Bleak 2018 Outlook for Luxury Condo Market
The sale of luxury condominiums in Malaysia is expected to be sluggish in 2018 due to large existing supply and the recent stamp duty hike reported The Edge.
"There has been no new catalyst to drive sales and initiate market recovery. In fact, more units are expected to come on board in the secondary market, and this will exert greater downward pressure on prices" said a report jointly authored by Nawawi Tie Leung Property Consultants and Edmund Tie & Co (SEA).
"The demand for high-end homes was further curbed due to policy changes. Effective from 1 January 2018, stamp duty for homes costing more than RM1 million increased from three percent to four percent to discourage property speculation.â€
In addition, real estate developers are expected to reduce their launches of high-end condos this year given their shift towards affordable homes and the Federal Government's approval ban for new luxury properties due to excess supply.
"According to the National Property Information Centre (NAPIC), condominiums priced above RM500,000 contributed significantly to the number of unsold units in the market" they noted.
Consequently, the high-end residential market has remained weak, and this sector will remain under pressure as over 6,000 luxury condos are projected to enter the market this year.
In fact, prices of these expensive condos slid by 1.5 percent on a quarterly basis to RM751 psf in Q1 2018, while their monthly rent fell 3.3 percent to RM2.95 psf.
Despite the sluggish property market, the report authors believe that investors are still on the lookout for investment opportunities in this sector thanks to the recovering ringgit and bullish economic prospects.
However, property investors are adopting a wait-and-see approach due to the looming 14th General Election (GE14) on 9 May 2018.
"The outcome of the upcoming election will have long-term implications on the economy going forward. Whether there is a continuation of tried and tested policies of the present administration or a drastic overhaul is dependent on the election results" explained the report.
Due to the uncertainty over GE14, total real estate investments during the first quarter slumped to RM246.5 million compared to RM1 billion in the same period in 2017.
The largest transaction was Al Rajhi's acquisition of Menara Mont'Kiara for RM122 million.
Meanwhile, average office rents dipped 0.7 percent on a quarterly basis to RM5.98 in Q1 2018 because of weak demand and a huge amount of available space, while occupancy level slid to 80 percent from 80.4 percent previously.
Similarly, the occupancy rate of shopping centres in Kuala Lumpur fell to 86 percent from 87 percent even though overall retail supply was unchanged at 31 million sq ft in the first quarter.
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