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Is KL condo overpriced

By: BT

A few recent newspaper articles reported that the price of condo within the KL city has continue to set record height and it was reported that some of the high end condo are being sold at RM2000-00 per square feet. Most of the condo have registered increase in price compared with their original price during the initial launches, some have increased by 100% from RM1000-00 per square feet during launching to a reported of RM2000-00 per square feet at current market value.

The question is whether the selling price of RM2000-00 per square feet is justifiable. There is no straight forward answer to it as it all depends on from which angle one look at it. If you compare the price with prices of condo in other countries such as Singapore or Hong Kong, then the price of RM2000-00 per square feet is still cheap by comparison. If the price is going to be affected by the effect of globalisation where there will be a lot of cross investment by citizen of various countries where many foreigners will invest in Malaysian property and if the Malaysian government continue to promote foreigner buying of Malaysian properties, then one can expect the prices of KL condo to rise further as the balancing act of money flowing to cheap properties in Malaysia or rather properties in Malaysia that is still considered cheap by many foreigners will result in demand that will sustain the rise in price of KL condo.

As for ordinary Malaysian, how should they react to the current pricing of KL condo, I guess it all boils down to return. If a condo can generate reasonable financial return, then it would be a worthwhile investment.
To quote an example, lets look at condos in the popular Mont Kiara area which are investor favourite. The average rental at the moment in Mont Kiara is about RM3-00 per square feet per month, monthly maintenance charges is about RM0-30 per square feet, therefore the net rental after taking into the account the monthly maintenance charges is RM2-70 per square feet.
Rental return for whole year = RM2-70 x 12 = RM32-40 per square feet.
Assuming an investor purchase a condo in Mont Kiara at price of RM400-00 per square feet by cash and assuming he spend additional RM50-00 per square feet in renovation and furnishing bearing in mind only furnished condo can fetch gross rental of RM3-00 per square feet per month, then his cost of purchase would be RM450-00 per square feet.

A return of RM32-40 over a purchase price of RM450-00 per square feet would be equivalent to return of
32-40 x 100 / 450 = 7-20%

which would be sufficient for ordinary investor. However the calculation does not take into account the quit rent and assessment charged by land office and local council respectively, the actual return could be slightly lower than the above.

From the above illustration, the higher the purchase price, the lower will be the rental yield or the monthly rental would have to be increased to maintain yield.

However, not all condo are purchased for rental yield, some are bought for own occupation because of their spectacular city night view, some are purchased for their prestigious address, some are purchased for flipping over the short term for capital gain. Some investor purchase because they fear that if they do not purchase now, they would not be able to afford it in the future.

If you are purchasing one for investment for rental return, then it would be wise to do some calculation before the actual purchase.

Article Source: http://www.realestate2u.net/articledirectory

Mr BT Khoo is the webmaster of realestate2u.info , realestate2u.com.my & malaysiaproperty.blogspot.com

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