E&O unveils its latest luxury condo project

EARLIER this week, lifestyle property developer Eastern & Oriental Bhd (E&O) launched its latest downtown condominium project The Mews. When completed in 2017, it will be one of three high-rise residential developments on Jalan Yap Kwan Seng in Kuala Lumpur.

There will be three residential projects along that stretch of about 500m. The Mews starts at RM1,700-RM1,800 per sq ft (psf). It will be among the highest in terms of price point among the three on-going projects there currently.

The first project to be launched close to the Jalan Yap Kwan Seng-Jalan Tun Razak intersection is Mirage Residences. The Mirage was launched a couple of years ago at RM1,000 per sq ft with prices trending up to between RM1,300 and RM1,400 psf last year. According to a member of the marketing team, some of the units were sold at RM1,600 psf last year. The Mirage is 100% sold and is expected to be completed by May 2015.

It is a 25-storey block comprising 102 units developed by OSK Properties Holdings Bhd. Most of the units have built-up areas of between 1,000 sq ft and 1,200 sq ft with two bedrooms.

The second project to be launched closer to the Petronas Twin Towers at the Jalan Yap Kwan Seng-Jalan Ampang intersection is Star Development. This was launched late last year by joint-venture partners Symphony Life Bhd (previously known as Bolton Bhd) and United Malayan Land Bhd.

It comprises three residential high-rise blocks of which the first will be 57 storeys. Its next two blocks are expected to have 61 storeys. Besides the residential portion, there will also be a retail portion.

When completed, Star Development will have a total of 1,500 serviced apartment units, comprising mainly one-bedders with sizes ranging from 650 sq ft and 750 sq ft.

Each of these three projects have their pluses.

The Mirage, at RM1,000 psf seems like a steal considering today’s prices and when matched against The Mews. It is also not as dense as The Mews, which will have 256 units on 1.29 acres compared with Mirage’s 102 units on just under one acre. Both are on residential titles, which is a plus point.

The Mews will be more private than Mirage, located about 100m on one of the inner roads, and does not directly front Jalan Yap Kwan Seng.

Sizes range between 900 sq ft and 2000 sq ft for the one- and 3+1 bedroom units. There are four penthouses with built-up areas of about 2,500 sq ft each. Two of the penthouses have been sold. E&O is a lifestyle brand. It built St Mary Residences in Jalan Tengah, parallel to Jalan Raja Chulan in the main commercial district of Kuala Lumpur and Dua Residency along Jalan Tun Razak.

While St Mary Residences is both urbane and stylish, The Mews will have an understated elegance in earthy tones and colours. This will be E&O’s first joint-venture development with Japan’s largest developer Mitsui Fudosan Residential Co Ltd with E & O having a 51% stake.

When E&O’s deputy managing director Eric Chan first unveiled the company’s plans for this project a couple of years ago, they mulled over what would appeal to females. Hence, the large shoe cabinets and storage area. Units come with bedroom and kitchen built-ins.

There will be one parking bay for one-bedroom units, two for two-bedders and three for the larger units. The penthouses will have four parking bays.

The development will come with pool, gym and squash courts and concierge services. According to Chan, about 70%, or 180 units have been sold, of which about 20 units have been purchased by Japanese. About half the buyers are Malaysians. Shuttle services will also be provided to Twin Towers and the vicinity. With the traffic situation in the Klang Valley today, that will be a huge plus.

From what is seen of St Mary Residences and Dua, The Mews is expected to be another oasis in the busy and bustling city centre.

On how the various cooling measures will affect sales, Chan says the long term prospects for the sector are still good.

“We are still in the first three months of the year. We are focusing on the long term,” says Chan.

Mitsui Fudosan (Asia) Pte Ltd executive director (head of residential team) Tomoo Nakamura says it has been a good experience working with Chan and his team and this partnership will pave the way for further cooperation.

Dense development

The largest project along that Yap Kwan Seng stretch is Star Development with prices beginning from RM1,500. It will be built on commercial land and there will be 1,500 units on four acres, or 375 units of residences per acre compared with Mirage’s 100 units, and Mews’ 198 units. There will also be a retail portion. While there is convenience, it may not be that private.

It will be the most dense among the three projects but in terms of proximity, it will be the closest to the Twin Towers. Located behind Avenue K mall, it will be within walking distance to the KLCC LRT station via Avenue K. Because Star Development is built on commercial land, upkeep and maintenance will be a consideration. Also, the price of the unit does not include a car parking bay. Residents will have to rent it at RM150 to RM200 a month. Moving forward, having a unit that comes with a car park will be a luxury.

A point to note is this: If one is buying for investment, there are literally thousands of smallish one-bedders in the Klang Valley today and there will be more entering the market as projects come to completion. Getting it tenanted may not be that easy. Most of the buyers at Star Development may be foreigners as small units tend to attract investors.

Another thing to note is the price, which has moved up considerably from RM1,000 to RM1,700 psf in a matter of two to three years – a jump of 70%. All three projects are not comparable because they are not homogeneous, both in terms of location and finished product.

