COVER STORY: Kuching residential market roars


UPTREND: Surging home prices in Kuching over the last few years show no signs of stopping

With the buzz surrounding the Iskandar region as well as the traditional focus on the Greater Kuala Lumpur area, Sarawak’s capital city Kuching is perhaps not on the radar of most property investors in Malaysia.

Yet according to a local industry observer, the general residential property market sentiment in Kuching is that current prices are at “an all-time high”.
Above-average growth: The first decade of the 21st century saw Sarawak’s home prices increasing rapidly and surpassing the overall average Malaysian house index, said property consultancy company CH William Talhar and Wong (WTW).
Looking at the Sarawak real estate transaction data for Q3 2012 from National Property Information Centre (NAPIC), the mid-range segment of the property market encompassing properties priced between RM150,001 and RM200,000 as well as between RM250,001 and RM500,000 charted the strongest percentage change in value of transactions as compared to the corresponding quarter of 2011 with 8.3 per cent and 9.8 per cent respectively (see Table 1).
The strong growth is led by Kuching, which continues to lead the Sarawak market despite the Sarawak Corridor of Renewable Energy (SCORE) shifting attention and investment focus towards the central area of Sarawak. NAPIC statistics show that 16,818 units of various residential home types were under construction in Sarawak in the first three quarters of 2012 and some 10,548 or around 63 per cent of these were in Kuching and Samarahan divisions. In the same period, Kuching and Samarahan divisions also housed 2,498 out of 4,418 units launched, which translates into more than 55 per cent.
In its WTW Property Market 2012 report, WTW notes that residential property prices in Kuching increased between 10 and 20 per cent across the board in 2011. Comparing the total value of residential property transactions among Sarawak divisions for Q3 2011 and Q 3 2012, Kuching comprises a huge chunk of the state’s total transacted value with 41.79 per cent (RM 249.28 million out of RM596.44 million) and 38.93 per cent (RM237.11 million out of RM609.04 million) respectively (see Table 2).
“Standard double-storey intermediate terraced houses now easily command prices between RM350,000 and RM400,000,” says WTW in its report Sarawak Property Market Review 2011 and Outlook 2012, noting that demand has been strong even for new residential projects on the outskirts of Kuching such as Matang, Batu Kawa and along Kuching–Serian road.
According to Donald Lam of Rahim & Co Chartered Surveyors (Sarawak) Sdn Bhd, the market sentiment in Kuching today is that prices are at an all-time high. “Today’s prices are unimaginable five, ten years ago.”
“In 2007, intermediate double-storey houses would cost about RM300K or thereabouts. Now, we are looking at half a million — for new launches, we are easily looking at RM450K upwards,” says Lam.
What is driving the price surge in Kuching residential properties?
Rising costs: According to Datuk William Wei of HWS Properties Sdn Bhd, the main driver has been rising construction costs and points to overall worker costs as the main factor.
“Whether local or foreign workers, they demand better wages now,” says Wei, adding that workers also request for better accommodation as well as insurance and healthcare. Elaborating further, Wei explains that some workers want better housing such as terrace houses with proper sanitary systems whereby they can move in with their families. “So if you don’t have it, you have to either build or rent it (for the workers).”
Moreover, Wei who is also the immediate past president of the Sarawak Housing and Real Estate Developers’ Association (SHEDA) notes that occupational health and safety considerations mean developers need to provide safety equipment such as proper masks, goggles, and other safety fittings that go beyond basic helmet and boots in the construction site to ensure the working environment is safe for their workers. This also means workers ask for additional insurance especially when working on high-rise developments.
“So now we at SHEDA are looking at providing not only better wages but also better healthcare, insurance and housing,” explains Wei, “It easily costs 10 per cent higher when we adhere to all these and compared to five years ago, construction costs are easily 20 per cent higher today.”
While agreeing that rising labour costs is a factor, Dominic Lee of Arborland Global Ventures Sdn Bhd says that rising “material prices are the main driving force behind the increase in price.”
Diminishing supply of land in the city centre is also a big factor, adds Lee. “Land is a finite resource, and once (a plot of land is) developed, (developers) have to move on and build elsewhere so land supply within the city area gets lesser and lesser.”
“So as we use up more (land), the price will also go up,” comments Lee on the effect of land costs towards rising house prices. “Anything in short supply will always see an increase in value.”
Additionally, Ar Arthur Lee of Adesign Architects Sdn Bhd feels that improving designs of residential properties also contribute in some part towards rising costs, propelled by a combination of developers continually seeking a competitive edge in the property market as well as a growing awareness of contemporary design and home trends from overseas. “Now the trend is looking towards green building and it has created a shift in the design  aspect of houses.”
“Definitely in terms of material prices and costs such as solar panels, etc,” says the architect when asked whether keeping up with design trends as well as demand for better designs are factors in rising construction costs. “New technologies are also coming in now (which cost more).”
Booming market: Costs aside, SHEDA Secretary General Sim Kiang Chiok feels that appreciating prices especially in the Kuching city centre is also a result of various factors coming together such as population growth, rural-to-urban migration, positive economic activities in urban areas as well as some foreign investments and educational factors.
“All these add up to (Kuching) town centre seeing price increases, especially since the town centre has better amenities now,” says Sim.
Managing Partner of David Allan Sagah and Teng Advocates, Cr. David Toh shares similar sentiments, saying that the steadily rising property prices in Kuching is a result of increasing demand along with decreased supply of land. “There is plenty of liquidity in the system and banks are keen to lend money at low interest rates. This improves affordability and people can now afford to buy more expensive properties, meaning the demand has increased.”
