East coast opportunities

Are property yields improving in Kelantan and Terengganu?

With the outlook of the local property sector being increasingly challenging, more people are playing it cautious and holding back their purchases.

Those with holding power are relying on their rental returns.

However, over the years, rents have not quite grown in tandem with capital appreciation, which, in some locations, has experienced astronomical levels of growth, says CH Williams Talhar & Wong (WTW) managing director Foo Gee Jen.

“Within the Klang Valley, traditionally, rental yields were between 4% and 6%. This was within the past five years, typically for apartments.

“Over the last five years, capital appreciation has not gone up in tandem with rentals. Yes, rents have risen, but at a slower pace.”

According to Foo, some properties within the Klang Valley have appreciated between 13% and 18% over the past five years, spurred mainly by speculative investors and buyers.

“Last year, however, it was slow, at 8%.”

Due to the slower appreciation, yields have come under pressure, says Foo.

“Yields have compressed to between 2.5% and 3% over the last two years,” he says.

Compared with the Klang Valley, yields within major cities in the east coast, namely Kuantan, Kota Baru and Kuala Terengganu have been stable over the past couple of years.

According to WTW in its Property Market Report 2016, average net yields for landed residences in Kuantan was flat at 3% in 2014 and 2015; it ranged between 3.8% and 4.6% over the two years in Kota Baru and flat at 4.25% in Kuala Terengganu.

Effects of GST

In Kuantan, WTW says development costs increased slightly after the implementation of the goods and services tax (GST).

“Established residential schemes enjoyed the positive spill-over effect from newly-launched projects as the new launch prices set new benchmarks.

“This increase has affected the affordability of the purchasers, which has seen subdued effect in the market activities in residential sector in 2015.”

In 2015, WTW says the general property market was slow in Kota Baru, led by the soft residential market, the predominant segment.

“The landed residential market remained the most sought after category despite the increasing number of high-rise developments.

“Most landed residential developments in Kota Baru were small scale (namely a row of terraced houses and two to three-storey units of detached houses) and scattered in various locations, thus the impact on new supply was not significant.”

Similarly, it says landed homes were the main market segment in Terengganu over the years.

“Despite the weak market sentiment, the residential market led overall market performance and continued to grow at a healthy pace. The Kuala Terengganu City Centre development has stimulated the market, contributed appreciation of residential properties in the locality.

“Local purchasers have continued to demand for terraced and semi-detached developments.”

WTW Real Estate Sdn Bhd (Kuantan) assistant manager (agency & transactional services) Lok Siew Mei says yields are expected to remain flat this year as people are cautious about the local property sector.

“Sales and transactions have dwindled. Therefore, landlords will be looking to keep their tenants and not increase rents.

“Even with inflation rates, we don’t think rents will be increased because the psychology is that it is better and safer to hang on to their tenants in this current environment,” she says, adding that yields at 3% for Kuantan was “considered low.”

Foo, meanwhile, says that despite low yields, property is still a safe haven for investors.

“Why do people still buy property even when yields are low? Especially when other forms of investments can give better returns? It’s because in the long term, you can benefit from the capital appreciation (which would also push up rents).”

According to Rahim & Co in its Property Market Review 2015 / 2016, supply of homes in Pahang grew 3.4% year-on-year to 234,460 units in the first half of 2015.

Transaction volume grew 12% year-on-year to 5,948 units during the period while transaction value grew 18.2% year-on-year to RM1.26mil.

In the first half of 2015, the total supply of residential properties stands at 234,460 units compared to 226,814 units in the first half of 2014, Rahim & Co says.

“Pahang has seen an average of 2.17% compound annual growth rate in residential supply from 2011 to the first half of 2015. In the first half, the total number of residential transactions in Pahang was 5,948 units, with 48.7% of transactions taking place in Kuantan.”

It says single-storey terraced houses recorded the highest number of transactions in Pahang, accounting for 32.5% of total transactions.

