Catalysts for market growth

Artist impression of the Damansara Foresta project.

Sobering drive on the Sri Damansara-Sg Buloh-Kota Damansara loop

Six months ago, developers and certain property consultants were of the view that just before the implementation of the Goods and Services Tax (GST), there would be “a rush to buy”. In about ten days’ time, the GST will be upon us. No signs of the buying, though.

Instead, there is a sporadic “rush to sell”. What we have today is a “flat and stagnant” residential market, property consultants say.

Property consultants polled say activities will return in October/November or maybe next year.

PA International Property Consultants (KL) Sdn Bhd head of agency Wendy Tong says “the real impact of the GST, coupled with other forces, will be seen early next year”, with less activity in both the primary and secondary markets this year.

In a couple of months, Perdana ParkCity Sdn Bhd will be launching the Westside III condominium at about RM720 per sq ft (psf) in Desa ParkCity. It will be priced lower than Central Park, another condominium project in that location. Central Park is currently 85% sold and averages more than RM800 psf. Of course, the specifications will be different.

Says Tong: “Sales in Desa ParkCity are no longer as brisk as before. There are only so many units you can buy in that location. With prices at RM1.5mil, most will opt for landed property.”

Across the highway, over in Sri Damansara, the Land & General group is selling Damansara Foresta phase one, comprising about 1,000 units priced at about RM800 psf. There will be four phases and a total of 2,700 units upon completion. These two projects are being compared because they are separated by a highway. In the last ten years or so, Desa ParkCity has been a catalyst for the larger Menjalara and Kepong area. It has put a name to what used to be a rather nondescript area.

Incidentally, Central Park by Perdana ParkCity, which is 85% sold, is now being promoted at a 20% downpayment with the rest upon completion in 2017. A sign of the times.

Raine & Horne’s associate director James Tan sums up the overall residential market: “The GST is causing a lot of uncertainty.”

While a necessity because Malaysia cannot continue to have only about one million taxpayers in a country of 30 million, there are concerns about the rise in food prices, education, transportation and medical expenses, says Tan.

“If they cannot take care of these daily necessities, they will not think of buying a big-ticket item like a property,” he says.

Added to this are the wages/salary levels. The Statistics Department, in its Salaries and Wages Survey Report 2013 released in August 2014, reported that the mean and median monthly salaries/wages for individuals for 2013 was RM2,052 and RM1,500, respectively. The median salary of non-citizens, meanwhile, was less than RM980. This information was obtained from 9.3 million participants.

The median income refers to the income that is in the middle if you figuratively wrote down all the income in order from the least to the greatest. In essence, not more than half the population has a greater or lesser income than the median income. The average is simply adding all these incomes together and dividing it by the number of incomes.

Those with tertiary education had a mean monthly salary of RM3,407 (2012: RM3,214) and a median salary of RM2,940 (2012: RM2,700).

In a report by Khazanah Research Institute in November 2014, the Malaysian median household income was at RM3,626 in 2012. These numbers are consistent with the Employees Provident Fund (EPF) data, which shows that 62% of active EPF members earn less than RM2,000 a month, while 96% earn less than RM6,000. With salaries not growing as fast, GST and inflation will reduce the ringgit’s buying power.

“Your fixed cost - which goes towards paying for food, transport and utilities - will increase, while your salary remains near-stagnant. With the drop in the ringgit, the affordability level of the people will drop even further. The rich will not feel it, but the majority (as the EPF figures show) will,” says Tan.

At the end of the day, a household will be able to buy less with the income it earns. This, says Tan, will affect the returns on commercial property.

Tan says although the GST will contribute to Government revenue, it must be spent in the right way. Otherwise, it will be like filling a pail with holes in it, he says.

This, however, does not mean the property market will not be profitable. On the contrary, PA International’s Tong says she has a handful of clients waiting for owners who will be financially challenged when it comes to servicing their housing loans.

Says Tong: “The location and type of properties are important factors. Interest in Mont’Kiara properties, particularly the older ones, has picked up in the last two years because they are priced lower on a per sq ft basis.

“They buy in strategic locations and are interested in shophouses.

“When the market is good, people make money. When it is bleak, some may make more money,” she says.

