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Impact of Transit-Oriented Developments on Property Price within Greater Kuala Lumpur

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Will the advent of TODs within GKL bring about a property boom in the city?

 

Development of TODs within Greater KL

 

In most developed countries, rail transit systems have created compact, mixed-use and walkable urban villages around stations. As a result, residents around these areas tend to own fewer cars and drive less than if they were to live in more auto-independent neighbourhoods. In the case of the effects of rail transit systems upon land values, emphasis has taken into account the research on locational externalities that are generated by the rail transit systems, which in turn affect the residential and commercial land. It is expected that the existence of a rail transit system is to capitalise on land values, i.e. property values (residential & commercial). Transit systems can be reached by accessing their transit stations. Therefore, the ability to access transit stations conveniently and quickly should be capitalised in property values. In other words, higher property values are expected in places with superior access to stations. Yet, in the case of residential property it has been found that house prices have the potential to decrease for properties that are located too close to a rail station due to traffic congestion and noise pollution effects, whilst properties radiating out from the station and within easy walking and driving distances respectively should witness a general or overall increase in property price.

 

It is without doubt that the improvements in accessibility for those areas that have been served by the rail transit systems can potentially trigger several major positive locational externalities, in particular for properties located within close proximity to railway stations. It is arguably that these positive locational externalities should be viewed as additional benefits to the primary accessibility improvement benefits. In retrospect, this positive effect, however, is not expected to be automatic or instantaneous. Instead this can be achieved through high service quality of rail transit system that could bring benefits to the local land use. The desired effect will not be realised if the system is deployed in the wrong areas or delivered in an unsatisfactory way or manner. In conclusion, how will the prices or values of local properties be affected by these emerging rail transit systems or transit-oriented developments within Greater Kuala Lumpur?

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MRT – the key TOD for property growth

The building or construction of the MRT and its subsequent impact to property development creates a psychological effect upon the urban community than anything else. As with any major infrastructural developments, it is bound to impact a certain segment of society negatively, in particular residents and homeowners. Henceforth, the first few years of development of an MRT station would probably cause traffic congestion, and possibly lower the value of the properties within the station’s vicinity. The MRT project itself, in the long haul, would benefit the majority of KLlites, especially the lower income group that depends on public transport.

 

Property developments neighbouring or adjacent to MRT stations can expect better returns or appreciation in their property value once the stations are built. In special circumstances, properties close to the station may be negatively impacted, resulting in a drastic drop in prices. It would be reasonable to conclude that properties within half-a-kilometre radius to an MRT station would appreciate in value once the station was built. Properties within walking distance would still appreciate from its proximity to the station, as well as the overall MRT project.

 

The integration of MRT with other transport lines such as the LRT will further enhance or elevate the price of properties in the areas encompassing the KL Golden Triangle as it would improve intra-city connectivity. Property developers are always too eager to build condos and apartments close to an MRT line or route. Having property projects within walking distance from an MRT station would also be a major boost or plus-point for prospective real estate investors and potential residential owners. It is also always easier to rent a property that lies close to a station. All these co-factors should help prop up the property value by a substantial degree. So what will be the immediate and long-term effects of the new MRT lines on the property market in Greater Kuala Lumpur, specifically in the Klang Valley areas?

 

Most industry players are regarded as being unanimous or to concur over a single fact – that properties within a reasonable distance from the new MRT stations will definitely witness an increase in value. The new MRT lines have already started to impact the Klang Valley property market, with land and properties in the vicinity of the lines, commanding a higher market price, even before completion of the stations. An overall positive market sentiment will also have a tendency to spur growth as well. The MRT has become a strong selling point for existing and new developments along its routes. Residential areas with newer or affordable housing will ultimately fare better than others. There will be plenty of choices for both buyers and investors alike. The general property preference will be for new developments rather than older ones, but how many developments can be built alongside or next to an MRT station? Buyers should also consider pertinent issues or factors such as security protocols, noise pollution, privacy policies and maintenance fees for buildings within or adjacent to an MRT station, given the exorbitant or pricey premium they would have to fork out or pay.

