Property
The unusual Kuching property market
Joseph Wong 
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SARAWAK’s capital Kuching has always been unique in many things and the property market there is no different.

The city could possibly be the only state capital in the country where the logic of supply and demand does not necessarily apply.

“[Even though there are no] proper figures to justify this since data is not readily available, it is a well known fact that Sarawak is a land of cash-rich buyers.

“The West Malaysian developers I have spoken with who have done roadshows in Kuching have always had this perception,” says property investment speaker and author Charles Liew.

The general consensus is that it is relatively easier to get Sarawakians to buy because they are “easier to convince,” he says.

The general consensus is that it is relatively easier to get Sarawakians to buy because they are easier to convince, says Liew

“I believe with that kind of mentality, when it comes to buying ‘local’ properties in Kuching, the readiness to purchase is even more apparent.

“With a lot of the projects in Kuching nowhere close to the size of the developments in other state capitals, projects can be 80% sold upon their official launch,” he says.

With this kind of buying power, prices tend to rise independent of the actual supply and demand dynamics driven by actual market forces, says Liew, who is also Shine Pharmacy Sdn Bhd founder and CEO.

Findings by property valuer CBRE|WTW and property consultancy firm Rahim & Co International Sdn Bhd (Rahim & Co) appear to coincide with Kuching’s anomaly.

Although the market is soft, there is no apparent sign of a downtrend of prices in residential property, according to the CBRE | WTW Market Outlook Report.

“Monitoring and controls by the Sarawak Planning Authority have helped to avoid any significant overhangs.

“As the Kuching or the Sarawak market for that matter is less speculative compared to the other states, housing price prospects look positive in the long run,” it says.

House prices have increased marginally (see table) and new launches ranged between RM400,000 for intermediate terraced units and RM700,000 for the corner units while semi-detached units were priced from RM700,000 up to RM1.3 mil per unit, depending on the location, land and building size and specifications.

 

Supply outstrips demand

Property launches in the last two years have dropped after peaking in 2015 when more than 3,000 residential units were launched, according to the report.

Despite fewer launches than 2016, there were still a considerable number of projects launched last year, totalling about 1,500 units.

Of these, about 75% are located in the suburban areas of Kuching such as the Grandstand and Podium along Jalan Tun Ahmad Zaidi Adruce, Lot 16 Residency in Stampin, Princeton in Stutong Baru and the Toorak in Seladah, it says.

On the other hand, the number of completions last year of close to 1,800 units, doubled that of the previous year – the result of the large number of projects launched in 2014 and 2015.

As at H1 2017, Sarawak’s residential supply stood at 242,438 units, dominated by two- to three-storey houses at 29% and one-storey terraces at 26%, says Rahim & Co’s research team.

“The same is seen in Sarawak’s 4.8% increase in residential supply whereby terraced houses contributed the most with 5,754 units, making up to 51% of the total increase.

“In the residential market, transaction volume continued to drop but at a slower pace with the average percentage change below 10% for the past five years except 2013 which experienced a 13.1% drop,” the report says.

“The introduction of new projects has slowed in the last year, with some developers being watchful of economic developments,” agrees Liew.

However, he also points out that there are some developers who see this as a good time to pull ahead of the competition by way of more rigorous activities.

Transaction values on the other hand showed some promise of improvements with H1 2017 up by 3.6% from H1 2016.

“Sarawak’s overhang residential units stood at 31.5% as at H1 2017. Out of the 768 units unsold, a good proportion lies within the price range of RM300,000 to RM1 mil.

“Of landed homes, single-storey terrace houses in both Tabuan Desa and Tabuan Jaya are similarly at an average of RM400,000 and rentals at about RM1,500 per month,” says Rahim & Co’s research team.

The rising property prices are perhaps due to the usual factors, with inflationary pressures causing prices to rise, says Liew.

“What we do know, however, is that the rate at which prices are rising is not as fast-paced as say when the property cycle is at the latter stage of an upswing.

“We must contrast the rise in prices caused by inflation and the rise in prices caused by actual appreciation spurred by demand.

“With banking policies being tightened in recent years [albeit seemingly loosening of late], the readiness and ability to purchase have decreased, essentially seeing a scenario where demand is managed, but not necessarily the supply,” he says.

 

Rental rates slipping

While property prices have been increasing, the rental rates have not gone up, says Liew. In fact, the reverse has occurred.

Rental rates for residential units have decreased in the last year, with newly completed units coming onto the market, at a time when the economy is still seemingly struggling, he says.

“With an election on the horizon, the uncertainty is expected to continue, which would not bode well for rental rates.

“Residential rental rates in Kuching, it needs to be noted, have historically never been an attractive proposition to investors as far as rental yield is concerned – a 2% rental yield is not uncommon.

“In the last year, most property owners have struggled to find tenants willing to meet market price rental, and a lot of times, in these tough times, prospective tenants have acknowledged the shift in bargaining power, and have been demanding furnishings to be added,” he says.

For instance, a bare residential apartment unit renting for RM1,800 two years ago would be renting for between RM1,600 and RM1,750 currently.

Similarly, the rental rates for commercial premises have been slightly lower across the board but good areas still command premium rental rates, he says.

For perspective, ground floor commercial units measuring about 1,300 sq ft in hotspots could go up to RM7,000, but in general, for established areas, typical ground floor units of that size would hover between RM3,000 and RM5,500.