The steep rise in price is something to be considered, especially in today’s volatile times. There is a lack of clarity for now and with inflation at a 25-month high of 3.2%, those who have the means may well consider a branded unit. But there will be many others who will settle for bread-and-butter housing, without the frills.

Either way, with the various cooling measures in place and maybe more to come, a property investment is for the long term and for those who have the holding power. - The Star

The Mews Gallery launched in Kuala Lumpur

KUALA LUMPUR: The launch of the newly-opened gallery of The Mews serviced residences in Kuala Lumpur was attended by representatives of Malaysian premier lifestyle property developer Eastern & Oriental Berhad (E&O) and Japan’s largest developer, Mitsui Fudosan Residential Co. Ltd (Mitsui Fudosan).

E&O and Mitsui Fudosan inked a joint venture in March 2013 to develop The Mews serviced residences comprising 256 custom-designed residential units distributed evenly over 38-storey twin towers sited on 1.29 acres of land just off Jalan Yap Kwan Seng.

The Mews gallery, showcasing fully fitted one, two and 2+1-bedroom show units for The Mews, was officially launched at a Japanese-themed ceremony attended by E&O board members and senior management, representatives from Mitsui Fudosan and close to 100 guests.

A view of the dining area at The Mews serviced residences.

“This gallery brings to life the brand and persona of The Mews. Our appointed team of interior designers have meticulously infused different characters to each show unit, whilst subtly weaving in elements that reflect a refined Japanese style. Each element in the show unit is there to articulate the different lifestyles that The Mews caters to,” said E&O deputy managing director Eric Chan.Mitsui Fudosan residential overseas business department II general manager Ryousuke Uematsu said, “Together with our partners E&O, we are very proud to present our buyers and potential buyers with this elegantly furnished collection of show units that sets a new benchmark for modern urban living, reflecting the essence of The Mews – which is understated stylish simplicity.”

Targeted for completion in 2017, unit choices at The Mews range from built-up areas of 922sq ft to 2,619 sq ft, of which 75% of total units are 1- and 2-bedroom serviced residences. Meanwhile,  20% of the units follow a 2+1 layout, while the remaining four are penthouse units. The positive response to The Mews is evident with its take-up rate already reaching 70%, even at the soft launch stage.

In line with The Mews’ objectives of superior form and function, some of its features include master bedrooms paired with  en-suite bathrooms, a walk-in wardrobe and shoe closet, concealed split air conditioner system, water heaters and a full set of kitchen appliances.

The sixth floor of The Mews showcases the development’s water sanctuary facilities. A lawn and private garden are located on the 37th floor where residents can enjoy a view of the city.

Tapping on E&O’s hospitality and management expertise, The Mews come with E&O’s signature five-star concierge service and emphasis on security systems.

“The Mews is a testament of E&O’s passion in delivering properties that are ever cognisant of our customers’ aspirations. We are fortunate to be working with our highly-esteemed partners at Mitsui to deliver on this promise,” said Chan.

“We are very happy to see how the Mitsui-E&O partnership that began in 2011 has flourished and we look forward to strengthening our collaboration in the future,” said Uematsu. - The Star

KSL Week draws property enthusiasts

Members of the public were given an exclusive view of the property market at KSL Week which was organised by KSL Holdings recently.  KSL Week was held at Canary Garden@ Bandar Bestari, KSL’s 448-acre flagship development in the Klang Valley which boasts a French-inspired garden.

KSL Week’s activities include two talks, a property showcase by KSL Holdings and test drive opportunities by BMW Malaysia.

Visitors and guests during the event received the latest updates on Canary Garden’s development progress for its residential phases, with completion slated for the second quarter of 2014. Also included in the presentation were the details of its 52-acre French garden and images depicting the progress of the first phase, the proposed Canary Garden club, as well as additional news and details of Canary Garden,  dubbed the ‘Commercial City’.

The first talk, entitled “Greater KL Update and Growth Pattern for Klang” was presented by property valuer Ho Chin Soon as part of KSL Week, which featured KSL’s portfolio of residential and commercial properties. The second, presented by TY Teoh International national tax director Richard Oon addressed the property market in light of Budget 2014.

Property expert Ho Chin Soon delivers his talk entitled ““Greater KL Update and Growth Pattern for Klang”.

Ho, a fellow of the Institution of Surveyors and a registered valuer with the Board of Valuers, Appraisers and Estate Agents presented on the connectivity of the MRT project and the growth patterns, showing images of the railway lines that are being developed while discussing rising property prices. Ho also explained the Quick House Price Index, pointing out that Kuala Lumpur house prices have increased by more than threefold in the past 22 years.

He also spoke on Canary Garden being situated on the last freehold land in Klang and its position as the next growth corridor, seeing that the township is aligned to many highways such as the  South Klang Valley Expressway (SKVE), Federal Highway, KESAS, the North- South Expressway Central Link and the proposed West Coast Expressway.

During the post-budget talk, Oon highlighted topics such as special relief for middle income tax payers and the decrease in individual income tax rates, also in view of the Goods and Services Tax (GST) that will implemented in 2015.

TY International national tax director Richard Oon.