“At the same time, this easy credit and huge liquidity environment also create inflationary forces. As a result, land prices have shot up and certain building materials have also become more expensive, meaning the supply has decreased at any given price level,” explains Toh. “The end result of this increased demand and decreased supply, predictably is steadily rising property prices.”
Given speculation worries in Klang Valley and other rising property markets in Malaysia, is speculation a factor in driving Kuching home prices up too?
Toh doesn’t think so. “In a rising market, there will be speculation because it is easy to make quick money, but I don’t see speculation as being excessive yet in Kuching at this moment.”
“My take on speculation right now is that (speculation) is a consequence of a rising market rather than the primary cause of (rising prices),” Toh divulges.
HWS Properties man Wei agrees, saying that speculation only plays a small part in the price increase especially in the city area.
Moving outwards: With the Kuching city centre area increasingly crowded, development is spreading towards the outskirts of the city, says Lee of Arborland Global Ventures.
Wei of HWS Properties agrees, opining that distance to the city centre will slowly cease to become an issue as buyers grow to realise they can get bigger, better houses with better facilities for the same value outside the city centre.
“I believe in the next five to 10 years, most people will live outside the city while working in the city,” says Wei, who acknowledges that connectivity in Kuching has plenty of room for improvement yet also points out that he believes the state government is addressing the issue step by step.
Once connectivity is improved, will property prices go even higher?
“In the city, yes but the rural areas will still remain competitive,” opines Wei, who has been in the Sarawak property industry for some 21 years. “I’m talking about areas after Mile 7, Padawan onwards until Serian which is actually not that far — Serian is only slightly more than an hour’s drive and there is plenty of land from between Kuching–Serian.”
SHEDA Secretary General Sim agrees, pointing out that house prices in sub-urban areas such as Jalan Matang, across Batu Kawa bridge, towards Serian and in Samarahan are still reasonable compared to those closer to the Kuching city centre. However, he notes that while Sarawak’s land mass is nearly equivalent to that of the Peninsular Malaysia, Sarawak only has around 10 per cent of the population so the local property scene still has quite some way to go yet.
Hotspots: According to Lam, the hottest areas include Tabuan Jaya–Jalan Song–BDC area towards the Kuching International Airport. SHEDA man Sim agrees, commenting that this is due to existing amenities, facilities and infrastructure in the area.
“With infrastructural developments and improvements in the area, you’ll find more and more commercial projects going up in the area and (consequently) people will tend to want to stay in these locations,” explains Lee of Arborland.
Samarahan sizzles: Another area where the property market is increasingly heating up is Samarahan, says Arthur Lee of Adesign Architects, noting that “land cost is cheaper there.”
Samarahan is of particular note for many investors since it houses University Malaysia Sarawak (UNIMAS) as well as the Universiti Teknologi MARA (UiTM) Sarawak campus. “There are investors who buy (properties) for their children studying in Kuching,” notes former SHEDA president Wei on growing demand for residential properties near educational institutions.
“If their children are studying in Kuching, they would invest in a house so their children can live comfortably near their school,” explains Wei, adding that in Kuching, these parents look for properties near Swinburne University, UNIMAS, UiTM, etc. He notes that even rental is rising near these higher learning institutions due to rising demand from a growing student population. “UNIMAS and UiTM easily have from 40,000 to 50,000 students between them, and we can expect this to increase with each intake.”
Arborland’s Lee agrees, saying that the volume of foreigners buying properties in Kuching has also risen and is partly due to the education factor. “I personally know of quite a number of Korean families in Kuching who send their children here from Korea just to learn English.”
“The children study here while the parents are working here and they probably even set up businesses here as well,” he notes, saying that this is in addition to the Malaysia My Second Home (MM2H) programme participants as well as foreigners coming in with their families from Korea, China and other countries to Sarawak on long-term employment contracts or businesses.
Commenting on restrictions on foreigners purchasing Sarawak properties, Lee of Arborland acknowledges that the restrictions such as minimum price limit of RM350,000 and other restrictions in certain developments or areas have restricted the growth of the property market. However, he thinks the government is looking into relaxing these restrictions.
Valuer Lam agrees, saying he would not be surprised if the absence of these restrictions would cause property prices to shoot up even higher due to increasing demand from foreign investors.
Excitement ahead: Given the promising prospects of Kuching’s rising residential property market, local investors may not have to look west across the South China Sea for investment opportunities. Legal practitioner Toh does not expect Sarawak property prices in general to come down or even remain at current levels provided inflation remains high for the next few years.
“In an inflationary environment, it’s better to be a debtor than creditor,” says Toh. “Then we should borrow to invest in real assets that appreciate in value.”
Industry veteran Wei agrees, saying the Sarawak property industry as a whole will be outstanding in the next decade especially since the SCORE project is gaining momentum. He explains that SCORE will have a positive effect on the whole state as opposed to just the central region.
“Although SCORE is in Bintulu, investors will need offices (and properties) in Kuching because this is the administrative centre of the state,” elaborates Wei. “This is where they can stay and contact authorities easily, etc.”
However, chartered surveyor Lam cautions that recent uptrend of residential property prices may not persist. “I think there could be a turning point somewhere.”
“We have not seen a major downturn since 1986 which was really bad — I remember in those days, two-storey semi-dees priced at RM180K just won’t sell and went for about RM120–130K,” says the valuer. “So invest with caution because prices are at an all-time high. The question is whether today’s prices are sustainable or not.”


For Q3 2011/Q3 2012 in Sarawak, the mid-range property market segment charted strongest q-o-q transaction value percentage growth.


"Compared to five years ago, construction costs are easily 20 per cent higher today."

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