As an emerging market, Malaysia has seen a steady uptick in branded residences taking root particularly in its capital city, Kuala Lumpur. Dato’ Sri Gavin Tee, President of Swhengtee Group shares his prediction of this niche market segment.
“When a city becomes globalised, it will attract more multinational companies (MNCs) and international travellers who are used to the high quality of certain brands and will naturally gravitate towards such branded establishments including international 5-star hotels and residences. That’s why branded residences command a higher premium than residences that do not have a prestigious brand attached to it.
Expatriates or HNWIs prefer branded residences, particularly famous international brands because these brands inspire confidence and provide the kind of bespoke services that they are used to. The brand carries the guarantee of quality and services as well as safety and security.
Not surprisingly, international branded residences have the potential to command half the market. A branded property can enhance its value by 30%, for example, a property without brand may sell at RM2,00 psf, but if it is branded with a famous international hotel chain, it can fetch RM3,000 psf.
Further, when a popular or famous brand enters a market, it can even make the place popular, for example, when Air Asia flies to a little known destination, it can make the place popular and when more people visit the destination, the value of properties there will rise in tandem (provided other favourable conditions exist as well).
BRANDED RESIDENTIAL EFFECT
Kuala Lumpur was supposed to have globalized since 2007 when a lot of Middle Eastern, Korean and other foreign investors beat a path to its doors. However when the Global Financial Crisis hit in 2009, it slowed down the globalisation process to a large extent.
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It took some 10 years before KL got back into international investors’ radar. The influx of China’s investments especially in infrastructure such as railways, ports and finance, as well as the siting of key regional headquarters in Malaysia such as China Communications Construction Co Ltd (CCCC) , Ali Baba’s Digital Free Trade Zone (DFTZ) kickstarted the second wave of investments into Malaysia.
This was followed by a number of other foreign companies setting up their regional headquarters in Kuala Lumpur and its surrounding areas. Several critical transportation infrastructure such as the MRT1 and the LRT extension were also completed.
Seeing a gap in supply, a number of branded residences were set up and were completed in 2017/2018 such as Four Seasons and W Hotel. Around the same time, a few others were launched such as 8 Conlay by Kempinski and Ascott Star KLCC Residences.
With the rising number of such residences, we can expect 2018 – 2020 to see a lot of activities in this segment – either some will be completed, new ones launched or being constructed.
It’s only now that we can expect to see a significant price appreciation. In the last few years, high end properties were hovering around the RM1.5K – RM2K price level. We can now see price levels jumping to RM2.5K – RM3.5K level, for example, Four Seasons. This is the beginning of what I would term as the ‘branded residential effect’.
The unique thing about Malaysia’s branded residences is that prices are at a much lower level for the same bespoke services compared to other countries. So, there is a lot of room for price appreciation.
Previously, I have forecasted that prices of high end residence could reach RM5K psf, but due to many unforeseen circumstances such as the Malaysia Airlines (MAS) disasters and the 1MDB issue, the progress has been slow. However, I believe the price level will still hit RM5K by 2020 for branded residences not only in the city centre but in resort areas like Penang and Kota Kinabalu.
Currently, a major concern in Malaysia is the delay in the setup of more international corporations and the arrival of expatriates in Malaysia. However, I predict properties completed within the next 3 years should enjoy the fruits of right timing – being first in the market; thus having the advantage of quick occupancy with high rental yield and a possible fast price appreciation.
For example, 8 Conlay by Kempinski in KL will enjoy good returns because by the time it’s completed by 2020, more foreign investments would have poured into the city centre.
The competition is also not intense as there aren’t too many of such super branded residentials setting up in Malaysia. The ones that immediately come to mind are Four Seasons