Stating that “property investment is still a lucrative way of making money,” Oon said that the implementation of GST would affect investors during property transactions, and in relation to commercial properties prices as well as SOHO(Small Office/ Home Office) and SOVO (Small Office/ Versatile Office) units, depending on whether the units fall within the residential or commercial sector. Oon is attached to TY Teoh International,  a leading consulting service provider, a member firm of MSI Global Alliance with more than 20 years’ experience in taxation and business advisory.

Visitors at KSL Week were also invited to test drive various models of BMWs courtesy of KSL Holdings’ collaboration with BMW Malaysia, with interested buyers being offered rebates of RM150,000. - The Star

Where less may not be more

THE economic theory is that the less the supply of something, the higher the price. But in the Klang Valley's case where green buildings are concerned, the flood of office space in the metropolitan area has obscured the value of the green buildings there.

That's the conundrum managers of some green buildings have found themselves in.

The objective of this article is not to single out any development or any parties. Instead, it is to draw attention to the fact that prudence and caution are needed moving forward, whether that control and restraint be from the local authorities, the lenders or the developers themselves.

MGPA (M) Sdn Bhd general manager Patrick Liau is managing one of Kuala Lumpur's newest and finest integrated development known as The Intermark located at the intersection of Jalan Ampang and Jalan Tun Razak in downtown KL.

“(But) office rentals are expected to be flat the next three years,” says Liau.

Liau: ‘The Intermark is the single largest investment in MGPA Asia Fund II, a global real estate fund, managed by MGPA’.

That's the irony facing Greater KL office market - rents that do not commensurate with the quality of the buildings. Macquaire Global Property Advisors (MGPA) is an Australian-based private equity real estate advisory firm.

The Intermark comprises Vista Tower, Integra Tower, Intermark Mall and Doubletree Hotel by Hilton Kuala Lumpur.

The asking rent for Vista Tower is RM9 per sq ft and Integra Tower, with LEED Platinum pre-certification, is RM11 per sq ft; way above the RM7-RM7.50 per sq ft sought by Grade A buildings. The landlord can ask, whether the tenant will pay is another matter.

Although in terms of location and other factors The Intermark may not have the primacy of the Petronas Twin Towers (RM12 per sq ft), the development of about 2 hectares is one of the finest in terms of building quality and overall integration.

The other green buildings in that vicnity include Menara Binjai and G Tower and further away Menara Felda.

There are today, various benchmarks for green buildings. There is the US's LEED certification, Singapore's Green Mark and Malaysia's Green Building Index. Although some of the criteria sought by overseas accreditation systems may not be all that suitable for Malaysian real estate, these benchmarks nevertheless carry with them certain bearings, says Rehda (Real Estate and Housing Developers' Association) environmental committee chairman Sam Tan. Platinum is the highest and most stringent within the LEED system.

“We have to separate two issues here - a green development and the supply situation. At the end of the day, the green portion is an added advantage. The green initiative will make a development more attractive but it does not detract from the fact that location, and other factors, are important criteria when it comes to real estate,” says Tan.

The Intermark stands above many office buildings in the Klang Valley because it comes with it a good mix of services and amenities.

Besides its anchor Doubletree Hotel, there are six retail floors of more than 200,000 sq ft with a food hall and a supermarket due to open in June.

Liau admits that there has been a lot of talk about the oversupply of office space in the Klang Valley with constant reference to the various mega projects currently being planned.

“We believe that this particualar area within a 2km-3km radius around the KLCC serves a particular market and if one were to focus on this part of the city, there is not much supply,” he says.

“With the Petronas Twin Towers now fully occupied, The Intermark will benefit from the overflow,” he says.

Property professionals say the hotel and retail conveniences are added advantages but the Intermark's location is not premium, although the building owner has linked a pedestrian bridge from that development to the Ampang Park LRT station.

The Australian-based private equity real estate investment company bought a portfolio of assets in 2007 then known as Empire Tower, City Square, Crown Princess and Plaza Ampang and redevelop the site at an investment of RM2.2bil. It was felt at that time that there was a lack of mixed integrated development built to international standards. It is currently the largest foreign real estate investment in Kuala Lumpur.

Says Liau: “When we bought this, we were looking at the oil and gas (O&G) and the financial sectors (to occupy the space). At that time, the financial services sector was larger than the O&G sector.” Its banking tenants include BNP Paribas, Sumitomo Mitsui Banking Corp, UOB Bank Group and JP Morgan.

The global crisis in 2008 dried up demand.

The Intermark integrated development has a total of 2.5 million sq ft of net lettable area. “We are confident of filling up 50% of our net lettable area of 777,000sq ft by year-end,” says Liau at the launch of Integra Tower. It is more than 40% occupied today.

Vista Tower is about 70% occupied. An office building should be 75% filled before property professional consider is as “stable”.

There are a quite a number of very prime and new buildings around the KLCC area. Among them include Menara Felda, Menara Binjai and Menara Prestige near Jalan P. Ramlee.

Next year, 2014, will see more than 2 million sq ft new space with the expected completions of Menara Hap Seng 2, Naza Tower @ Platinum Park, Menara Bangkok Bank @ Berjaya Central park, IB Tower and KL Trillion.

