Written by Mohd Ikrham Merican
As Malaysia’s primary economic engine, Kuala Lumpur and its environs exert a strong influence on the rest of the country and remain a key attraction for property investors. Here, an industry insider looks at the realities of today’s market in Greater Kuala Lumpur.
Beginning at the muddy confluence of the Gombak and Klang rivers as a tin mine settlement in the mid- 1800s, Kuala Lumpur has blossomed into a bustling metropolis, teeming with an international population.
Today, Kuala Lumpur is Malaysia’s largest city and conjoined with its surrounding areas, is known as Greater Kuala Lumpur (GKL). It is only natural that GKL sets the benchmark for property prices and innovation. Pioneering ideas like managed service apartments, ultra-luxurious branded apartments, and lifestyle properties, developers in GKL consistently push the boundaries of property development, paving the way for other areas.
In the future, Iskandar Region in Johor may parallel GKL, but for now, GKL is the protagonist in the property play.
In the last few years, Malaysia’s property market has come under intense scrutiny. East Malaysia, GKL, Penang, and Iskandar Region in particular have seen price disparity grow to alarming levels.
In Merdeka Center’s 2012 National Public Opinion Survey, providing an affordable housing scheme to the people was a close third amongst nine issues that Malaysians expected of the government.
People’s sentiment, new policies, and the dynamics of the economy at large promise an interesting year in 2015 for the property market in GKL.
A Quick Look at GKL
Before diving into the thick of the matter, it would be important to appreciate the concept of GKL.
Greater Kuala Lumpur is actually a fairly new term that came into popularity after Prime Minister Najib Tun Razak referred to it in his Economic Transformation Plan in 2010.
It consists of 10 municipalities in Kuala Lumpur and its surrounding areas, which include Kuala Lumpur, Ampang Jaya, Petaling Jaya, Subang Jaya, Shah Alam, Kajang, Putrajaya, Klang, Selayang, and Sepang. Essentially, GKL is Kuala Lumpur and its surrounding area in the state of Selangor.
Based on iProperty.com’s H2 2014 Asia Property Market Sentiment Report, Kuala Lumpur and Selangor are the top 2 preferred locations to purchase property. Kuala Lumpur and many parts of Selangor collectively make up GKL.
According to the same report, property hotspots inside Selangor (and part of GKL) in order of ranking are:
• Petaling Jaya
• Ara Damansara
• Bukit Jalil
• Shah Alam
In terms of infrastructure, GKL is far ahead of the rest of the Peninsula and East Malaysia. While Malaysia boasts the best-developed infrastructure among Newly Industrialized Countries in Asia, much of this infrastructure coalesces in GKL.
GKL is home to a best-of-class airport, good road connectivity, and numerous rail network systems that are being extended or newly built. Examples include the LRT, MRT, Monorail, ERL, and Komuter.
Demand For Housing In GKL
Demand for housing in GKL will be driven by robust population growth.
Currently, the local population stands at about 7 million and is expected to grow to 10 million by 2020. This is a very healthy increase and indicates strong demand for housing in the years to come.
However, a dark cloud hangs over the market and that is affordability. According to think-tank Institute Rakyat, houses in Kuala Lumpur and Selangor fall in the ‘severely unaffordable category’.
iProperty’s H2 2014 Asia Property Market Sentiment Report concluded that “even the most affordable property is already beyond the reach of the majority in Kuala Lumpur, Putrajaya and even Selangor.”
Cooling measures introduced by the government like higher RPGT, banning developer interest-bearing schemes, increased interest rates, and tighter lending policies have managed to reduce the number of transactions but prices have not been fully arrested.
This poses a concern – how easy will it be to liquidate houses in GKL in the secondary market?
Depending on the price segment, location, and product, it may vary but the prevailing opinion is that we will very likely see a period of consolidation at some point in 2015.
Policy Towards Foreign Ownership
GKL, especially Kuala Lumpur City Centre (KLCC), is a hotspot for foreign property buyers. Other areas in GKL that have become havens for expatriate communities include Bangsar, Mont Kiara, and Damansara Heights.
Foreign ownership of property in Malaysia is about 3% but if you zoom into Selangor, it is about 5% – 7%. In KLCC, according to Siva Shanker, President of the Malaysian Institute of Estate Agents (MIEA), it is about 20%.
One can conclude that foreign ownership of property is significant in KLCC and to a lesser extent in Selangor but the engine that propels the property market in GKL is still made in Malaysia.
