Sentiment in the Kuala Lumpur residential property market is a mix of optimism and caution as prices of new property launches continue to escalate while affordability is declining for the average house buyer, according to DTZ Research's Property Times KL 1Q2011 report.
"Developers are generally optimistic with planned new launches. However, with prices and affordability moving in different directions, the market may enter into an uncertain patch before settling into a more discernible trend," said DTZ.
The higher property prices are due to higher land prices and construction cost. Continued liquidity and the current low interest rate environment are also contributing to the price escalation.
However, "it is unknown whether the latest revisions on the margin of financing on third property purchases and a reduction in banking liquidity through the increase in statutory reserve will rein in runaway prices," DTZ said in the report.
Strong latent demand is building up for more affordable properties, it said, adding that the proposed billion-ringgit mass rapid transit (MRT) project would hopefully enable sites located further away from the city centre to offer affordable homes given their lower land costs.
On the KL condominium market, DTZ noted that the KLCC area is turning into a tenant's market as more condominiums are completed, especially larger units. It added that even in the secondary market, there is ample supply.
"A recent survey of completed projects around the KLCC area revealed that occupancy ranged from a low of about 10% to a high of 80%, with an average 56%, an issue that investors should be wary of," DTZ said.
Overall capital values of KL condos are relatively stable at an average RM603 psf, with KLCC properties averaging RM910 psf. The Capers at Sentul that was soft launched by YTL Land & Development Bhd in March saw an average price of RM600 psf — setting a new benchmark for the area that received good response.
Among those scheduled for completion in 1H11 are 1 Sentul, Clearwater Residences, Kiara 3, Kiara 9 and Sunway Palazzio.
"Future supply of prime condominiums in KL will mostly come from outside the city centre," the report said.
On the office market, DTZ said the sector is likely to remain soft in the next few years. Average prime office rents increased slightly from RM5.97 psf per month in 4Q10 to RM6.12 psf per month in 1Q11 but rents continue to be under pressure, with anticipation of substantial supply in the pipeline. The overall occupancy rate also increased marginally from 86.4% in 4Q10 to 86.9% in 1Q11.
"Some existing prime buildings reported higher occupancies although this may be temporary with more new supply coming in the later part of the year," said the report.
In the quarter under review, 240,000 sq ft was added to the office stock in KL with the completion of Hampshire Place, while about 13.24 million sq ft of new office space are in the pipeline between 2011 and 2014.
The retail market continued to be active in 1Q11 but the increase in inflation could dampen consumer spending, said DTZ. Nevertheless, the sector remains optimistic with forecast retail sales growth of 11% in 1Q11. Occupancy remains at 87% while no substantial movement was noted for rental rates of most malls.
It said no new space was added in the quarter with the existing stock staying at around 41.64 million sq ft for the Klang Valley and the potential supply remaining the same as in the previous quarter with most coming in 2011.
"The performance of malls is likely to be mixed going forward, with selective prime malls continuing to outperform although at a slower pace than before. The rest, especially suburban malls, will be subject to stronger competition resulting in flat rental growth," it said.
Meanwhile, investment volumes dropped marginally by 2% from 4Q10 to RM1.4 billion in 1Q11. Major greenfield projects such as KL Eco City, redevelopment of the former Pudu Jail, the KL International Financial District and the Sungai Besi Airport will offer opportunities for joint ventures with foreign investors. However, with the political turmoil in the Middle East and the recent earthquake in Japan, the impact on Malaysia is still uncertain.