Kwasa Land and the MRT, a catalyst

Just as Desa ParkCity is a catalyst to the Kepong/Menjalara area, a new catalyst is in the making in Sg Buloh. As one drives along Jalan Kuala Selangor-Kepong towards Sg Buloh, Tan & Tan Developments Bhd is offering 41 units of landed villas - or triple-storey terraces - in a seven-acre plot known as Park Manor, next to Sierramas East. Prices begin from about RM4mil. Sizes range from 5,500 sq ft to 7,000 sq ft and all of them come with lifts. Irrespective of size, maintenance is set at RM950 a month.

Sierramas is about 20 years old today. While not as central as Bangsar or Damansara Heights in Kuala Lumpur, it does have a following. As development continues on to the fringes, different classes of property have popped up, catering to different tastes, budgets and strata of society, and none is more obvious than in this Desa ParkCity-Sri Damansara-Sg Buloh loop.

There are currently two catalyts along Jalan Sg Buloh-Subang highway – the mass rapid transit (MRT) and the Kwasa Land development. This will benefit SqWhere by SDB Properties Sdn Bhd and D’sara Sentral by the Mah Sing group. Both offer similar components, namely, serviced apartments, retail shops, and small office-virtual office (SoVo) units. Both are connected by the same link bridge to the Kg Baru Sungai Buloh MRT station.

SqWhere SoVos were sold exactly about a year ago at an average price of about RM750 psf. Its 328 units of serviced apartments are scheduled to be launched by the middle of this year at an average price of about RM800 psf. The entire project is expected to be completed in 2018, one year after the MRT is operational.

Mah Sing is also planning to launch Phase 2 of D’Sara Sentral soon, with prices at about RM700 psf. There will be about 1,000 units of SoVo and serviced apartments there.

The comparison between SqWhere/D’Sara Sentral and Tan & Tan’s Park Manor underscores the vastly different classes of property in this location. The objective of this comparison also brings into focus the prices in Sg Buloh and Desa ParkCity/Sri Damansara. At the end of the day, it is the absolute price that matters, and this brings us to the sizes of the units. The smaller the unit, the more affordable it is.

Security will be Desa ParkCity’s main selling point, while the MRT will do the same for SqWhere/D’Sara Sentral.

The other catalyst will be the Kwasa Land project by the EPF and Malaysian Resources Corp Bhd. The roads leading to and away from SqWhere/D’Sara Sentral and Park Manor are rather congested at present. However, perhaps in time to come, the infrastructure will improve.

Along this stretch of the Jalan Sg Buloh-Subang highway, nurseries are licensed to occupy land on a temporary occupation licence, which means in time to come, the land will revert to their respective Government departments or agencies, says Tong. Therefore, the potential for growth is there.

Dataran Sunway and the Curve

Following the MRT line - which tracks the road system - the next township is Kota Damansara.

PA International head of research Evelyn S L Khoo says Kota Damansara, between 4km and 6km from Kwasa Land, is another densely populated area, with a population of more than 500,000. The catalyst was Dataran Sunway in its early development.

Today, there are many high-rise condominiums and apartments there. It is not as dense as Mont’Kiara, but is getting there. But the crowd it draws is different. And although there are high-rise units, they are of a different level and ambience. It is the tenant’s market here, and more so with the completion of the MRT line, says Khoo.

“It took a bit of time to pick up, but it did. As a result of the MRT, prices grew exponentially. Some of the units there were launched at about RM200 psf, with the absolute price being less than RM300,000. Today, prices have risen above RM600,000. However, owners may be reluctant to sell because at RM600,000, what can they buy?”

As a result of the MRT station opposite Sunway Nexis, the interest has been great, says Khoo. While families may not want to live amid all that traffic in that location, it offers a lot of convenience. And the 1 Utama shopping centre and The Curve in Mutiara Damansara are not too far away.

The Curve has been a huge draw and the progress in this part of Petaling Jaya has been driven by these catalysts, says Khoo. But as much as these amenities are an attraction, increasingly, growth and congestion is becoming an issue. This explains why many are looking forward to the MRT when it becomes operational.

The roads heading towards and leaving Sri Damansara are congested at present. The same goes for Sg Buloh.

Another new development – Empire City by the Mammoth Empire group along Lebuhraya Damansara-Puchong – will be ready soon. Located on 25 acres, there will be a huge number of high-rise residential units, a retail mall, offices, hotels and offices there. It will add to the congestion.

Growth has to be balanced with better infrastructure, of which the MRT is one. Likewise, the GST has to be balanced with realistic growth in income. Otherwise, affordability will always be an issue, even in the high-growth Sri Damansara-Sg Buloh-Kota Damansara loop. - By The Star