Interestingly however, 74% of respondents in iProperty’s H2 2014 Asia Property Market Sentiment Report said that they believe foreigners were driving up property prices.
That aside, in 2013, the government raised the minimum purchase price of residential property for foreigners in the Federal Territories to RM1 million. This was not a bad move, as it was intended to ease price pressure in the segment below RM1 million.
However, in Selangor, sometime towards the end of September 2014, the local government raised the minimum purchase price of residential property for foreigners from RM500,000 to RM2 million in Zon 1 and 2 (most of Selangor) areas. In Zon 3 comprising Hulu Selangor and Sabak Bernam, it was raised to RM1 million.
Why the Selangor government would raise the minimum purchase price in areas such as Hulu Selangor and Sabak Bernam, which are far outposts as far as foreign property investors are concerned, is perplexing.
The minimum commercial property price for foreigners was also raised to RM3 million.
It gets better. The Selangor government made this ruling retroactive, thus coming into effect on 1st September.
With this, all the property hotspots in GKL listed above have become more resistant to foreign ownership.
It appears that the Selangor government is not in favour of foreign property ownership in the state, but this is not in line with plans for the Economic Transformation Programme espoused by the Federal government, in and of which GKL is a crucial part.
Despite this setback, Malaysia still remains one of the friendliest countries for foreign property ownership in the region. However, growth of foreign ownership is now expected to converge around KLCC, Mont Kiara, Bangsar, Damansara Heights and Iskandar Region, with Selangor left behind.
The volume of property transactions has been declining. The period between 2013 to 2014 saw a 30% drop in volume. Developers have been reading the signs and pulled back on new launches.
In H1 2014, the number of new launches picked up marginally but sales performance was at its worst since 2009. This has been noticeable in GKL.
Unaffordability, rising cost of living, significantly higher loan rejections, increased interest rates, and uncertainty over GST’s effect could be attributed to the slowdown in sales as buyers adopt a wait-and-see approach.
This does not mean the winds are changing for one of the most attractive property markets in the region.
The Malaysian economy is expected to grow between 5% – 6% in 2015. It is healthy growth and the property market will ride safely on the back of this. GKL still has the best developed infrastructure in the country and amongst Newly Industrialized Countries in Asia.
GKL is a key part of a robust Economic Transformation Plan that aims to create more jobs, improve infrastructure, and attract foreign investment.
Property trends indicate that buyers prize location and lifestyle value when buying properties. In this aspect, GKL is the hub for infrastructure enhancements and offers superb lifestyle value via:
• World-class shopping centers
• International cuisine
• A variety of entertainment outlets
• International schools
• Reputable healthcare centers
• Fantastic golf courses
• Fabulous tourist attractions within a 100KM radius
Backed by a strong economy, robust population growth, good infrastructure, and excellent lifestyle options, the property market in GKL is still poised for attractive growth.
The MIEA believes that 2015 may likely be a consolidation period for the property market but that 2016 and 2017 will be more likely to see an upturn.
What’s In Store
The implementation of GST is perhaps one of the most anticipated events for 2015. A majority of the people in Malaysia believe that GST will make houses more expensive.
Looking at how GST affected the property market in Australia, it may be safe to assume that there will be a price spike around the implementation period of GST (April 2015), which will then stabilize.
The government and Real Estate Housing Developers Association (REHDA) believe that the price increase will be between 2% to 3%.
More foreigners may train their sights on KLCC, Mont Kiara, Bangsar, and Damansara Heights as restrictions on the Selangor part of GKL make it unattractive. It remains to be seen if this will have the effect of aggravating prices in Kuala Lumpur.
The economy is expected to grow healthily in 2015, and the property market is expected to keep its luster, especially in GKL where most of the demand is.
Almost all of the hotspots in GKL are now in the south. Places like Cyberjaya, Bukit Jalil and Kajang appear to be trending. Most experts agree that you cannot go wrong by following the infrastructure. These are:
• Proximity to public transportation stations, especially MRT, LRT, and Komuter (KTM)
• Proximity to iconic shopping malls (think Pavilion in KLCC and Mid Valley Megamall which have boosted the value of surrounding houses).
• Good road connectivity
Although 2015 may most likely be a year of consolidation for the market, it is expected to pick up in 2016 and 2017. GKL will be at the forefront of this wave as it continues to have the strongest demand in all of Malaysia.