In 2015, the development of Quill Vision City in Jalan Sultan Ismail (fronting Sheraton Hotel) and the Public Mutual Tower will be adding another 900,000sq ft to the market. - The Star

How the problem came about

THE flood of office space in Greater Kuala Lumpur today is a result of policies and responses by both the public and private sector before the 2008 global financial crisis.

Khong & Jaafar group of companies managing director Elvin Fernandezsays it is necessary to look back in history to understand the current office market. The second thing to note is capital value of office space is driven by rents.

Elvin says the Klang Valley office market was peaking before 2008. Prime rents for new buildings were shooting up from an earlier base of RM6 per sq ft to between RM8 and RM9 per sq ft in 2008. When rentals began to head towards the RM10 per sq ft a month level, the capital value of the office space began to move up. It is rent which drives capital value.

“It was during this time, when capital values began to shoot above RM1,000 per sq ft and we saw a lot of transactions,” says Elvin, who is also an adjunct professor at Universiti Malaya's Faculty of Built Environment.

As a rough rule of thumb, if the rental is RM6 per sq ft, the capital value would move roughly in tandem at RM600 per sq ft.

“So if the value of RM6 per sq ft was going towards RM10 per sq ft, the capital value would move towards the RM1,000 per sq ft level. But instead of even hovering at the RM1,000 per sq ft level, capital value went past it,” Elvin says.

While at times capital values do run ahead of fundamental factors like rents and there were many transactions like that this at once indicates froth in the market, says Elvin.

The global crisis did not affect Malaysia that much but it did affect the office and condominium markets in Kuala Lumpur, he says. Rents fell. The question is: If the Malaysian economy was not much affected, why were the office and condominium markets affected? The answer: Both these markets had over-extended themselves, he says.

“Weaknesses had built into the market and the affected markets shook as a result of the external events,” he says.

Since then, the markets have come down and rents for both the office and condominium sectors are no longer aggressive.

The market is no longer dreaming of RM10 per sq ft for average prime office market rents, but there exists today in the city, very prime office space by virtue of their location or the facilities/amenities or what property professionals call prime plus and are in places around the Petronas Twin Towers.

“Rents for average prime have fallen to between RM7 and RM8 per sq ft. Hence the capital value, at one time past the RM1,000 per sq ft mark, is also retreating,” says Elvin.

Nonetheless, there are developers who are selling strata office space at RM1,000 per sq ft. But these are minor distractions and the focus should remain on the wider office sub-segment. What is fundamental today is that the Klang Valley office market is on a more realistic level, driven by rent of RM7 to RM8 per sq ft, and capital value of between RM700 and RM800 per sq ft for average prime office space with exceptionally well located or green buildings commanding higher prices.

The next question is, why has the capital value remain at this RM700 and RM800 per sq ft level?

This, says Elvin, is the replacement cost. It will cost that much to replace new buildings. The cost of replacement (or cost of construction) is also a driver in the market. It benchmarks the bottom line. But there is a caveat and it is this during times of severe stress, the capital value can go below cost of replacement. This was seen in Japan and in Kuala Luimpur itself post the 1997/98 Asian financial crisis. It is demand and supply which dictates the capital value, and not just cost of replacement. The policies of the day are also important drivers.

In the case of the Klang Valley, between 2010 and the present, something important has taken place.

Transformation

Between 2010 and today, a new euphoria has entered the overall property market.

“The Economic Transformation Programme (ETP), and its focus on property and transportation, has created a new emphasis to turn Kuala Lumpur into a more liveable international city. It is a policy that hinges on nearly every segment of the property market,” says Elvin.

As of September last year, the Klang Valley office market has total vacancies amounting to about 23 million sq ft while the annual net absorption rate will not exceed 2 million sq ft. This vacant space covers all buildings, both old and new, but excludes government buildings.

Demand is also shifting. “There may be less hope for the old ones unless they are refurbished or redeveloped,” he says.

From that perspective, the vacancies will probably be in the older buildings. The onus is for owners of older buildings to decide if they want to invest in redevelopment, says Elvin.

Fresh ideas and policies are needed to look into what can be done as companies migrate to newer, grander buildings.

He says there is an approved total incoming supply of about 18 million sq ft and a planned supply of about 2 million sq ft as at March this year. This total of 20 million sq ft is a huge figure, and may not include all the big ticket projects announced but not detailed out or given development orders as yet. It is imperative, therefore, he says that decision-makers and lenders understand the market.

“The long and the short of it is, don't be aggressive in building. But to suggest that the local authorities step in is not a good idea as they may not have the expertise to navigate a good balance. It would be better to impose the burden on banks as they are the lenders of these projects, and to insist they play a more effective role through the mechanism of requiring detailed market and feasibility studies before financing approvals through loans or other means,” he says. - The Star

Too much office space in the Klang Valley?

KL’s accumulated office space rose to 100.7million sq ft by the end of 2012.

SERENA Yeong of Essel Properties has been an office market specialist for the Klang Valley the last 12 years. She is aware of the hike in office space come 2015/2016.

“We can still make a living when companies migrate from old buildings to new ones. Owners of older buildings will be worried, though,” she says.

