High-end condo owners caught with rents down
By Shannon Teoh
KUALA LUMPUR, Jan 19 — Buyers are many but tenants are few for high-end condominiums in Kuala Lumpur, resulting in rental yields dropping by as much as 33 per cent in the past two years for investors.
More people are buying up these multi-million-dollar units to park their excess cash but they are finding rental prices disappointing — if they are able to rent at all.
Some properties have remained vacant for up to a year, said real estate agents who spoke to The Malaysian Insider.
“There is an expectations gap,” property consultant James Goh described the market to The Malaysian Insider.
Goh, who works for Rahim & Co, said that rental yields for high-end condos have shrunk by a third from six to four per cent of property price per year since 2008. This is not just due to escalating property prices but rental in absolute terms has also taken a dive.
He said that on average, high-end condos in the city centre have seen rental prices drop from around RM5 per sq ft to below RM4 since 2009, representing a 20 per cent decline.
He also pointed out that a large number of development projects had been completed in 2009, causing a glut.
The availability of excess cash and low interest rates — that were at a record low of two per cent up to March 2010 and now at 2.75 per cent — has swallowed up the initial supply overhang but real estate agent Lau Han Hoe said that developers are forced to continue with construction as they have running costs to cover.
The additional competition in the rental market has caused a drop of up to 20 per cent in prices around the Mont Kiara area, he said, with some properties that commanded up to RM8,000 a year ago now hovering just above RM6,000.
He added that property was still being purchased as “people are just going to keep investing because they have the cash or they’ve already borrowed the money so they have to do something”.
“Most of them are thinking long-term and what they can’t get out of rent they look for in capital gains,” Lau told The Malaysian Insider.
Goh added that the market has not been flooded with high-end property for sale despite lower rental prices.
“They already have a set price and they won’t budge much. When you’re talking about property that is worth around RM1.5 million, we are talking about people with a lot of liquid cash. They can afford to have a unit vacant for up to a year,” he said.
Prices of residential property in the capital as a whole surged by 34 per cent from mid-2009 to mid-2010 according to the National Property Information Centre (Napic).
The lack of tenants is said to be caused by the shrinking number of expatriates in Kuala Lumpur, one of the main target markets for rental of luxury condos.
Goh said this was a symptom of a drop in foreign-direct investment and multinational companies cutting costs by eliminating expatriate packages from their wage bill.
Most human resource officers in finance and business consultancy contacted by The Malaysian Insider confirm that there has been a trend of rationalising their expatriate budgets by giving priority to workers willing to take local packages or trimming benefits such as housing and transport.
Siti Salwah Anuar, a real estate agent with JA Valley properties, told The Malaysian Insider that several clients were having to cover shortfalls in housing allowances out of their own pockets, for example, forking out RM2,000 extra to secure a RM12,000-a-month condo.
She said that one of the reasons for shrinking housing allowances is due to the figure being stated in US dollar terms, which has shrunk by half a ringgit to RM3 in the last two years.
There is also a lack of consensus as to whether the market will improve for high-end condo rentals.
Financial and professional services are looking at economic liberalisation by the current administration as a possible pull factor for expatriates but in real estate are not expecting to see a boom soon.
Goh said that while the government’s Economic Transformation Plan would result in growth in the rental market due to incoming talent, it would not be as significant a pickup as the boom during the construction of the Petronas Twin Towers in the 1990s.