Prices on secondary market continue to rise

Future economic growth in Kota Kinabalu, Sabah, will be anchored by several key projects initiated at both state and federal levels. Economic growth will attract more foreign companies which, in turn, will boost the property market.

Modern and vibrant mixed-use and commercial developments as well as quality residential facilities, both landed and stratified projects, will help position Kota Kinabalu as a new metropolis in Malaysia, says Saleha Yusoff, head of research at Rahim & Co, when presenting The Edge/Rahim & Co Kota Kinabalu Housing Property Monitor for 3Q2011.

“The synergy between the Sabah Economic Development and Investment Authority and the Performance Management and Delivery Unit (Pemandu) is expected to strengthen Kota Kinabalu’s position as a favourite investment destination, particularly for the tourism, agriculture and palm oil sectors,” she adds. Other sectors being explored include oil, gas and energy, healthcare and communication content and infrastructure.

Sabah Chief Minister Datuk Seri Panglima Musa Aman had highlighted that the Sabah Development Corridor (SDC) will be aligned to suit the aspirations of the Economic Transformation Programme (ETP). The programmes and projects that have been identified will leverage Sabah’s rich natural resources and strategic location in the South China Sea, and help transform agriculture into “agri-business” by moving towards an inclusive model anchored in market-centricity, economies of scale and value chain integration.

Tourist arrivals in Kota Kinabalu are expected to see an increase with the establishment of world-class resorts in Karambunai and Pulau Gaya. The RM6.5 billion integrated eco-resort in Karambunai is expected to generate 50,000 new job opportunities, while the development of the RM75 million luxury villas in Pulau Gaya by YTL Corp Bhd will establish Sabah as a premier luxury holiday destination in Southeast Asia.

“The higher influx of high-spending tourists will create a significant economic chain reaction,” says Saleha, adding that with more high-spending tourists, hotel room rates are expected to rise.

The “open sky policy” has tremendously improved direct air connectivity between Kota Kinabalu and other international airports. Currently, Kota Kinabalu International Airport has a direct connection to major cities such as Brunei, Hong Kong, Shenzen, Jakarta, Tokyo, Osaka, Seoul and Singapore. With frequent flights available, coupled with several tourism-oriented projects in the pipeline, more international tourists are expected to arrive in Kota Kinabalu, particularly South Koreans. Currently, 14 out of 35 flights from South Korea to Malaysia connect directly to Kota Kinabalu.

Sabah is expected to contribute significantly to Malaysia’s economic growth with a 12.8% share of foreign investment under the 10th Malaysia Plan. Private-sector initiatives driving Sabah’s economy will continue, steered by both the SDC and Pemandu.

Climbing values
Sampling from the property monitor shows prices and rental values of residential units on the secondary market rising. Sampling for 3Q2011 shows that the values for 2-storey terraced houses rose an average 8.95% from a year ago, an increase of 2.22%.

Saleha notes that maturing residential areas continue to enjoy a higher y-o-y capital appreciation rate, with Millenium Height coming out on top with 14.29% growth. Other areas hover between 5% and 10.94%. However, on a q-o-q basis, capital appreciation for Millenium Height was unchanged compared with 2Q2011.

Highest price growth was recorded by Ujana Kingfisher and Taman Jindo, with 8.33% and 4.84% q-o-q growth respectively. “Since 1Q2011, Ujana Kingfisher and Taman Jindo’s capital appreciation has not been attractive. But as the two schemes mature, along with the commercial areas in both schemes and higher asking prices in similar schemes in close proximity, the asking prices in Ujana Kingfisher and Taman Jindo are now climbing,” says Saleha.

Golden Hill Garden is also showing stagnant growth, from 2Q2011, although well-renovated units in this high-end residential scheme can still command higher prices on the secondary market.

“Golden Hill Garden and Luyang Perdana are still the preferred choice for foreigners. With strong and steady demand for both occupation and investment from local and foreign buyers, we are positive the prices of their 2-storey terraced houses will continue to appreciate,” says Saleha.

For standard 1-storey terraced houses, Taman Tuan Huat takes the lead with 8% appreciation from the previous quarter, followed by Taman Sri Kepayan with 5%. Saleha notes that most buyers are locals.

The high-end condominium market has been on a constant and steady climb. Y-o-y comparison shows an average capital appreciation of 1% to 6%. An outstanding performer would be Alam Damai, which obtained its Occupation Certificate in July, having registered a capital appreciation of 6% y-o-y, bringing its asking price to between RM350 and RM400 psf.

Saleha points out that all of the top performers are located within strategic as well as matured residential areas. Based on market observation, owners tend to price their houses on the secondary market at a rate similar to newly-launched houses.

She cites Alam Damai as an example; the development was selling at below RM300 psf when it was launched two years ago but is now commanding between RM400 and RM450 psf, which is the selling price of new similar products.

“Also some of these developments such as Millenium Height were launched at rather low prices, hence the larger margin in terms of capital growth,” says Saleha. Asking rents and yields showed no significant changes in 3Q2011 compared with 2Q2011.

The robust oil palm industry has put money in shareholders’ pockets, which are later mostly invested in properties. As such, Saleha expects positive growth in prices and capital appreciation in Kota Kinabalu in the next two quarters.

“Having said this, the rising cost caused by scarcity of land and increasing material prices are expected to keep pushing up the selling price of new properties,” says Saleha.

Take-up rates are good for recent launches but Saleha notes that there are concerns that most properties will be out of the reach of most young families due to their increasingly high prices.

The quarter saw the launch of the 135-unit Jade Residence, a high-end condominium project by Sara Timur Sdn Bhd. It offers 24-hour security surveillance, landscaped gardens, a sky garden and other standard condominium facilities. Targeted at young professionals, built-ups start from 1,484 sq ft and is priced from RM475 psf.

The development is located within the Damai area, which is considered an elite residential area that caters for middle to high-income earners. High-end condominium located here are Jesselton Condominium and Alam Damai, both of which are performing very well in the secondary market.

“An informal enquiry with the developer reveals that this project has seen a take-up rate of 30%,” says Saleha.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 882, Oct 31-Nov 6, 2011