Developers pick this option due to slow local sales, weak ringgit and oversupply situation

IT was obvious from her attire and accent that she was not local. Her voice rose several decibels in her excitement.

Buying a property can be a rather emotional affair. What more when it is in a foreign land and prices seem really competitive when compared with prices at home. As the 40-something made a quick dash towards the show unit located on level 45, other members of her group trail behind. Enthusiasm show on their faces while a young guide, presumably doubling as an agent, stretched out her hand to direct the way.

For a number of years now, Chinese tourists have been coming to Malaysia to scout around. These holiday/investment trips usually last about a week as they take in the sights and scene to help them make up their mind.

During the hot property years from 2011 to 2013, they were given the rebuff as they arrived by the bus loads, sometimes unannounced at the sales galleries.

Developers had earlier felt that selling a proportionately large number of units to foreigners may result in many of the units remaining vacant as most would be used a couple of weeks a year. However, slow local sales, a weak ringgit and growing oversupply have weakened their resolve.

Visits to various sales galleries show that nearly every developer – if not all – are courting foreign buyers with their agents going on road shows abroad to promote their projects, with some going to different cities in China on a monthly basis.

While China is their largest market, other destinations include Hong Kong, Taiwan, Singapore and Indonesia.

Developers are also outsourcing the marketing aspect to agents in order to reduce staff count.

Many of these developers are using the services of not one, but multiple real estate agencies.

Metro Homes Sdn Bhd director K.L. See, who is promoting several city centre projects abroad says the market has changed the last couple of years.

“Malaysians are not actively buying. But developers have a holding cost. They have already delayed launching their projects and they see the weak ringgit as an opportunity to offer their projects abroad. So instead of waiting around, they proactively use multiple channels to sell to foreigners.” But marketing abroad can be costly.

See: "Malaysians are not actively buying'.

“To run an event in Hong Kong for the weekend in a five-star hotel costs between RM500,000 and RM1mil. Developers may have three or four core local agents who work with overseas agents,” says See, who has been promoting Malaysian properties abroad the last three to four years.

According to See, Malaysian agents’ commission is between 3% and 5% of the apartment unit price whereas Chinese agents earn between 7% and 10%. On a successful weekend, between 10 and 15 units may be sold versus two to three units on slow days, See says.

Things slowed down after the disappearance of Malaysia Airlines flight MH370 in March 2014, according to See. He resumed overseas marketing this year. See has between 200 and 300 agents.

“Foreigners buy in order to earn on the foreign exchange. They also hope to profit from capital appreciation from their property investment,” says See who has just returned from China to promote a project.

A marketing personnel from a developer with a project in KLCC says the huge investments by big Chinese developers in Malaysia, especially in Iskandar Johor, send a strong signal to the Chinese people back home.

“Who do you think developers like Country Garden and R&F Group are selling to? They are targeting the Chinese back home. So they have huge advertising campaigns in different Chinese cities and this is a huge endorsement for Malaysia.

“Our Malaysian developers benefit from these endorsements,” she says.

She says the Chinese who buy into KLCC vicinity are not super rich. They are just average people. It is just that in China, an average apartment costs RM5,000 per sq ft (psf), so when they come here, they are amazed at the price competitiveness. A prime landmark in Beijing or Shanghai could cost RM20,000 psf, says See. According to Savills, a typical 2-bedroom apartment is about RM8,000 psf.

“So to these Chinese buyers, a non-branded but new unit priced at RM1,500 psf-RM2,000 psf is very attractive and they get a landmark project,” the source says.

Generally, the KLCC properties are divided into three categories – the older completed units which could have a wide price range of RM800 psf to RM1,500 psf, the non-branded new ones from RM1,500 psf to RM2,000 per sq ft and branded serviced apartments from RM2,500 psf to RM3,000 psf.

The really-rich Chinese buy into London, US, Australia and Singapore. Within South-East Asia, Malaysia ranks third after Singapore and Thailand.

Wither the Malaysian buyer?

The other change in city centre developments is the smaller units offered today, unlike a decade ago when unit sizes begin from more than 2,500 sq ft.

Oriental Realty branch controller Stefanie Loh says it is not entirely true that Malaysians are not buying into KLCC projects. The company has about 800 agents.

“They are very selective. They have a huge supply to choose from. If you survey the different developments, the majority of buyers are still Malaysians but they may be living or working abroad. This is evident in the branded segment like The Four Seasons Place and 8 Conlay,” says Loh, who has been selling the KLCC segment the past decade.

