Penang Real Estate | Penang Property | Penang Properties: Taman Bukit Bendera Wanted

Attention: All owner of Taman Bukit Bendera, Air Itam, Penang,

Do you have any intention to your Taman Bukit Bendera, Air Itam, Penang? If your answer is yes, please feel free to contact us to further discuss how we can work together for a win win corporation.

There is no obligation. Act now!

Penang Real Estate | Penang Property | Penang Properties: Taman Bukit Bendera Wanted

Penang Real Estate | Penang Property | Penang Properties: Taman Seri Damai Duplex Unit Wanted

Attention: All owner of Taman Seri Damai Duplex Unit, Batu Lanchang, Penang,

Do you have any intention to your Taman Seri Damai Duplex Unit, Batu Lanchang, Penang? If your answer is yes, please feel free to contact us to further discuss how we can work together for win win corporation.

There is no obligation. Act now!

Penang Real Estate | Penang Property | Penang Properties: Taman Seri Damai Duplex Unit Wanted

Penang Real Estate | Penang Property | Penang Properties: Desa Green Apartment Wanted

Attention: All owner of Desa Green Apartment, Off Perak Road, Penang,

Do you have any intention to your Desa Green Apartment, Off Perak Road, Penang? If your answer is yes, please feel free to contact us to further discuss how we can work together for win win corporation.

There is no obligation. Act now!


Penang Real Estate | Penang Property | Penang Properties: Desa Green Apartment Wanted

Penang Real Estate | Penang Property | Penang Properties: Sri Pelangi Wanted

Attention: All owner of Sri Pelangi, Dato Kramat, Penang,

Do you have any intention to your Sri Pelangi Apartment, Dato Kramat, Penang? If your answer is yes, please feel free to contact us to further discuss how we can work together for win win corporation.

There is no obligation. Act now!

Penang Real Estate | Penang Property | Penang Properties: Sri Pelangi Wanted

The enigma of an artist’s impression and gimmicks

This is Part 2 of the column which appeared in StarBizWeek on May 25

FLIP through a newspaper or magazine and you'll be bombarded by advertisements picture perfect, too-good-to-be-true products. The advertiser aims to entice, and to do so, advertisements have to attract as many readers' attention as possible.

What happens if you bought a property because you were attracted to the artist's impression and lifestyle represented by the sales brochure but found out later that they don't live up to expectation? Can you take the developer to task?

Developers employ a number of gimmicks.

Scenario 1:

Your apartment faces a landmark view (eg. KLCC ) in the sale brochure. Later, you find that it is being obscured by an equally towering apartment block next door or the view is too distance and obscure

Scenario 2:

Your actual clubhouse is nowhere as glamorous as the one represented in the glossy brochure and the actual gymnasium devoid of those high-tech equipment and facilities

Scenario 3:

You find that your neighbourhood is not thronged with petite caucasian women swimming and sun-tanning at the poolside as represented in the sales brochure

Scenario 4:

Your “uptown Mont'Kiara address” is situated in the vicinity of Segambut. As a property's location is valuable, developers always cash in on this.

Scenario 5:

15 minutes to Petronas Twin Towers (if by flight pun intended) but not through the horrendous traffic of KL city centre.

Scenario 6:

Guaranteed five-year return on investment ROI (provided you furnish the unit with not less than RM30,000 on furniture and fittings); only RM98,888 upwards for a three-room condo (this minimum price is for a studio unit as the three-room unit was pegged at around RM22X,XXX); and condo living in the city (this refers to three apartment blocks consisting of 600 units with a swimming pool half Olympic-size and two squash courts).

NB: Such gimmicks usually come with several fine prints at the bottom which, sadly, housebuyers do not read. Very often, these so-called Guaranteed Contracts are signed with another company other than the developer. These “other company” could just be a shelf company with nominal paid-up capital.

The gimmicks highlighted in the promotion advertisements are attractive and catch the eye of potential buyers. The result is booming sales for the developers at the expense of the nave and unwary homebuyers.

Under the Housing Development (Control and Licensing) Regulations 1989, housing developers are required to give “accurate information and true particulars” in the advertisement of their housing schemes. Those in violation of the terms and conditions of their approved permit can be prosecuted for false advertising and misrepresentation. On conviction, the offending developer is liable to be fined not exceeding RM20,000 or jailed not exceeding five years or both.

Is the developer liable for these “misrepresentations”? Can a developer be sued over these inaccuracies and compensation be made?

Chances are they are not unless these representations are incorporated as part of the sales contract conditions. Besides, more often than not these representations are precluded by an all-too-familiar fine footprint of disclaimer clauses in the tone of “All illustrations are artist's impressions only” or “The brochures do not form part of the contract” among others, sitting in one obscure corner of the brochure in obscure prints which one can only see with a magnifying glass.

