KUALA LUMPUR – Malaysia’s capital is experiencing its first property boom since the 1997 financial crisis, but there are warnings the dozens of new condos under construction are creating a market bubble.
The city is bristling with cranes as luxury apartments spring up around the Petronas Twin Towers – formerly the world’s tallest – in the heart of the main shopping and business district known as the “Golden Triangle”.
“The frantic construction activity is largely a response to high demand from urban dwellers seeking quality living, privacy, high security and a prestigious address within the Golden Triangle,” Jones Lang Wootton Malaysia head of research Malathi Thevandran said in a recent report.
In the past two years, the price of top condos has doubled to more than 1,000 ringgit ($267) per square foot, and even studios now start at 500,000 ringgit – enough to buy a four-bedroom family house in the suburbs.
With promises of private lifts, saunas, rooftop gardens and bathrooms with views of the Twin Towers, apartments are selling quickly off the plans, and some projects are 70 percent sold despite being at least a year from completion.
Condos at the Troika, designed by renowned British architects Foster and Partners, are priced at about 3.0 million ringgit for a 3,000 square foot spread, double what high-end counterparts were fetching two years ago.
But first among equals is The Binjai, part of the 40 hectare (100 acre) Twin Towers development built by KLCC Holdings, where the most sumptuous apartments are rumoured to be fetching an unheard-of 15.0 million ringgit.
The developers are tight-lipped about prices, saying they will not be advertising the project and that sale is by invitation only.
“I’m sure this will do well. It would be like having an address in London’s Mayfair or Park Lane,” said Goh Tian Sui, from property consultant CH William Talhar and Wong, which is not involved in any of the projects.
Analysts say the demand for upscale city-centre condos is being fuelled by the desire to give up the gruelling commute on congested highways from suburbia to the Golden Triangle.
Rich buyers are lured by the facilities in the heart of city, particularly those on offer at the Twin Towers including designer boutiques, fine dining, the Philharmonic Orchestra and the biggest park in the city centre.
“For most developers in the area, there is still very good pricing power. Demand is outweighing supply,” says OSK Research property analyst Alvin Tai.
Ho Chin Soon, director of Ho Chin Soon Research, a consultancy which maps out real-estate values for developers, says demand will remain firm for the time being.
“If you look at global cities, Kuala Lumpur is relatively cheap compared to the others,” he says, adding that he believes the lavish Binjai is under-priced compared to similar projects in other cities.
But as the race heats up, with ever more projects being launched, there are fears that the market may overheat.
Thevandran warns vacancy rates could rise in the near future due to the lack of a “significant increase in the number of expatriates working in Kuala Lumpur”.
“The pent-up demand has been met. [By] just offering run-of-the-mill high-density projects, developers may run into problems trying to sell them.”
With estimates of some 10,000 units still under construction, industry experts say the boom could turn to bust within two to three years.
“If they keep launching like this, it is possible that there will be oversupply ... around 2007,” says OSK’s Tai.
Goh says there is a new note of caution in the industry, after the heady days of 2004 when prices began rising and developers jumped on the bandwagon.
“It’s already on everybody’s lips. What’s going to happen?” he says.
“But people are a bit more cautious now. Generally speaking, the market sentiment is a bit slower in the property sector as a whole. Developers are reporting slower sales.”
Ho Chin Soon says it’s only “a matter of time” before the bubble bursts, but predicts more profits will be made in the meantime.
“Prices have yet to peak. There isn’t an oversupply at the moment, but I fear it could happen in two to three years’ time,” he says.
The phenomenon has also drawn complaints the developments springing up in Kuala Lumpur’s overcrowded centre will overwhelm the city’s creaking infrastructure and worsen the regular rush-hour gridlock.
“All the condo owners will have their own cars, this will clog up the traffic system in the area. Has City Hall taken this into account?” says Gurmit Singh, director of the non-profit Centre for Environment, Technology and Development.
Singh says he is concerned about how the area will cope with increased sewerage and solid waste.
“There should be some sort of impact assessment done, on the environmental impact to the area, and whether the condominiums are consistent with the Kuala Lumpur structure plan,” he says. - AFP
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