More people invest in residential property than in any other form of real estate. Residential investments include ownership of landed properties and also stratified properties ranging from the low cost units right up to the 5 star developments. In the recent months there has been a spat of launches of high end properties that have experienced or reported to have experienced very good take up rates. The latest being Sri Persekutuan in Federal Hill having a 100% sales rate, justifying the market perception that there is a latent demand for high end developments and the supply is just trickling in. Moreover, there is also an obvious shift of purchasers becoming more discerning in their selection of properties.
However, there is also a very strong trend of investors, be it personal, multi-national corporate, public listed companies and even financial institutions investing in high end residential condominiums in Kuala Lumpur on an whole project, en-bloc basis. This trend is mainly due to the fact that these investments are high yielding, are scarce, no strata management required and are very limited in supply.
As of the 2nd Quarter of 2002, the total stock of condominiums was in excess of 105,000 units of condominiums in the market, out of which only about 1.5% are in the 5 star category. Out of this 1.5%, approximately 25% are owned en-bloc by investors purely for the healthy cash flow they provide and of course the long term capital gain in the real estate market.
The future supply till 2004 is estimated to increase the supply of another 35,000 units, out of which only a mere 30 units, in two projects, are in the high end category, making investments in this category an attractive option. Both these projects are not for sale on a piece meal basis and only en-bloc sales will be considered. A chart depicting the breakdown of existing and future supply of the 5 star condominiums is as below.
Other than the scarce supply of this type of en bloc investments, the yields from these properties are actually quite impressive, some even touching RM4.50 psf per month, which is generally more than the average rental of the oversupplied office sector. Many investors tend to ignore the fact that the up market condominiums are mostly leased by corporate Blue Chip Multi National Companies with senior executive expatriates. These expatriates are accustomed to paying high rentals which currently exist in Kuala Lumpur especially when they have worked before in other cities like Hong Kong and Singapore. The executives with a higher accommodation allowance will invariably go for the best designed and best located condominium development stretching the allowance to the limit if permitted. These developments are associated with facilities, privacy, exclusiveness, comfort and security. These are exactly what executives expatriates look for in a classy condominium.
With expected yields of 7%-8% per annum from blue chip multi national companies, the cash flows are actually superior cash flows from reliable tenants.
However this is not to say that there is no middle management expatriates with a lower accommodation allowance. The current trend is showing that the 3 star units are in excess supply compared to the number of middle management expatriates. This is again supported by a sample survey conducted on some 5 star condominiums in Ampang Hilir locality.
|LOCAL %||FOREIGN %|
|Desa Palma||71||100% Sold||90||10||90|
|Desa Angkasa||136||100% Sold||97||10||90|
|191 Jln Ampang||10||Retained (en-bloc)||100||10||90|
|39, Lingkungan U Thant||8||Retained (en-bloc)||100||100|
|8 Ampang Hilir||132||Retained (en-bloc)||100||100|
|Khazanah Court||20||Retained (en-bloc)||95||100|
The above statistical data indicates the fact that the 5star condominium developments have nearly 100% sale and occupancy, with the en-bloc retained units showing 100% occupancy. Whilst the 3 and 4 star condominiums are faced with falling rents and low occupancy, rental and capital values of the 5 star condominium in particular have been stable over the last 24 months.
The long term critical success factors for en-bloc luxury condominiums as an investment, other than the location, are as follows:
- Low density
- High privacy and security
- Ample facilities
- Efficient, functional and spacious layouts
- Quality finishes and fittings.
- Quality of the detailing and construction of the building
- The Property Manager's reputation
- The quality of the management and maintenance of the building
- The manner in which the management treats it's tenants
- The marketing of the property to the right channels and markets
Judging from the above statistic and trends, the 5 star condominium market will continue to improve in the long term and escalate further in terms of rentals and prices mainly due to continuing flow of expatriates (with the ongoing and forthcoming government projects and the liberalization of the financial and services sector) and lack of supply due to no-availability of suitable prime land for such development coupled with restraint on high-density development in prime residential areas by DBKL.
The writer is the Principal of Zerin Properties, a Professional Registered Real Estate Agency Company. For feedback and inquiries, please e-mail to firstname.lastname@example.org