 

The Real Estate and Housing Developers’ Association of Malaysia (REHDA) believes that the Greater KL and Klang Valley Mass Rapid Transit (KVMRT) projects would have an overall or net positive impact on the property market and  national economy in general. The impact on the economy will be from the creation of jobs, increased revenue from tourism, and the stations themselves will act or function as a pull factor for businesses and socio-cultural activities. With over 30 stations set over three MRT lines, the MRT will most definitely create lots of business opportunities and enhance the growth of property developments within its vicinity, further adding value to other secondary property markets. The stations themselves also have a general “wealth creation” effect or profiteering impact on property prices. The way the stations are designed is that you can obtain residential units and offices right on top of these stations so as there is some assurance of success when you take up tenancy or move in to those places.

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In other countries such as Singapore, if your property is in the vicinity of the MRT station, property rentals are bound to elevate or skyrocket. In Taiwan, for instance, property prices increase alongside other value-added products or properties which lie within the proximity or neighbourhood of MRT stations. There will be higher density developments within the areas whereby MRT is accessible. It will also enable developers to expand their footprints in newer developments and businesses. With ample or sufficient supply of new projects in the marketplace and a wider range of selection or choices for buyers and consumers, price growth will be much more gradual and reasonable. Increase in land prices, however, will be mitigated by a higher plot ratio. With the development of MRT lines, it is expected or anticipated that residential units will be way smaller to cater to primarily single/individual occupants or young unmarried couples. In fact, such an arrangement or orientation of units is more self-contained.

 

Residential developments within walking distances to MRT stations will undoubtedly benefit when the MRT-SBK Line is completed, whereby commercial property in the vicinity of MRT stations will be in huge demand. The sheer size of passengers using MRT will give rise to plenty of new business opportunities of all kinds in the vicinity of MRT stations. This has proven to be true in countries such as Singapore, Hong Kong and Taiwan. Commercial and retail premises which are located nearby MRT stations in these countries enjoy good occupancy rates and high rental returns. A similar scenario will likely be seen or witnessed in metropolitan Kuala Lumpur.

 

Kuala Lumpur Sentral (KL Sentral) or Sentral Kuala Lumpur is a transit-oriented development which houses the main railway station of Kuala Lumpur, the capital of Malaysia. KL Sentral is the largest railway station in Southeast Asia. KL Sentral was designed as an intermodal transportation hub. Most of Kuala Lumpur’s passenger rail lines (i.e. LRT, ERL and Monorail) serve KL Sentral, where many intercity trains serving Peninsular Malaysia and Singapore begin their destination. It was also designed to be a new business and financial hub for Greater KL

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Impact of MRT on price of property

The property segments that stand to gain or benefit the most from the new MRT lines will essentially be residential areas in the fringes or outskirts of Greater Klang Valley (GKL) as well as the commercial districts of downtown metropolitan KL or Kuala Lumpur City Centre (KLCC). Workers will no longer need to drive to their offices or workplaces. There will also be higher demand from city tenants to lease their offices in these suburban locations in order to cash in on their new-found “quickie” or instant fortunes. According to prominent local mapping and property research company Ho Chin Soon Research, properties which are situated within a 500-metre radius from the MRT station tend to appreciate the most in their value. Property valuers and developers expect the Klang Valley Mass Rapid Transit (KVMRT) project to have a key or significant impact or to spearhead the prices of residential and commercial properties along the MRT rail routes. Whilst conventional properties are perceived as a good hedge against inflation, with an excellent piece of property providing far greater returns than normal or standard rates.

 

More and more property developers are planning high-density residential developments or projects along the MRT-SBK (Sungai  Buloh – Kajang) Line, even before its actual date of completion, projected to be somewhere in 2017. Projects which are strategically situated near MRT stations and routes will most likely enjoy a good “sell-out” as buyers are almost confident of future demands for their property once the MRT commences operation.  Proximity of any proposed condominium development in relation to an MRT station has been a major win-win situation or a “feel good” factor these days. New property launches which are located nearby an MRT station are expected to appreciate least twenty percent higher than those which are located much further away. There are many other key selling points of having an MRT development adjacent to your doorstep or just next to your property. Specific properties may be particularly or adversely affected by the MRT routes or lines, although the typical or common perception among real estate developers and property investors is that the impact on property prices would usually be a positive one. The overall effect of the MRT on property prices has always been bullish. In conclusion, the popular view or general perception is that not all properties affected by the Sg. Buloh – Kajang line will have a positive impact and insight.