“When this location was first launched in 2004, Malaysian buyers were investors and owner occupiers. Today, they buy into this market as owner-occupiers. Over the last five years, they have scaled down to the smaller units. Over the last eight years, there has been an oversupply for the larger units of 2,500 sq ft and above,” says Loh.

But all is not lost, says Loh, whether it is local or foreign buyers. When developers head towards foreign land, they are effectively opening up the market for themselves instead of relying on Malaysians.

Over the last two years, rental and selling prices have dropped between 10% and 20%.“KLCC is driven mainly by the oil and gas (O&G) sector, so when the sector slows, tenants will leave with no new ones to replace them. When the O&G sector was good, there were three to four tenants checking in. Now, it is three to four checking out every month. A few months ago, whenever we open our gmail, we had tenants terminating their leases daily.

There was a time when companies were willing to pay accommodation expenses of between RM10,000 and RM20,000 but these allowances have shrunk to between RM5,000 and RM9,000. If there is an offer for RM8,000 to RM9,000, some owners will accept them.

“There are cases when units remain vacant for up to 12 months. Rental naturally will drop with the over supply. The same happens to prices in the secondary market. However, for the new units, developers are launching them from RM1,500 per sq ft onwards,” Loh says.

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She says investors generally want a 4% to 4.5% return on investment (ROI) and this is possible. If the capital value is low, they can get a higher rental, and this translates to higher ROI.

Rental for a 500 sq ft unit in Marc Residences, Jalan Pinang is between RM4 psf and RM6 psf, or RM2,500 a month today compared to about RM3,500 or more several years ago. A unit with a built-up area of 3,000 sq ft will be RM3.30 per sq ft today. The bigger the unit, the lower the price on a per sq ft basis, she says.

Unable to rent out their units, some owners are now posting their units on Airbnb, an online homestay network that allow owners to list or rent for short-term stays with the costs of such accommodation set by property owners.

Loh says it is possible for owners of commercial strata properties to do this. Some joint management bodies (JMB) of residential titled projects also permit this.

Is this legal? “You have GrabCar and Uber. Private cars are turning into public use. Is that legal?” she asks.

City Hall has also said it is not necessary to get a licence to turn private dwellings on residential titles for Airbnb use, says Loh.

Such postings have been more aggressive this year, Loh says.

“If a unit remain untenanted, owners have to pay for bank mortgages, maintenance which can go up to 60 sen a month. In the more upmarket projects, it can be 75 sen. In Marc Residences, it is 40 sen. That is RM400 for a 1,000 sq ft unit. If it were a 3,000 sq ft unit at 60 sen, that is RM1,800 a month.

Loh reckons there could easily be between 10,000 and 12,000 units of high rise units up to a radius of 3km of the Petronas Twin Towers.

Rebates and goodies

While some projects are offering a 5% rebate, others are offering between 15% and 20% off their selling price. Some offer Malaysia My Second Home programmes and multiple entry views.

On how holiday investment trips work, a source says buyers could pay a deposit during one of the many road shows. They then visit Malaysia. If they go ahead with the purchase, the trip is free. If they decide not to proceed, they pay for some or all the expenses incurred.

Despite the overall weak market, Loh says owners of KLCC units generally have strong holding power. This can be seen in the secondary market, where buyers buy directly from the owners.

In the primary market, prices are not going down, she says. Instead, developers are offering smaller units in order to bring down the absolute price. This appeals to both local and foreign buyers. So developers in this vicinity are not doing too badly, Loh says.

While developers blithely build, agents organise road shows and Chinese buyers exclaim over what they see, a consideration that has gone unnoticed by many is the KLCC’s surrounding infrastructure.

As more units are completed, it is doubtful whether the tributary road systems around the KLCC can support these various developments.

Residents of the city’s oldest condominium Desa KudaLari have complained about the difficulty of getting to Jalan Ampang and Jalan Tun Razak during peak hours. That 7.35-acre development is going through the process of an en bloc sale and if successful, offices and services apartments will replace the 186 condominium units, the lowest density condominium project for many km around.

The MRT 2 line will help. According to a Bursa statement on Nov 17, construction and property developer Malaysian Resources Corp Bhd is proposing to sell its 1.01-acre site to Mass Rapid Transit Corp Sdn Bhd to make way for MRT Line 2 construction. This means serviced apartment The Grid has been shelved and that site will be the entrance to Conlay MRT station.

About 250m away, the E&O group is believed to be planning a medical tourism project in order to leverage on the Prince Court Medical Centre next door. These various developments are expected to impose a huge impact on the surrounding road system.