Landlords of older buildings are already feeling the heat, offering several months of free rent and more car parking bays. It is a tenant's market in the Klang Valley. Property professionals highlighted the situation as far back as two years ago.

Last year, Savills Rahim & Co founder and executive chairman Datuk Abdul Rahim Rahman called for prudence and suggested the imposition of stricter rules when granting development permits to curb overbuilding, which results in congestion, in the Klang Valley. The problem of city congestion has resulted in companies relocating to fringe city locations and suburban area with some form of public transport connectivity. For sectors like banking and oil and gas, this may not be possible.

Property consultancy Jones Lang Wootton drew attention to the office stock in March when senior vice-president and head of research David Jarnell said the supply of office space prime and secondary stock in the Klang Valley had surpassed 100 million sq ft.

He called it “a historic milestone”. Saying the situation was “manageable”, he nevertheless cautioned this could lead to a consolidation of rental levels for the rest of the year.

In the last quarter of 2012, seven office buildings in the Golden Triangle bordered by Jalan Ampang, Jalan Sultan Ismail and Jalan Raja Chulan, the decentralised area of KL Sentral in Bangsar Pantai, Petaling Jaya and Putrajaya, totalling 2.23 million sq ft, were issued with certificates of completion and compliance. Accumulated office stock rose to 100.694 million sq ft.

Jarnell also compared the Klang Valley with metropolitan areas of Bangkok, Singapoore and Jakarta. Greater Bangkok has the second-highest office stock, totalling 87.85 million sq ft, followed by the Special Capital Region of Jakarta with 65.66 million sq ft. Singapore's office stock is slightly less than Jakarta at 64.01 million sq ft.

Greater Bangkok's population is 8.2 million, Jakarta 10 million and Singapore about 5.1 million. The Klang Valley has a population of about 7.2 milion.

The fact that Bangkok and Jakarta have more people but 12 million sq ft and 34 million sq ft office space less respectively is something to think about. Singapore also has about a third of office space less. Has the Klang Valley over-built?

Don't call it glut

Six out of eight property professionals are reluctant to use the word “glut” as it is “far too simplistic”.

“The issue is not whether there is a glut or not; the issue is there are increasingly more prime office space entering the market and this is affecting the rental market,” says Elvin Fernandez, managing director of Khong & Jaafar group of companies.

He says in order for a free market to work, it is best to make known the facts regarding the office market to the various stakeholders and the public.

“Only then can the market correct itself,” he says.

How did the Klang Valley get into this situation?

Jones Lang Wootton attributes the strong supply growth to steady and sustainable economic growth, a vastly growing services sector and integrated mixed use developments, and improvement in the public transport system when the light rail transit (LRT) came into service in the mid- to late-1990s.

Office stock has grown at an average of 3.62 million sq ft per annum since 1998, Jarnell says. The average annual take-up rate is 1.5 million to 2 million sq ft, another consultant says.

Simply put, as new buildings enter the market, tenants moved from the old to the new, leaving the former vacant.

Greater Kuala Lumpur or the Klang Valley's office market is not a homogenous one. It is a tapestry comprising different sizes, locations, green versus prime grade A stock, and older buildings. The prime office market has splintered into different sub-segments - the normal grade A, grade A plus and super prime category. Certified green buildings may fall into any of these.

The lack of focus on redevelopment some quarters call it regeneration may have lent itself to today's massive office market. Instead of leaving pockets of green here and there, the easier route and the more profitable one for both developers and the local authorities seems to be building new offices.

That does not mean regeneration or refurbishment have not been carried out successfully. The Intermark is a result of redevelopment of what was then the Empire Tower, City Square, Crown Princess and Plaza Ampang in 2007 by an Australian-based fund MGPA. Another successful refurbishment is Menara Standard Chartered, previously Shahzan Insas Tower by Government Investment Corp (GIC) of Singapore.

Says DTZ Nawawi Tie Leung executive director Brian Koh: “Most of the buildings coming up today are Grade A which means that most of them are in Kuala Lumpur. But the oversupply situation is an issue that affects the office space market across the board.

“It is a concern to landlords and those in the property profession given that occupancy is likely to go downward because of oversupply. Landlords will have to give more competitive terms to tenants which will affect their bottomline.

“It also affects the banking and finance sector because banks are funding the development and construction of these properties. That means the banking sector will have to be more cautious and there may need to be restraints on funding,” Koh says.

Size and locality are not the only defining qualities of office buildings which come with varying degrees of “greenness” and technological features known as MSC (multimedia super corridor) status.

The range of offices available is as diverse as its rental per sq ft. Office space rental is priced as low as 87 sen per sq ft in Kampung Baru to RM12 per sq ft at the Petronas Twin Towers in the Kuala Lumpur City Centre (KLCC), according to property websites. There is a huge middle segment priced between RM4 and RM6 per sq ft available in prime locations like Damansara Heights, Mid Valley, Petaling Jaya and in the Ampang area.

It is this diversity that makes it difficult to tar the sector with one stroke that a glut exists.

A property website estimated that office rental rates have dropped by between 20% and 25%. Buildings in the category of G Tower, a green building, used to be RM8-RM8.50 per sq ft initially. A property consultant says buildings in the same category may be rented out at RM6.50-RM7 per sq ft effectively with rent-free incentive for a few months.