The property was sold with the distinction of being developed by some well-known developer when in fact it's one of its subsidiaries or affiliates. House buyers only discover this isn't the case when they sign the sale and purchase agreement (SPA). Another thing to consider is whether the buyers have the stamina to take on the mighty and rich developers who have hordes of touting lawyers waiting to do their mendacity. Aggrieved buyers can take legal action against developers for such misleading or false advertisement but legal fees are expensive. Suing costs money and most people can't afford to take on wealthy developers who can drag the case on for years up to the highest court. Developer knows this and that's why potential buyers must now be smarter and be wary, cautious and exercise watchful prudence of the characteristics and essence to make an informed decision when buying a property.

BTS vs STB

In most cases involving Sell-Then-Build (STB) properties, what you see in the brochures, advertisements or scale models won't be what you get once you obtain the keys of the property. Buyers should expect that the properties will not look exactly the same as portrayed in glossy pictures. Therefore, readers must understand why the National House Buyers Association (HBA) is steadfast for the Built-Then-Sell (BTS) model where you pay only for completed property.

Prior to the absolute BTS, HBA has proposed to the Government, who has agreed to have in place the BTS 10:90 concept. It entails paying 10% for deposit (when signing the sale and purchase agreement) and the balance 90% to be paid only when the property is completed in totality with individual title deed, certificate of fitness (CCC or CFO included) and keys with electricity and water ready. This way buyers get to inspect the property prior to taking vacant possession and departing with 90% of the contracted price.

And so who is to say you have not been pre-warned!

Again, what is legally binding is the plan documents annexed with the agreement which must be a copy of the approved plan.

You should do this right from your showroom trip when you find a property that you are interested. Ask the sale staff to show you firstly, the “approved” layout under (which will be annexed in the First Schedule of the SPA) the planning permission to ascertain whether neighbourhood attributes projected at the sales brochure match those in the “approved” layout.

Following that, ask for the approved building plan (which will be annexed in the Second Schedule of the SPA) to verify again whether those approved matches the artist's impression version of which you are interested. Insist that you obtain an approved copy of the parcel unit that you are purchasing with the approved copy of the accessory parcel of car park bay designated. Identify the Common Facilities Plans to be attached as approved plans in your sale and purchase contract. Behold, they will have no reason to object to your request as the building plan and all related plans ought to have been obtained by then.

Again ensure these approved plans carried the endorsement of the relevant local authority as described earlier.

Notwithstanding the above, to ensure what you have been promised on the common facilities such as swimming pool and if you are getting a club house, barbeque pits, gymnasium with facilities, etc by the sale staff, it is prudent for you to run through the Fourth Schedule (building description) Schedule G (landed ) and Schedule H (stratified property) Second Schedule common facilities and services, with your own lawyer independent from the developer's panel lawyer to ensure they are included before signing the agreement proper.

As the saying goes: Caveat Emptor: “Buyers Beware”.

> Chang Kim Loong is the honorary secretary-general of the National House Buyers Association: www.hba.org.my a non-profit, non-governmental organisation (NGO) manned by volunteers. He is also a NGO councillor at the Subang Jaya Municipality Council. - The Star

IJM Land to build access at core projects

PETALING JAYA: IJM Land Bhd will be investing a total of RM275mil to improve accessibility and road infrastructure to three of its core developments, namely, Pantai Sentral Park, Rimbayu Shah Alam and The Light in Penang.

“IJM Land and its joint-venture partner (Amona Development Sdn Bhd) will spend around RM75mil to provide a new access via the New Pantai Expressway to its Pantai Sentral Park development,” chief executive andmanaging director Datuk Soam Heng Choon told StarBizWeek in an interview.

With this, he added, there would be two access points to the development, with the current one being via Jalan Kerinchi.

Its Pantai Sentral Park project, be to launched at the end of the year, will have a mixture of low and high-rise commercial and residential development, with a gross development value of RM3bil. The value will be boosted considerably if the proposed mass rapid transit Line 2, which passes through Pantai Dalam, materialises.

The 58-acre project is located next to YTL Land & Development Bhd's Pantai Hill Park and is close to 200 acres of greenery in Bukit Gasing.

Over in Penang, the company will be spending about RM100mil for The Light project's road infrastructure. The 152-acre development on reclaimed land will have 1,000 residential developments. Of this 152 acres, 102 acres will comprise of commercial offices and retail outlets, several hotels, malls, a convention centre and a waterfront dining and entertainment district.

Commercial projects for The Light are in the final stages of design at the moment. Land reclamation has just been completed and physical construction work is expected to commence in 2014. The residential portion, known as Collection IV, comprising 78 condominium units and 19 units of sea-front luxurious bungalows, will be launched next year.

For financial year ending March 31, 2013, the property developer reported a full-year revenue of RM1.25bil as opposed to RM1.21bil for the previous year, and a net profit of RM231.11mil compared with RM200.27mil previously. The increase in revenue comes on stronger sales achieved by the group.

