Slow recovery of the luxury condo market

Kuala Lumpur’s luxury condominium market, which has been affected for the past two years due to the pandemic, is expected to remain weak in 2022.

Savills Malaysia Sdn Bhd Group Managing Director Datuk Paul Khong said the high-end condominium market is expected to remain subdued for at least the first two quarters of 2022.

He says the halt to the Home Buyers’ Campaign (HOC) and the central bank’s moratorium are factors contributing to the sluggishness of the luxury condominium market this year.

“Many developers previously liquidated their unsold inventory through the HOC on a priority basis,” he told StarBizWeek.

Khong says he expects to see improvements in 2022 due to pent-up demand from buyers in the high-end residential segment.

“But a full recovery here will take longer and will likely be delayed to the first half of 2023.

“The challenges facing the luxury condominium market in 2021 will continue this year. This is on top of the fact that no fiscal benefits were announced during the 2022 budget in October last year.

Managing director of real estate agency Rahim & Co International Sdn Bhd, Siva Shanker, agrees that the segment was affected by the pandemic last year.

“We don’t think there will be any major improvements this year. However, we believe that the downward price movement will stop and flatten out.

Given the gloomy environment at the moment, Siva says it would be a good time for buyers to enter the market.

“For sellers, they’re just going to have to accept that prices will stay the same for a while.”

In light of that, Siva says he doesn’t expect “a flurry of activity” in the luxury condominium market in Kuala Lumpur this year.

“We expect to only see significant real growth maybe by mid-2023,” he says.

However, as 2022 approaches, Khong says several factors can help boost the local real estate market, including the high-end condominium segment.

“Property market drivers to look forward to include a low interest rate environment, improving post-Covid market sentiment, the reactivation of the Malaysia My Second Home program and the reopening of international borders.

Khong adds that “cost pressures” on new real estate products should also continue to push prices higher.

“Developers will need to come up with innovative packages to capture their own niche, target markets, as they push their high-end units to market despite cuts to their profit margins.

“Demand is still primarily a product and price factor.”

According to Knight Frank in its Real Estate Highlights report for the second half of 2021, the cumulative supply of high-end condominiums amounted to 66,128 units in 2021 following the only realization during the review period, namely Ascott Residence (199 units) in Kuala Lumpur.

However, with the country transitioning to Phase 4 of the National Recovery Plan (NRP), Knight Frank says some 6,971 units (16 programs) are expected to be completed in the first half of 2022.

“Developers are still reluctant to launch new projects. Instead, they may focus on completing projects under construction and/or adopting soft launch/pre-launch strategies to generate some initial market interest before official launches.

“During the reporting period, four projects were officially launched, namely Est8 @ Seputeh, Residensi 38 Bangsar, The Cedar and Alfa Bangsar; while two projects, The Atrium and Laurel Residence, were previewed/soft-launched.

Khong says the Covid 19 pandemic over the past two years has generally slowed the completion of many projects, adding that those delays have pushed new deals into the market in 2022 or 2023.

“If the Covid-19 closures are repeated, the real estate market will be in trouble. We need this pandemic to pass soon for market normalcy to return and all businesses to recoup their losses.

“Hopefully local politics, especially the upcoming general election, will stabilize soon to revive the property market.”

Siva, meanwhile, says the biggest factor that could potentially derail the housing market this year is a further rise in Covid-19 cases.

“Right now, the world is grappling with the Omicron variant, but the consensus is that its effects are milder than expected.

“However, what if in a few months a more deadly variant emerges? This could have disastrous consequences on the local real estate market.

Knight Frank says the transaction volume of high-rise residential properties (including serviced apartments) in Kuala Lumpur showed an upward trend in the third quarter of 2021, climbing 25.5% over the period.

He says this was likely due to the gradual easing of restrictions and the reopening of sales galleries after the federal territory transitioned to phase four of the PNR.

“The corresponding transaction value was lower, however, which may indicate that there may be higher demand for low-cost and affordable housing over the period.”

Amid market uncertainty, Knight Frank says potential buyers and investors continue to take a “wait and see” approach.

“However, this may also be an opportune time for genuine buyers and investors looking to invest in luxury properties in prime locations such as KLCC and Bukit Bintang, taking advantage of attractive developer sales packages in this market. buyers as well as the decade-low interest rate environment”.

Additionally, Knight Frank says the removal of real estate gains tax for disposals of property in the sixth and subsequent years of ownership (as announced as part of Budget 2022) bodes well for long-term landowners.

This, he says, is particularly for those who want to dispose of their existing properties for upgrading, as well as empty nests looking to downsize.

“The exemption from the tax malus should boost activity, particularly on the secondary market.

“Over the short to medium term, the residential real estate market is expected to gradually recover, although the emergence of new variants of Covid continues to pose downside risks.”

Knight Frank says the pandemic has driven demand for properties away from the hustle and bustle of the city, as evidenced by the lack of new launches in KL City in the second half of 2021.

“In the outlying areas of the city, the gross selling price of newly launched residential schemes ranges from RM748 per square foot to RM1,700 per square foot.

“Officially launched in December, Alfa Bangsar offers a higher average price at RM1,700 per square foot, as the mixed-use development also includes hotel and commercial components.”

While the government is currently focusing more on the primary market in terms of incentives and policies, Knight Frank says the dynamics of Kuala Lumpur’s secondary market remained stable in the second half of 2021.

“During the review period, the overall average transaction price in Kuala Lumpur’s high-end residential sector was relatively stable with a slight decline of around 0.6 percent.”

By submarkets, Knight Frank says average asking prices for some projects in the city, Ampang Hilir/U-Thant and Bangsar areas were slightly lower.

Average asking prices in Damansara Heights and Kenny Hills remained in positive territory, while prices in Mont’ Kiara remained stable.

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