Regeneration Vs new projects

Savills Rahim & Co James Goh says there are three issues excess space, old buildings that do not meet international standards and rental pressure. The general office yield today is 6%. Some put it at between 6.5% and 7% net for average grade A buildings.

“Landlords need to bite the bullet and upgrade or risk becoming obsolete,” he says. “Landlords have to accept the new market reality. Those who adapt quickly will fill up their buildings faster,” says Goh.

The Petronas Twin Towers are fully occupied, Menara Maxis is about 90% occupied but some KL downtown offices priced at above RM7 per sq ft are half filled.

Says Serena Yeong of Essel Properties: “There are many downtown buildings that are struggling. There is a lot of migration to outside KL city.” This accounts for the 80%-90% occupancy enjoyed in Bangsar South, Petaling Jaya and Subang Jaya.

The average occupancy level today in the Klang Valley is about 75%. Anything below that should set off warning bells.

If the various mega projects announced by the Government were to go ahead, the amount of space is expected to swell further. Among which are the Tun Razak Exchange, KL Metropolis area near the Matrade Centre, the former Pudu prison redevelopment and Bandar Malaysia in Sg Besi. KL Sentral, a government-initiated project, is almost complete.

How much is enough?

In a nation striving for developed nation status and building liveable cities, how much is enough?

There is no straight-forward answer, because unlike Britain, where the London mayor's office regulates developments, in the Klang Valley, approval is given by the local authorites based on compliance with by-laws, and not according to demand and supply and market feasibility studies.

“So lenders have to be the regulators' because they are funding the projects. In the past, Bank Negara insists applications for project financing come with market and feasibility studies but this has changed. There is no property regulatory body to oversee developments based on demand and supply, how much space is needed and over what period of time,” says a property consultant who declined to be named.

This may be one of the reasons contributing to the Klang Valley's burgeoning developments far exceeding neighbouring cities like Singapore, Jakarta and Bangkok.

Property consultant Henry Butcher chief operating officer Tang Chee Meng says: “This is an area of concern as the potential increase in supply of office space from these mega projects is significant and will lead to an oversupply situation, unless the Government can attract overseas companies to take up the additional space.

“At the current projected pace of economic growth, it is unlikely the normal organic growth in demand for office space can take up the additional space being created by these mega projects.”

It is part of the Government's plans to attract 100 of the world's largest multinationals from the Fortune 500 or Forbes Global 2000 to invest in Greater KL by 2020.

As important as developments that meet international standards may be, it takes more than bricks and mortar to attract investments and people to Kuala Lumpur. There are factors such as the city's liveability and infrastructure, which includes both public transport and utility needs, security, green and open space, air quality, to name a few.

Location branding

There are certain sectors of the economy that need the branding that a city location offers. Sectors such as financial services (banks, insurance, fund management) and oil and gas may need to remain in the city.

Professional services such as accounting, architectural, engineering, valuation and real estate may prefer to decentralise to take advantage of lower rents or better transportation links and less traffic congestion.

Accenture and international law firm Wong & Partners, which is part of Baker & McKenzie International, are today in the Mid Valley Mega Mall area while British Telecoms has expanded to KL Sentral, says YY Lau ofYY Property Solutions Sdn Bhd.

Head hunters Korn/Ferry International and Michael Page International may be in the city because of their clientele. Data centres may want to be in Cyberjaya because of the MSC status, although that is now possible outside Cyberjaya, says Lau.

“When a company chooses a location, factors under consideration includes branding, perception, budget and talent retention. Sg Buloh will not be an address for a multinational company, but it could be the back office for a bank,” she says.

Consultants polled say the emphasis on development changed more than a decade ago with the entry of the government versus entrepreneur-style private sector. Among them being Malaysian Resources Corp Bhd (MRCB) for KL Sentral, 1Malaysia Development Bhd (1MDB) for the Tun Razak Exchange, Sime Darby group,Permodalan Nasional Bhd (PNB) and S P Setia Bhd. The ones leaning towards commercial developments would be MRCB, 1MDB and PNB.

Says Koh of DTZ Nawawi Tie Leung: “(It goes back to) risk management by the respective stakeholders. Unlike Singapore, where the government releases land as and when needed to control the property market, we don't have that sort of mechanism. So the banking sector has to come in because they are the ones financing the projects.” - The Star

Klang Valley office stock reaches historic milestone

A FLURRY of activity in the Klang Valley office market, in terms of completed stock and take-up, was noted by Jones Lang Wootton (JLW) at the end of 2012.

According to JLW's David Jarnell, senior vice president and head of research, “the Klang Valley's office market supply (prime and secondary stock) has registered an historic milestone by surpassing 100 million sq ft.

In Q4'12, seven office buildings in the Golden Triangle, the decentralised area, KL Sentral in Bangsar Pantai, Petaling Jaya and Putrajaya, totaling 2.23 million sq ft, were issued with certificates of completion and compliance and the office stock accumulated to 100.694 million sq ft.”

JLW defines office stock as purpose built self contained buildings which are generally above five storeys. Federal and state government office complexes, which are solely used by the Government and older buildings where part of the space has been sold on strata are excluded from JLW's monitored stock.

