Built at the intersection of two rivers, Kuala Lumpur (literally “muddy confluence”) is a modern city of gleaming towers. That is a far cry from the boggy encampment established by Chinese tin prospectors in the middle of the 19th century.
Foreign prospectors in the Malaysian capital today are more likely to be seeking their fortune in oil and gas, but a decline in that sector has hit the city’s property market — just one of a muddy confluence of factors behind the fall in local prices over the past few years.
Asking prices in Kuala Lumpur — Malaysia’s largest city — came down 2.3 per cent in the year to October 2017, according to Malaysian property portal PropertyGuru, even as the national economy picked up overall. “The contraction of the oil and gas sector has caused a tightening of housing allowances for expatriates, and therefore the luxury segment is presently not in high demand,” says Amy Wong, head of real estate research at estate agent Savills’ Kuala Lumpur office.
That sector, which is the “dominant office space occupier [and has] driven demand for rentals of luxury condominium units in Kuala Lumpur city centre . . . has been relatively quiet in 2018, and for the past three years”, she adds.
Falling prices are also a result of “the slew of cooling measures implemented to curb speculative activities in the local property market since 2012 has met its objective”, says Judy Ong, executive director at estate agent Knight Frank Malaysia. Government measures included increasing capital gains tax and raising the minimum price of property available to foreign buyers.
In addition to those measures, an oversupply of condominiums is hitting the top end of the market. At the end of last year, 14 per cent of residential units in Kuala Lumpur were unsold, according to a report from rating agency Moody’s. The majority of new units were priced over RM250,000 ($62,000), the threshold to qualify as affordable, according to the Central Bank of Malaysia.
Responding to the glut of unsold properties, last November the Malaysian government introduced a freeze on new developments of condos priced above RM1m, although the measure will be applied on a case-by-case basis and is temporary.
Tough conditions and the imposition of capital controls in China (Malaysia’s largest foreign market) have seen “developers diversifying their target market to other countries such as Indonesia, Singapore, Taiwan and Hong Kong to boost sales”, says Ong.
But while property values have held steady or fallen over the past few years, for many in Kuala Lumpur, prices remain unaffordable. In 2016, median annual income in the city was RM108,876, against a median house price of RM620,000, according to the Central Bank of Malaysia.
The ratio of prices to earnings has made ownership challenging for many but, says Wong, “the mass and affordable housing segment has been active, with well-priced starter homes in good locations enjoying brisk sales rates”.
According to PropertyGuru, however, transaction volumes took a significant hit last year. The portal’s analysis, which covers a snapshot of the market, shows volumes down dramatically year on year. “Sellers in Kuala Lumpur have been reported to drop their asking prices by as much as 20 to 30 per cent,” it says.
Kuala Lumpur still represents value compared with other south-east Asian capitals: a square foot in the city trades for $400-$700, against $900-$1,000 in Bangkok and $2,000 or more in Singapore, according to property consultants Rahim & Co. But uncertainty prevails about where the market will go — or perhaps how much further downward it will trend. The surprise election this May of 93-year old Mahathir Mohamad as prime minister has only made it harder to divine the future of the city’s property market.
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