“In Temerloh, notable existing housing schemes are Taman Bahagia Makmur, Taman Mentakab, Taman Bahagia Permai and Bandar Temerloh.”

It says prime single-storey terraced houses were located along Jalan Bukit Sekilau, Kuantan (RM250,000) and Taman 1 Malaysia, Temerloh (RM240,000).

“Approximately 4.3% to 8.7% increase in the value of transaction for the prime single-storey terraced houses was seen. Existing single-storey terraced houses in Kuantan are selling between RM180,000 and RM250,000, whereas in Temerloh, it ranges from RM160,000 to RM240,000.”

“There are a few upcoming developments in Pahang such as Delima Residences, Imperium Residences, Ion Delemen, Midhills, KotaSas, Taman PSJ-Damansara, Hermosa Residences and Persisiran Residences.”

Rahim & Co notes that the Tanjung Lumpur/Soi/Kempadang area has seen an increase in upcoming projects.

“Along with Hermosa Residences and KWFC, other new housing schemes include Bandar Putra, Kempadang Bay, The Trends and Persis Ujana. This area also has Yayasan Pahang HQ, Ikip College hostel and houses the relocation of Kuantan Specialist Centre (KPJ).”

In Terengganu, Rahim & Co says supply of homes grew 5.9% year-on-year to 90,013 units in the first half of 2015; transaction volume increased 4% to 7,161 units while transaction value grew 14.3% year-on-year to RM961.18mil during the period.

“Supply in Kuala Terengganu makes up about 48.7% of the total state supply, followed by Kemaman (18%) and Dungun (12.8%). From 2011 to the first half of 2015 residential supply has grown by 17% on average.

“There were about 7,161 residential units transacted in the first half of 2015. Kuala Terengganu contributed to the highest number of transactions with 1,985 units followed by district of Marang (1,327 units).”

Generally, prices of residential properties saw a stable upward trend in Terengganu, says Rahim & Co.

“In Kemaman, single-storey terraced in flood-free areas recorded price increase of 13.9% to 17.6% and commanded a higher price between RM70,000 to RM110,000 per unit in the first half of 2015.

Rahim & Co says detached plots were the most sought after property type in Terengganu.

“In Kuala Terengganu, the average price of detached plots ranged from RM8.70 per sq foot to RM23.40 per sq ft. It has increased by

4.3% to 16.5% compared with the first half of 2014.

“There is a plan for PR1MA housing scheme in Terengganu which is located at Batu Rakit. However, project details has yet to be revealed.”

Kelantan meanwhile registered an average growth of 2.7% per annum in residential property supply from the first half of 2011 to the first half of 2015, says Rahim & Co.

“As of the first half of 2015, the total existing residential property supply in Kelantan has reached 62,322 units, showing a positive change of 2.3% compared with the first half of 2014.

“Single-storey terraced houses are the highest contributor of residential property supply in Kelantan, totalling 18,526 units in the first half of 2015, followed by 9,641 units of low cost houses.”

According to Rahim & Co, the number of transactions for residential properties in Kelantan increased about 0.6% in the first half of 2015.

“The average selling price for single-storey terraced houses in Kelantan was RM165,000, approximately a 6.5% increase from the first half of 2014.

“Generally, new landed residential developments in Kelantan only comprised limited units – the most significant development is Tijani@Raja Dewa in Kota Bharu town.”

High-rise residential properties

According to WTW, average price per sq ft and yields was flat at RM360 per sq ft and 6% respectively in Kuantan from 2014 to 2015. Average price per sq ft and yields was also flat at RM375 per sq ft and 5.5% respectively in Kota Bharu during the two-year period.

In Kuala Terengganu, yields remained flat at 5%, while average price per sq ft increased to RM450 in 2015 from RM375 in 2014.

“In Kuantan, the high rise residential has become more attractive as investments or as first homes due to the high prices of landed homes.