 

The main challenge or primary focus for the property market and its players would be the intense competition for land banks along MRT rail lines. Current trends suggest that developers are moving towards mid-range to high-end developments, by banking on the advantages of their close proximity to the MRT and underscored by higher land costs and costlier building materials. The inevitable speculation on land banks would surely impact the price of properties surrounding the MRT. Speculation is also rife as everyone will be trying to guess where the stations will be located along the rail lines, especially for the MRT-3 final alignment plan. – HFM

 

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Major and popular issues highlighted

 

What are fundamental impact or effects of transit-oriented developments, in particular the newer & bigger developments, to local property market especially to the price of properties?

For the primary market, property developers can always claim to have MRT, LRT, BRT, ERL, etc. These are powerful selling points for their respective property developments whereby they could factor in their selling price, or price of their properties. With regard to MRT Line-1, when the developer have a high selling price, the secondary market would all follow up or follow suit.  TODs enhances property values by offering 3 plus 1 Cs advantages – connectivity, convenience and cost-savings plus modern day comfort. TODs however have to be well conceptualized and designed to avoid value subtraction due to congestion and overcrowding.

 

How will the presence of TODs affect local properties and businesses, especially of real estate, as well as home buyers and property investors within Greater KL?

Of course, when you put in all these infrastructure, generally it is a good thing. And when you talk about the city centre, the businesses would prosper even more. Potential customers and prospective shoppers from the outskirts or suburban areas would come in and businesses could tap into them and the many “talents”. Henceforth, the localized talent pool would increase in size. Besides a wider choice of locations further away from the city centre or workplace, home buyers can now focus on lifestyle orientation offered by TODs while investors can enhance the value of their property portfolio by including assets of higher value & greater upside potential.

 

As with other major property development, will the emergence of transit-oriented development in the vicinity of local business and real estate positively impact property price?

As with the Greater KL plan or initiative, the targeted local population is targeted to reach some 10 million by 2050. So there will be a significant increase in human traffic with a greater populace or population density. On the government aspect of things, more infrastructure will be built and put into place. With the MRT Line-2 due for completion in 2017, including its various proposed alignments, the future certainly looks prosperous for business owners and property developers. with the upcoming MRT Line-3 set for completion by the year 2020.

There will also be city planners looking at MRT-1 and MRT-2, as well as their subsequent alignments and extensions, resulting in greater catchment for the business and real estate communities respectively. For instance, in Singapore, MRT transit-oriented developments would be considered the norm or the standard unlike in Malaysia which are regarded as unique or exclusive selling points. However, in Singapore, one would be the odd man out if one does not deal with MRT. Developers without MRT-based developments often regarded as secondary choice for businesses and investors, compared to those without transit-based developments.

An excellent selling point about MRTs is that they are independent of conventional motor vehicles, which are often embroiled or entangled in constant traffic jams or congestion. Another fine example of the obvious or clear-cut advantages of TODs in Greater KL is the BRT (bus-rapid transit) development in Bandar Sunway, which is wholly-developed by Sunway Bhd. By bringing more people together, especially those with high purchasing power and similar lifestyle, TODs will have the effect of not just raising property values but suffer smaller adjustment in the event of a property market downturn.

 

Various factors or criteria worth examining and evaluating (i.e. research and analysis) when building properties within an approximate location or distance from the targeted development site itself which are considered paramount as well.

These will include a variety and availability of amenities and facilities, both commercial and community-based, bottlenecks, congestion or overcrowding in amenities, facilities, access, pathways, etc. When you talk about prices for property with or without TODs, you are always dealing with transit or rail-based development. In order to understand the true value or full picture of this scenario, you must first look at rental yields. The real question is how much difference is the target rental yield. To satisfy the optimal requirements of any TOD model, you must first deal with either LRT, MRT, ERL or BRT. When compared to a similar piece of property or parcel of land, the net price difference is about 20 percent in terms of rental yield or uptake.

 

The role of REITs (i.e. real estate investment trusts) in the transit-oriented development process as well as the “ultimatum” (i.e. eventual outcome) towards potential or prospective future property developments encompassing the TOD areas.

REITs help property developers and financiers to unlock asset values. TODs by creating assets that are bigger as well as income-generating via rentals or lease payments will help to expand the role of REITs in the economy in general and specifically in the property sector.

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