PROPERTY agents polled in the Klang Valley say Budget 2014 is expected to weigh considerably against investors. The more experienced investors are reading the signs around them and are taking a wait-and-see attitude while the braver ones are going ahead with their investment plans.
“Many may only make a decision post-budget,” says Peter, a senior negotiator who declined to be named.
Investors are concerned about the re-imposition of the real property gains tax (RPGT) in its full force. Of late, different media have delved into that possibility.
“Because property prices are so high today, there is the likelihood that this group of buyers will be targeted, as opposed to those buying for their own stay,” says an agent.
The situation in the property market today is different from before, Peter says, as investors have several issues to content with.
“Property investments are not as simple as before. The RPGT will be a deterrent, while the possible imposition of the goods and services tax (GST) may raise prices, which may induce those who do not yet own a property to just buy a unit,” says Peter.
The re-imposition of the RPGT and the entry of GST are not the only concern among the more experienced investors.
They are also concerned about the flat or falling rental market.
Peter says there was a time when investors bought into a project with a larger downpayment than currently on a progressive payment method and used the rental income to cover the full or partial monthly mortgage commitment. Today, that may not be possible because of the low downpayment, says Peter. The present developers interest bearing scheme has changed that.
“A one-room apartment in some locations may be more than RM600,000 today. At that price, he will only get a gross yield of 4% if he were to rent it out at RM2,000 a month and he has to pay for the various monthly charges.
“The days of using your rental income to cover your mortgage loan is over,” Peter says.
His comments are similar to another agent specialising in the Sri Hartamas/Mont’Kiara location in Kuala Lumpur.
She says rental has been trending down for several years.
“Most landlords are more accommodating and acceptable about reducing rental,” says Jenny.
She says the monthly rental for a 640 sq ft one bedroom unit used to be RM2,200-RM2,300 in 2011. This has gradually been reduced to RM2,000 today, a drop of 10% to 15%.
“There are more than 400 units in Plaza Damas 3 today. Some of the units were under a guaranteed scheme. Buyers who opted for this scheme had their units with a built-up of 500 sq ft rented out for RM3,000 a month. This amount includes car park, utilities and house keeping. If you remove these items, the rental is about RM2,500 to RM2,600 a month. With the end of these scheme, more units will be entering the market, putting new pressure on rental going forward,” she says.
The drop in rental is prevalent in most locations in the Klang Valley with the rental of larger units in Mont’Kiara facing a greater reduction.
“It is likely that rental may drop further,” she says, adding that returns have been trending downwards from 7% to 8% to 4%-5% today. It is likely to go down to 3% for condominium units.
“You cannot expect your rental to cover your monthly instalments,” she says, adding that much of this situation has to do with urbanisation. “We see this situation in Beijing, Shanghai and Singapore – part and parcel of the urbanisation process.”
The downtrend facing rental of condominium units is due to the supply entering the market.
Says Vincent Ng of Kim Realty: “Tenants stay in a place a year or two and move from the older ones to the newer block. This is prevalent in any location where there are multiple blocks coming up in a single location. The owner may refurbish his unit but the public areas are beyond his control.”
Ng says that while the one and two-bedroom units – with rentals between RM1,000 and RM2,000 – continue to be in demand even in the older blocks, it is the larger and older units that may face a problem in rental.
“There are so many new condominiums coming up and many of them have excellent facilities compared to the older ones,” says Ng.
However, Ng cautions that each location and project is different and has its own selling points. University Tower, located at the busy crossroads facing the University Malaya Medical Centre for example, enjoys good demand, despite not having the facilities or the ambience of the more modern contemporary units found in Mont’Kiara and Hartamas.
“Rental for University Tower is going up instead of going down,” says Ng. It is the only apartment block in that site. Oversupply will push down rental but that is not the case with University Tower because there is no other residential block within walking distance of the hospital.
An agent who declined to be named says North Point in Mid Valley used to be rented out at RM7,500-RM8,000 three years ago. “The last year, the landlord, a China national, instructed me to rent it out at RM6,000. There were no takers. He has just given new instructions to rent it out at RM4,000 a month. Ironically, people are willing to pay RM1.5mil for it, which is double the launching price,” says the agent.
Like the most fundamental of economic theory, when it comes to condominium rental, the theory of demand and supply applies, as with any goods and services.