“The increase of demand for high-rise residential, especially by expatriates, has spurred interest among investors. The supply of high-rise residential will gain a foothold in Kuantan when more developments are completed in the next few years,” says WTW.

Despite the lack-lustre performance, WTW says the supply of high rise residential units in Kota Bahru continued to increase.

“The high rise residential units that have a relatively niche target market will observe more unsold units, due to the gloomy economic prospects.

“Kuala Terengganu welcomed the very first luxury high-rise residential project, known as Icon Residence. Being part of a mixed development, the project itself was well-received from the local market.”

According to Rahim & Co, the serviced apartment and condominium market in Kota Bharu has been rather active over the past few years.

“Prices of serviced apartments and condominiums in Kota Bharu are now reaching RM600 per sq ft on average where it is no longer uncommon for the market to talk about RM600 per sq ft to RM650 per sq ft for smaller units.”

Rahim & Co highlighted Bandar Baru Tunjong, a new integrated urban development located approximately 5km from the town centre of Kota Bharu.

It says Bandar Baru Tunjong will comprise residential, business and retail outlet, government departments and more.

“The serviced apartments that have been launched in that area including Prima Lagenda and Al Waqf Garden where prices put by developers are between RM500 per sq ft and RM600 per sq ft.

“Although much have been said about Bandar Baru Tunjong, it has been the town centre developments that have strongly pushed its presence in the past year with Troika Residences and Tijani Raja Dewa spearheading the headlines.”

Tijani Raja Dewa, an established brand of Tijani which was brought by its developer Symphony Life Bhd, has also marking its prominence in Kota Bharu, says Rahim & Co.

“Located at an exclusive address at Raja Dewa, it features a private world of lush linear garden and luxurious semi-detached, superlink terrace and low-rise apartments.”

Troika Residences, a joint venture development between Malvest Group (a Penang based developer) and Yayasan Kelantan Darul Naim (a Kelantan state’s statutory body) is also developing the tallest building in Kelantan at 36 storeys, says Rahim & Co.

“With these newer developments, prices of condominiums and serviced apartments which had linger in the range of RM230 per sq ft to RM400 per sq ft has now jumped to reach beyond RM600 per sq ft and RM650 per sq ft.

“Earlier developments such as Kota Sri Mutiara, Pelangi Mall Condominium, KB Sentral Service Apartment, Anjung Vista Condominium and Viana Court are now seeing a new grade of condominiums and serviced apartments like Tijani@Raja Dewa, Troika Residences and the upcoming Sentosa Puri Tower in Kubang Kerian.”

Rahim & Co also says there is a new plan for PR1MA housing schemes in Kelantan, which is located in Kok Lanas, Pasir Puteh Kelantan.

“However, the project is yet to be finalised,” it says.

According to Lok, in terms of yields, high-rise properties within the Kuantan Tembeling Resort (KTR) was still “bucking the trend.”

“The project was completed in 1997. Prices for these units were low and it is still fetching good rentals because the location is good.”

Developed by the Pahang state government’s investment arm, Pasdec Holdings, KTR is built on 5.2ha of hilly slopes on the fringes of the Beserah forest reserve.

Overlooking the South China Sea, KTR has 28 service apartments of various sizes ranging from 71 sq m to 151 sq m.

Growing market

Despite stable yields, property consultants believe that established locations like the Klang Valley are better places to invest in.

“Your best bet would be to buy in a growing market or big cities where there will be bigger job migration, such as the Klang Valley,” says Foo.

“With the current market situation, the east coast may offer better returns in terms of rentals, but it won’t be the same in terms of capital appreciation,” he adds.

Axis REIT Managers Bhd head of investments and Malaysian Institute of Estate Agents immediate past president Siva Shanker also believes that the west coast would offer better investment opportunities for potential buyers.

“In the east coast, it is usually the people that live there that are more likely to invest there. I don’t see someone who’s born and bred in the Klang Valley investing in a place like Kuala Krai.” - The Star