Early bird catches the worm (Property industry focus by HWANGDBS Vickers Research; April 4, 2011)

Early bird catches the worm (Property industry focus by HWANGDBS Vickers Research; April 4, 2011)

- Properties near MRT stations tend to fetch 20-30% premium based on case studies. “Is the project near a MRT station?” could well be a FAQ soon.

- As for 2011 sector outlook, residential landed properties could see 10-15% price growth driven by scarcity of land and higher input costs. This is slower than 2010’s 15-25%, due to a higher base and increased supply (should be well absorbed given strong underlying demand for landed properties & accommodative bank lending).

- High-rise developments will likely continue to see lackluster rental growth due to large incoming supply (especially in KLCC and Mont’ Kiara). Capital values however are bottoming out (still 20% below peak), although foreign buyers have yet to return in a big way (rising enquiries).

- Niche developments such as Binjai On The Park luxury condos (with unobstructed view of PETRONAS Twin Towers & KLCC Park) is expected to continue to be the price setter, with recent transactions hitting RM3000psf (+15% y-o-y) and rentals of RM8psf. We also expect keen interest for properties near potential MRT interchanges, as seen from the strong demand for Capers@Sentul East and KL Eco-City launches recently.

- Klang Valley retail segment should see strong rental growth based on recent lease renewals (+10-30%) and improving retail sales. Occupancy rate is averaging ~85% while incoming supply is mainly at the suburbs (mostly pre-let).

- There is a general concern over the large incoming supply of office space in KL which could further dampen rental and push up vacancy rates. Office rental growth has been flattish in 2010 while average occupancy rate has fallen marginally by 1ppt to 92% in 4Q10. The successful implementation of ETP will help attract private and foreign investments which should help boost demand for new office space.