The investment holding segment, however, decreased by half to RM3.11mil compared with RM6.24mil for its previous financial year as a result of lower rental revenue, following the completion of the disposal of Menara IJM Land. The company gained RM20.96mil from the disposal.

For the fourth quarter ended March 31, 2013, it recorded a revenue and net profit of RM373.19mil and RM70.71mil, respectively. This compares with RM366.07mil and RM59.08mil, respectively, for the 2012 financial year.

In a filing with Bursa Malaysia, IJM Land said the increase in revenue was due to higher contribution from the property development segment in its last quarter amounting to RM364.99mil compared with RM357.35mil in the previous corresponding quarter. It has unbilled sales of about RM2bil for the financial year 2013. - 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

London properties still pull ’em in

LONDON'S commercial properties continue to attract strong and diverse interest from abroad despite the internal and external challenges, with the sterling trading at one of its lowest rates in eight years, BNP ParibasReal Estate says.

“Seventy-seven per cent of Central London investments in the first quarter of 2013 (came) from overseas money,” BNP says in a release.

Europeans (outside of UK) accounted for 27% of overseas investments into Central London, followed by North Americans (25%), the Middle East 18% and the Far East (17%).

“Positively, total investment into the Central London property market rose 9% to £2.91bil (RM13.38bil) in the first quarter of 2013, compared with quarter four 2012,” a BNP release says.

Central London comprises the submarkets of the City, Midtown, Docklands and West End. The City refers to the square mile which houses London's financial district.

When analysing each submarket, investment into the City remained fairly stable in the first quarter of 2013 at £1.3bil (RM5.98bil) and the Docklands saw a rise in investment, with the largest deal being at 5 Canada Square.

At one time known as the Docklands, steel and glass offices dominate the skyline. Canary Wharf will be one of the beneficiaries of Crossrail, one of Britain's most significant infrastructure projects today since the Underground.

BNP Paribas Real Estate senior director of London investment, Richard Garside says: “Demand remains as diverse as ever with a continued high level of activity from overseas money driven by the focus on London as a safe haven with high quality investment stock. UK institutional investors also remain active within their traditional sectors and we are seeing a continued demand for annuity style income often provided by alternative sectors such as student housing, hotels, supermarkets and data centres.”

Why does London have such a strong attraction for foreign investment?

Chairman and CEO of Canary Wharf Group Sir George Iacobescu wrote in the Financial Times in March that the rule of law was central to London's safe haven status because investor could be sure that the legal system would safeguard properties under any political circumstances.

The same publication reported that 2012 saw £8.8bil buying into the London commercial sector, the highest volume since 2007. Knight Frank research says sovereign wealth funds accounted for about 25% of all transactions in the City market (or £2.4bil out of the £8.97bil).

CH Williams Talhar & Wong managing director Foo Gee Jen says it is necessary to look at the local office market situation in order to understand why Malaysian sovereign funds diversified abroad. Malaysian sovereign funds have invested about £3bil in London since 2009. He says yield for the Kuala Lumpur office market hovered between 7% and 7.5% from 2006 to 2011. Since last year, it has moved further down.

“Property value has moved up and the rental today does not correspond with the quality of the buildings. Yield is compressed. The same thing is happening in Hong Kong and Singapore. This has to be examined in relation to the 3% fixed deposit rates today. So when you get a yield of 4%, it seems reasonable, at 5% it is acceptable,” he says.

When sovereign funds buy into London, they enjoy a “double discount” in the form of lower entry point because prices dropped drastically in 2008/2009 and the pound is weak, says Foo.

The funds that have bought into London include Employees' Provident Fund, Permodalan Nasional Bhd, KWAP and Lembaga Tabung Haji.

Malaysian real estate investment trusts (REITs) also bought into the local commercial property market. Some development-based companies also converted their own assets into REITS. There are many prime office buildings, but the yield is not attractive.

Foo says buying abroad is a diversification for the Malaysian funds. Besides future capital appreciation and 5%-7% yield, Malaysian funds are attracted to long tenancies that go up 20 to 30 years.

The Financial Times reported on March 12 that the London office market and other European cities have attracted the attention of sovereign wealth funds from Asia of late. These funds are able to hold these assets for 30 years or more, if they so wish because their focus is on rental, not total return.

This fundamental difference in approach, combined with deep pockets means they can pay more and are in a position to outbid traditional landlords on many of the world's most coveted buildings, the Financial Times reported.

“From a Central London real estate perspective, sovereign wealth funds have been the driving force in pricing at the top end of the market and have become a key and distinctive purchaser type in the market. Sovereign wealth funds accounted for a quarter of City transactions,” the publication reported.

The build up in interest in London started in 2009/2010 while the local office market took a beating after 2008/2009. This does not mean there is no interest among funds in the local commercial sector. Pelaburan Hartanah Bhd (PHB) and Lembaga Tabung Haji have purchased local office buildings. - 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