Interest on heritage properties on the wane
Low rental yield and high buying price the main reasons
THE interest to invest in heritage properties in George Town seems to be on the wane since 2017, Raine & Horne Malaysia senior partner Michael Geh says, although there are no official figures yet.
Geh says this is due to its low yield, the low rise in the quantum coupled with difficulty in getting renovation approval.
Geh expects a decline when compared with 2017 and 2016.
According to Geh, the monthly rental is hardly sufficient to cover the interest from the loan. Coupled with the difficulty in getting approval for renovation, investors are shying away.
“If you were to buy a heritage property in a prime area for RM1.8mil, with an 80% loan, the monthly interest on the loan is about RM10,000.
“However, due to the poor rental market, it is difficult to get that monthly rental amount.
“Sometimes rental for good locations is between RM3,000 and RM8,000, depending on the location, size and condition of the prewar property.
“But usually, the most popular rental is between RM1,000 and RM5,000, depending on the condition, size, and location of the property,” he adds.
Geh says the rental yield should be more than 5% in order to be attractive.
According to the latest available data from the National Property Information Centre (Napic), there were a total of 114 and 120 transactions recorded respectively in 2017 and 2016.
Geh says Napic statistics for the full 12-month period of 2018 are yet to be ready, but from the transactions captured so far by Napic – they issue quarterly reports – the decline “seems particularly sharp” in the second half of 2018 compared to the same period in 2017.
“Simply put, the interest in this segment of the property market is not as hot as before in 2015, 2016 and 2017.
“Depending on the condition, size and location of the heritage properties, the pricing per sq ft has also dipped,” says Geh.
According to Geh, such properties were priced up to RM1,800 per sq ft (psf ) a year ago compared to RM1,200 psf today. He projects a further 5% to 10% drop in volume of transactions and value in 2019.
“For this reason, potential investors are staying away,” Geh said.
He adds that the most popularly transacted prices in 2018 ranged between RM800 psf and RM1,200 psf, compared to RM1,000 psf and RM1,800 psf in 2017.
“The larger the land area of the heritage properties, the lower the price psf.
“The smaller the land area, the higher the price on a psf basis,” Geh adds.
According to Geh, besides the low yield, owners also have problems getting approval for renovations. The high costs of renovations is another deterrent.
“After investing a hefty sum to buy over heritage properties, investors frequently face challenges in getting approvals for renovation.
“The commencement of business operations then gets delayed, slowing down the time required for recuperating the capital outlay.
Meanwhile, Datuk Lawrence Lim, a director of Lim Kongsi, says the demand for heritage property rentals had declined since a year ago.
“We own 80 units of heritage properties in George Town, largely located in the inner city and buffer zone.
“They used to be fully occupied, but now the occupancy rate is between 80% to 90%.
“There were enquiries from Singaporean investors to lease some of our properties for long-term lease, but nothing had materialised so far,” he says.
Lim says the rentals for Lim Kongsi heritage properties ranged between RM1,000 and RM5,000 per month.
“The rentals increase gradually over a number years by a small quantum. The monthly rentals don’t increase by leaps and bounds overnight,” he adds.
According to Lim, the high cost of restoring heritage properties are also deterring investor.
“The cost of restoring the roof alone for a 2,000 sq ft unit can be about RM80,000, while the cost to replace floor tiles runs between RM70,000 and RM80,000. Together, an investor has to fork out about RM150,000.
“The feedback from them is why spend so much just to convert the property for commercial use before even doing business, which may turn out to be unprofitable,” Lim adds.
Lim says that conversion fees to change residential usage to commercial is also high, at RM100 per square metre which works out to about RM19,000 for a pre-war property of about 2,000 sq ft in built-up.
“You would also need to pay RM25,000 for a car park bay to the local authorities ,” he added.
After factoring restoration and conversion costs, investors hesitate to buy because it would take some time to recoup their investments.
Property Talk principal Steven Cheah says that the heritage properties in strategic locations of the inner city still could command good rentals.
“The monthly asking rent of the ground floor of some of the heritage houses on Noordin Street is around RM4,200.
“On Macallum Street, the asking monthly rent for the first floor of heritage properties is around RM2,300.
“There are overseas investors from Singapore, China, and Hong Kong looking to rent heritage properties in George Town.
“Usually, they would try to get 5% to 10% knocked off from the asking rent,” Cheah says.