling Jaya, Selangor comparable high-end condominiums sell for close to RM1,000 per square foot while rental yields are around RM3 to RM4 per square foot.

According to a real estate agent, renters in such areas were primarily expatriates who are willing to pay a premium for the convenience of the location and do not baulk at rental prices of up to RM20,000 a month.

“Most of them come here to work and so they want a comfortable place to stay that is near their workplace and close to amenities, including train stations,” said the agent, who declined to be named.

“The owners of these million ringgit properties, as far as I have dealt with are mostly locals… they are businessmen, or some Datuk,” he added.

Category set to lose steam in 2018

To illustrate the target segment for such property, Shieh said developers selling units above the RM1 million mark were currently marketing these abroad.

However, he noted that the catch to the arrangement was that there was not much demand among local buyers when the foreigners want to unload these luxury units.

He also noted that there was ample supply of such units available both for sale and lease, saying the latter made it a “tenant’s market” at the moment.

Launches have also begun to slow, he noted when adding that secondary transactions were also starting to ease.

“I believe there is still a lot of supply that have yet to be properly absorbed for this segment in the secondary market and so developers are targeting sales through overseas roadshows,” he said.

Yip and Shieh both predicted further slowdowns for the segment this year.

“If Malaysia successfully attracts larger tourist numbers and MNCs with expats working in the heart of the city, it will increase the demand for the luxury segment in the heart of the city,” Shieh said.

Putrajaya announced a moratorium on approval for property price above RM1 million to prevent “reckless” lending to property developers and to address an oversupply cited by the central bank in a report on the sector.

In the Klang Valley along, Second Finance Minister Datuk Seri Johari Abdul Ghani reportedly said there were 132,000 unsold high-rise units, 42 million square feet of office space and 32 million square feet for retail.

– Malay Mail

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