Malathi Thevendran, executive director of JLW, attributes the strong supply growth to steady and sustainable economic growth and a vastly growing services sector, integrated mixed use developments and the improvement in public transportation.

JLW monitors many office locations and the highest supply growth is the Bangsar/Pantai locality which experienced a compounded annual supply growth of 29% (1998 2012) primarily contributed by the continuing KL Sentral development in which Malathi has been involved since the master planning stage in 1995.

Menara CIMB, which is managed by JLW was completed in Q1'13 and 1 Sentrum, for which JLW is the exclusive leasing agent, will be completed later in the year, are two prime office buildings adding to KL Sentral's office stock in 2013.

In 1998, the Klang Valley's office stock was approximately 50 million sq ft and over the past fourteen years, this has grown significantly. David comments, “the stock has grown at an average of 3.62 million sq ftper annum since 1998”. Driven by strong demand, mainly from Malaysian companies and international companies already represented in Malaysia, take-up of office space in 2012 totaled 3.26 million sq ft (61% above the net average take-up over the past fourteen years of 2.03 million sq ft per annum).

Interestingly, comparing the Klang Valley with other metropolitan areas in the South-East Asian region, it has the largest office stock. Greater Bangkok has approximately 87.85 million sq ft with a similar amount of central business district accommodation at 45.42 million sq ft compared with the Klang Valley's 45.73 million sq ft.

The third largest office stock in the region is the Special Capital region of Jakarta, which has 65.66 million sq ft of offices, 47.36 million sq ft of which is in the CBD. Primarily constrained by land availability, Singapore has an office stock slightly less than Jakarta at 64.01 million sq ft.

Over the next three years (2013 2015), the Klang Valley office market will expand significantly with a vast incoming supply. If projects are completed on schedule, 17.97 million sq ft could be delivered into the market over the next three years.

On a regional basis, this three year supply pipeline is only surpassed by the Special Capital region of Jakarta, which is estimated at a huge 31.2 million sq ft. Strong demand from business expansions in the banking, insurance, oil and gas and the mining and natural resources business sectors is driving construction activity. Metro Manila, in the Philippines, has the third largest three year pipeline at 16.05 million sq ftall of which is Grade A accommodation.

There is just over 21 million sq ft of vacant office space, a considerable amount even though the market continues to show good take-up. Secondary accommodation is generally quite stable in terms of stock and average occupancy rate but the newer Prime Grade A buildings, even in the more established commercial locations, are placing downward pressure on the average occupancy rate.

David points out that some landlords of the newer buildings, which are competing for occupiers are offering more incentives such as longer rent free periods to secure tenants. He believes however that “rental rates for Prime Grade A buildings with good occupancy will be stable in 2013, particularly for those which are both green building and MSC Cybercentre certified and benefit from being in highly accessible locations”.

David reckons better monitoring of developers' intentions by a regulatory body to govern and direct future supply would help to ease the growing competition between landlords.

Malathi concurs “developers of office buildings should also be fully aware of what they could be up against and act prudently at the master planning stage, particularly the large scale projects which will need to be phased over many years before they are fully built out”.

David also adds that “KL is vying to become an international financial centre supported by the Government's Economic Transformation Programme and brand new infrastructure including rail networks such as Greater KL's Mass Rapid Transit (MRT) and the announcement of the KL-Singapore high speed rail link.”

He anticipates that the proposed High Speed Rail link between KL and Singapore will have a positive impact on the movement of people, which will help to spur Malaysia's tourism, business and trade sectors.

The property sector would also benefit from more international demand (especially from Singapore) due to KL's enhanced accessibility.

In the office market, for example, more foreign companies will consider locating their businesses in KL due to the relatively low costs of operation and better opportunities to attract a wider range of workforce.

Thus the Klang Valley will continue to be a key target for both Malaysian and foreign investors and our team of professionals is in a position to help our clients take advantage of the tremendous investment opportunities which are available.”

David Jarnell is the senior vice-president and head of research in Jones Lang Wootton and Malathi Thevendran is executive director - The Star

80,000 PR1MA homes for Klang Valley

KUALA LUMPUR: A total of 80,000 affordable homes will be built in the Klang Valley and Federal Territory, as part of the Govern-ment's wealth creation programme for the people.

Prime Minister Datuk Seri Najib Tun Razak said 1Malaysia People's Housing (PR1MA) homebuyers would be able to make immediate profits, as the houses would be sold for at least 20% below market value.

“Such wealth creation is rare. Prices of vehicles depreciate immediately after purchase, but PR1MA homebuyers can expect to make immediate profit, on paper, of between 20% and 30%,” he said when launching the PR1MA Alam Damai project in Bandar Tun Razak.

The project, by Transgreen Structure Sdn Bhd, in collaboration with PR1MA, comprises four types of 2,078 affordable homes on a 6ha parcel of land.

It is strategically located with access to the Middle Ring Road 2 (MRR2) and three MRT (Mass Rail Transit) stations proposed in Cheras.

Najib said the price of the units in Alam Damai would be announced after the local authority had issued the development order.

