March 13, 2013
By DAVID TAN
THE rental yield for residential and commercial properties in Penang is expected to decline this year, as property prices are expected to rise by another 7% this year.
Raine & Horne Malaysia director Michael Geh says the problem is that rents and property prices have been increasing disproportionately over the past three years, which influences yield returns.
To calculate the yield per year, rent per month is multiplied by 12 months and divided by the market value of a property.
“In 2010, for example, the rent for a 856sq ft condominium in a prime area like Gurney Drive was around RM1,800 per month, while the market value was RM450,000.
“This would result in the yield per year of 4.8% in 2010.
“Today the rental has increased about 22% to RM2,200, while the market value has increased by about 44% to RM650,000 from RM450,000.
“The yield currently is 4.06%, registering a drop of 15.42%,” he said.
For heritage properties in a prime area of George Town like Muntri Street, the yield per year is currently 2.4%, compared to 2.67% in 2010.
“The rent in 2010 was RM2,000 and the market value of the property RM900,000, generating a yield of approximately 2.67%.
“At present, the rent is RM2,800, while the market value is around RM1.4mil, resulting in a yield of 2.4%.
“We expect property prices to rise about 5% to 7% this year, while rents should increase slightly, causing rental yields to plunge further, as it never keeps pace with rising property prices,” Geh said.
For office properties with built-up areas of 700sq ft to 3,000sq ft, the drop in yield has been slight, as their increase in market value has not been that rapid.
“In 2010, the rent for office properties was around RM2.20 to RM2.90 per sq ft, while the market value then of RM250 per sq ft to RM350 per sq ft generated yield of 6% to 6.5%.
“At present, the rents are still more or less the same as in 2010, while the market value is now RM300 per sq ft to RM450 per sq ft, generating yield per year of 5% to 6%,” Henry Butcher Malaysia (Penang) vice-president Shawn Ong said.
Ong said the market value of modern office properties had increased because of the preference to buy them rather than to rent, because of the attractive selling prices of such properties.
“The market value has also risen due to the limited supply of modern office properties,” he said.
Ong said about 70% of the office space on the island was currently occupied.
“The rents for modern office space will remain stable this year while the rents for older office buildings will decline further to attract new tenants as they are suffering from poor occupancy,” Ong said.
On actual property prices for residential properties in the secondary market, Ong said the transacted prices are usually about 30% more than the initial price tag of the property.
“This means a property bought originally for RM500,000 is likely to be sold for around 30% higher than the original price.
“The asking price is usually around 40% to 50% more than the original price,” Ong added.
Lim Chien Aun, proprietor of registered and chartered valuer C.A. Lim & Co, said rental returns on the island are unattractive because most investors buy properties in Penang for capital appreciation and not for rental returns.
“In other words, they buy for speculative purposes.
“The fact that rents in Penang are not rising as fast as property prices reflect also on the income levels of Penangites.
“The poor demand in Penang for rental properties also explains why rents are unattractive,” he said.
For retail properties, Lim said, generally, the monthly rent in prime shopping malls on the island starts from RM20 per sq ft for retail lots on the ground floor and RM10 per sq ft for the first floor.
“There are instances of shopping malls that have leased out their retail lots on the ground floor for monthly rent of RM35 per sq ft and RM30 per sq ft for the first floor.
“This is normally for a contractual rental period of three years with the option to rent another for three years under more or less the same terms and conditions.
“Every year the rent increases by about 5%,” he said.
Meanwhile Henry Butcher Retail managing director Tan Hai Hsin said, similar to Klang Valley and Johor Bahru, Penang has been facing an oversupply of retail properties for many years.
“Similar to these two cities, the supply situation for retail space is extreme. Popular shopping centres remain popular with car park full on weekends.
“On the other hand, poorly occupied shopping centres continue to suffer due to poor occupancy and shopper traffic.
“The situation has not worsened, because there has been no major retail supply entering the Penang market in the last few years,” Tan said, adding that later this year, the Gurney Paragon shopping mall should be opening up.
“Over the next two to four years, several shopping malls should be opening in Penang.
“These include the AEON Mall in Bayan Baru, Penang Times Square Phase 3, the shopping mall by IJM Land planned next to the Penang Bridge, the shopping mall at Southbay Plaza in Batu Maung, The Landmark in Tanjung Tokong, and a 1,000,000 sq ft mega mall in Prai by the Belleview Group,” he said.
According to Tan, the retail market in Penang is already very competitive and rather saturated, .
“New mall developments near the existing bridge and the new bridge will offer more potential as they can draw shoppers from the mainland as well as residents from northern region of Peninsular Malaysia,” Tan added.
Meanwhile Penang Times Square general manager C.C. Yeap said the rents for the shopping mall increased slightly over 2012.
“We are 71% occupied and progressing well. The daily traffic for the mall registered at 6,528 for 2012,” he said.
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