18 March 2009

Depreciating high-end condos.

Mr Law of The Star wrote an interesting article on the 'Depreciating high-end condos'. He mentioned that the average capital values of KLCC properties in 2006 were RM943psf, peaked at RM1,291psf and is currently at RM1,128psf. Mont Kiara properties meanwhile were at RM466spf in 2006, peaked at RM598psf and is RM564 currently.

I believe that investors are looking at some bargain prices towards the end of this year. From what I've read, there are expected to be at least 5,000 new condominium units going into the KLCC markets by next year - with another 2,000+ units in the Mont Kiara area.

With the influx of so many new units, many of these owners and buyers would be looking to cash out - especially with such tough economic conditions where many people have suffered badly in the share markets. Whilst selling prices have dropped and would be dropping substantially in the coming months, I believe that rental rates would drop too - but not as much as the selling prices. Back then, it seemed that many high-end condominiums were giving a yield of less than 6% per annum, given the super high prices. I think these properties would eventually stabilize at a 8-9% yield sale price.

On the other hand however, I think that the commercial office product market is still going very strong. Do note that the Twin Towers are fetching rates of RM10psf/month and most others around the area above RM6psf/month. Taking the rates of RM6psf/month, putting it on a.. say 8% per annum yield rates, and the sale price should be going at above RM750psf for KLCC region offices. I think that this price is still a very much viable figure - in fact, even if the prices drop to RM600psf, then the property is a definite good buy as it would give you more than 8% yield per annum - better than putting money in the bank.

However, while I am of the opinion that commercial office developments are still viable, what the asset owners need are credible and strong tenants - tenants who have strong reputation and name. These are the guys who would pull through during the bad times - as compared to any Tom, Dick or Harry type of company.

Anyways, we shall see how the market performs in the coming weeks to get a clearer indication of the property market.


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