“But I guarantee that the prices will be at least 20% lower than market rates. If possible, we want it to be even lower than that,” he added.

The Government has so far announced 20,000 PR1MA homes in Kuala Lumpur, 8,000 in Putrajaya, and 2,000 in Labuan.

Najib waving from a show unit during the launch of PR1MA Alam Damai Cheras and PR1MA Homes Klang Valley in Kuala Lumpur. With him are PR1MA Berhad CEO Datuk Abdul Mutalib Alias (left) and Nong Chik (second from left) and PR1MA chairman Datuk Seri Jamaluddin Jarjis (right).

“In view of the high demand and high cost of living, we plan to build another 50,000 PR1MA units in the Klang Valley, bringing the total to 80,000 units,” he told the cheering crowd.

The Alam Damai project is the first development to take place from PR1MA's plans to build 50,000 homes across strategic locations in the Klang Valley, including Cheras, Bukit Jalil, Sungai Besi, Brickfields, Jelatek, Glenmarie, Putra Heights, Cyberjaya and Setapak.

Titijaya, Glomac, Ekovest and Cyberview are among the developers that had pledged support to PR1MA to build affordable homes in these areas.

Malaysians aged above 21, earning between RM2,500 and RM7,000 a month and do not own not more than one home can apply for PR1MA units.

Earlier, Najib also hinted that the general election was drawing near.

Stressing that the Barisan Nasio-nal government took pride in delivering promises, Najib said the time to show appreciation would be arriving soon. - The Star

纳吉：让中阶人民购“一马房屋” 巴生谷将建8万房子

（吉隆坡10日讯）首相拿督斯里纳吉宣布，将在“一个马来西亚房屋计划”下，在巴生谷地区兴建8万间，以让巴生谷及吉隆坡地区的中阶收入的人民拥有第一所房子。

纳吉也表示，参与“一个马来西亚房屋计划”的发展公司在获得发展令（Development Order）后，政府将会公布，在该计划下兴建的房屋价格。

他补充，即使这些房屋价格还未获得公布，但是他保证在该计划下兴建的房屋价格将会比市价低20%，以确保价格是在人民所负担得起的范围。

他指出，这项计划不止是让月收入介于2500令吉至7000令吉的中阶收入人民拥有人生第一家房屋，也让他们在未来能够有更好的生活品质，及可从购买的房屋中赚取利益。

KL property mart set to cool

KUALA LUMPUR, April 23 — This year will be a challenging one for residential property as tighter lending bites into demand, especially speculative buying, property consultancy DTZ said today.

DTZ said in a report that Bank Negara’s new lending guidelines will cool an overheated market that has run up substantially in terms of pricing in the last two years as well as focus developments toward the more affordable housing segment.

The new guidelines, which use net income instead of gross income, will likely lead to slower sales for developers, said the report.

DTZ said in a report that Bank Negara’s new lending guidelines will cool an overheated market. — file pic

It noted, however, that developers remained upbeat over the year’s prospects.

“Although 2012 will be a challenging year as tighter lending bites into demand especially speculative buying, nevertheless, developers are confident that the demand for residential properties in Kuala Lumpur will remain selectively strong, as developers focus on smaller and therefore more affordable units as well as packaging launches with attractive Developer Interest-Bearing Scheme (DIBS),” said DTZ.

Bank Negara has introduced new lending guidelines, which came into effect in January, in an attempt to put a lid on household debt, currently at about 77 per cent of GDP.

The guidelines have apparently already had the desired effect on loans.

HwangDBS Vickers said in a report last week that mortgage approvals and applications in February were respectively 27 and 18 per cent lower than last year’s peak partly due to the stricter lending guidelines.

It also said the loan approval rate has fallen to 45 per cent from 55 per cent in August last year, while margin of financing has been reduced to 70-80 per cent from 90-95 per cent in the heyday of the property boom.

The residential property market has also been moderating across the causeway with Singapore reporting a sharp drop in transactions following government cooling measures such as a higher stamp duty.

Purchases by Singaporeans slumped 12 per cent in the first quarter, while permanent residents bought 7.5 per cent less and transactions by foreigners dived 78 per cent.

Singapore home prices also suffered their first drop in nearly three years when it fell 0.1 per cent quarter-on-quarter in March.

In terms of Malaysia’s office sector, DTZ said that it is likely to see greater challenges with slower economic growth and an anticipated oversupply in the coming months, as the pressure to find tenants gathers intensity.

It noted, however, that the office rental market was stable with an occupancy rate of 86 per cent.

Rent in prime office space exhibited resilience and stood at RM6.25 per sq ft per month which was unchanged from the last quarter despite weakening market conditions.

DTZ said that while the proposed KL International Financial District was an exciting development, it could heighten concerns of a property glut.

“Whilst it will be exciting for the market to see the emergence of a rival office district to KLCC, it will ratchet up the competitive pressure on rents by several notches at a time when oversupply is a major concern,” said the report.

DTZ said that the retail sector is likely to continue growing moderately supported by relatively cautious consumer spending and tourist arrivals.

It also said that new major retail centres would continue to attract retailers who are selective and would still lease space in centres that are expected to see high footfall. - The Malaysian Insider