Of late, Kuching also has to content with high-rise properties. 

Jazz Suites, residing on top of Vivacity Megamall, comprises 672 apartment units


High-rise poser

Prices of apartment units seem to have stagnated and rentals have even dropped, caused by the increased supply in the market for tenants as Kuching continues to see a number of condominium and apartment projects in various stages of completion and also being launched.

Recent launches of high-rise residential units in Kuching range between RM300,000 and RM1 mil with sales prices ranging between RM370 to RM765 per square foot depending on the size and location, according to the CBRE|WTW report.

In contrast, existing high-rises like Floridale Condominium is valued at RM394,000 per unit on average and De Summit Condominium at a higher RM640,000. Rentals for Floridale are at RM1,500 and De Summit at RM1,800 per month.

“Take-up rates of apartments have slowed down in 2017 due to increase in supply, stringent financing and decreased disposable income. This segment is expected to continue to soften further in 2018.

“Soft market conditions resulted in less new launches in 2017. On a positive note, the reduction in price is not evident thus far. Overall, the market is expected to remain stable with potential for rightly-priced products to do well,” it says.

Significant projects include Jazz Suites, Ryegates III, Park Residence, de Lofts and P’Residence. The biggest – Jazz Suites comprising 672 apartment units and occupying the residential podium of Vivacity – was completed last year.

There are a large number of projects currently under construction or earthworks in Kuching of close to 6,400 units. Among the big projects are Sapphire on The Park, Liberty Grove, Riverine Diamond and Rivervale condominiums.

Most units are being developed in the city areas (37%) and Batu Kawa (30%). This large numbers will eventually further affect occupancies and rentals, says CBRE|WTW.

In addition, several affordable housing schemes had been announced for Sarawak like 1Malaysia People’s Housing Programme’s (PR1MA) three projects in Bintawa, Matang and Semenggoh.

Units of these three projects are priced from RM235,000 to RM279,000. Moreover, the Civil Servant’s Housing Scheme (PPA1M) is making its debut in Sarawak with two projects in Muara Tuang and Ike Village @ Kota Samarahan.

While these projects cater to the affordable market, it will add to the supply level and have an impact on the overall property market in Kuching.

Too many shop offices ‘spoil’ the market

WITH a rise of 6.3% in existing supply from the first half of 2016, Sarawak’s shop office count stood at 28,329 units as at H1 2017. This, coupled with another 3,404 shop offices expected to be completed in the next three years, will put pressure on an already oversupply situation.

In contrast, transaction activities have shown a steady downward trend in volume, starting with 2,341 units back in 2012 and ending with 1,422 units in 2016, according to property consultancy firm Rahim & Co International Sdn Bhd.

Within the review period, 556 units were transacted at a total of RM244.6 mil and both volume and value experienced a fall of 15.1% and 9.5% respectively from last year’s review period, say its research team.

In Kuching, three-storey shop offices in places such as Metro City in Matang and RH Plaza in Taman Satria Jaya were seen to fetch a price averaging RM945,000.

On a higher price tag albeit a bigger space, four-storey shop offices in Stutong Parade were transacted at an average of RM1.5 mil.

“However, we do see a lot more ‘for rent’ signages last year, as many businesses struggled in light of the weaker economy and suffering from the lagging effects of the GST [goods and services tax] implementation.

“I have seen a good number of friends in my circle wind up their businesses in 2017, citing significantly lower sales as one of the main reasons,” says property investment speaker and author Charles Liew.

 

Purpose-built offices

On the other hand, it is not all gloom and doom. The supply of purpose-built offices (PBO) in Kuching is increasing slowly and steadily with rental rates remaining stagnant but stable.

The first half (H1) of 2017 saw an increase in the supply of purpose-built office space in Sarawak by 4.9%, amounting to 7.62 million sq ft. The cumulative supply of PBO space in Kuching stands at around 6.9 million sq ft.

Most are built to house growing government agencies and on a pre-let basis to certain corporate entities, which had helped to avoid any serious overhang situation, according to the property valuer CBRE|WTW Market Outlook Report.

“Public sector office buildings yielded a higher average occupancy rate of 92.1% compared to 78.5% for the private sector office buildings.

“The addition of numerous office towers in mixed developments since 2015 which added 650,000 sq ft of office space into the market has pulled down the average occupancy rate of private offices from 90% to around 85% in 2017,” it says.

This amount is currently occupied at a rate of 93.8%.

On the overall property outlook, there are 101 purpose-built office buildings in Sarawak with Kuching housing the portion at 5.12 million sq ft, says Rahim & Co Research.

“Monthly rental rates for purpose-built offices within Kuching in general ranged between RM2.30 and RM4.30 psf [per sq ft],” says the team.

“Buildings such as Gateway Kuching, Wisma STA and Wisma Bukit Mata Kuching commanded the higher range of RM2.70 to RM4.30 psf. Others like Menara MAA commanded a lower RM2.30 to RM2.60 psf.”

On a brighter note, with the increasing number of small and medium enterprises appearing in the market, there may be an increased need for PBO spaces although on a smaller scale.

With green building technology and green building materials coming to the fore, there may even be a greater push to usher in green PBOs which may provide long-term savings in energy bills and maintenance cost.



This article first appeared in Focus Malaysia Issue 278.