The luxury property market in Malaysia is a tale of two districts within the city: the area around the Kuala Lumpur city centre (KLCC) at the foot of the Petronas Twin Towers, and the suburbs. The city centre is attempting to absorb plentiful new supply. Prices of high-end condominiums in the capital have fallen slightly this year. The new units have raised concerns over oversupply, and there's also been a decline in the number of expatriates looking for rental homes. There are 12,000 prime condominium units pending completion between now and 2012, says real estate firm DTZ. Some 630 of those units in developments, such as The Troika and Hampshire Place, are in the heart of the capital, in the city centre area. Those apartments are due for sale by the end of this year. Many developers have slowed their schedule of upcoming releases as a result. The Troika has been some three years in the making, which has become standard in the KLCC. It has sold all but around 10 per cent of the units, brokers say. According to DTZ, prices for Malaysian residential property fell 3 per cent in the second quarter, compared with the previous three-month period, and now stand at M$552 (HK$1,389) per square foot. That was on top of a 6 per cent decline in the first quarter. Average rents dropped marginally to M$3.53 per square foot but have been steadier than sale prices. 'The recent hike in overnight policy rate doesn't have much adverse effect on the property market, especially the high-end residential landed properties,' says Eddy Wong, DTZ's head of residential in Malaysia. 'Generally, the buying sentiment has improved following the robust growth experienced in the first quarter.' Given less demand from expats, the market for rentals on larger units is very competitive, for any apartments renting for M$10,000 per month or more. From an investment perspective, foreign buyers are still interested on a selective basis, but they do not find pricing compelling. Brian Koh, the executive director of research and consulting at DTZ, says some developers have erred. The Oval, a two-tower development with large apartments of 3,700 sqft, has a full tower empty and 35 per cent of the second block is still for sale. The apartments have been put on the market at M$900 per square foot, or M$3.3 million. 'They did make some mistakes there, in terms of the pricing,' Koh says. 'They only have one option', and that is reducing the options for buyers who might have wanted smaller units. 'That is pretty expensive for a unit, and there are a lot of options at that level.' Tim Murphy, founder of property developer IP Global, believes Kuala Lumpur will ultimately swallow up the new supply. He thinks developers may be one year ahead of themselves. 'There has been a slowdown in building over the past couple of years, because of the market and the recession,' Murphy says. 'That's a very good thing.' IP Global manages about 100 apartments in the city centre, and another 150 or so in the Mont Kiara suburb. Murphy says they are 96 per cent occupied, despite competition from the new apartments coming on the market. 'I don't worry about supply levels,' Murphy says. 'The only challenge is whether the economy can grow fast enough for people to live in that accommodation.' Malaysia's property market tends to be more staid than Hong Kong and Singapore because builders have not allowed buyers to sell before the completion of projects. So it is virtually impossible to flip apartments. Still, there's downward pressure on rents and values in the city centre. The situation is very different with landed properties on the city's outskirts. The rapid rise of prices in non-central locations is causing the government to consider acting to cool price gains, despite the weakness in prices in the city centre (see sidebar). At Vox Tower, 100 out of 250 units in the Verve Suites block sold in the first week that the development in Mont Kiara went on sale. It's been fetching around M$1,500 per square foot for apartments that are typically one bedroom and about 700 sqft. That makes for a price of about M$1 million. The Surian Residences in the suburb of Mutiara Damansara sold about 80 per cent of the 311 units that went on sale. They fetched M$550 to M$650 per square foot for a price range of M$507,000 to M$1.35 million for apartments that range from 850 to 2,443 sqft. Surian Residences is due for completion in 2013, from the developer Boustead Properties. Vox Tower is targeting a completion date of 2014, from the developer Bukit Kiara Properties. Landed property prices have risen 15 per cent this year, Murphy says. Despite those kind of gains, he prefers to steer clear of stand-alone houses unless they're for your own use. There's been very strong demand and a strong take-up of recent property launches in the Klang Valley, on the outskirts of Kuala Lumpur. Sunway Damansara, for instance, has launched its Sunway Rymba Hills project, and the company reportedly booked orders for 50 per cent of the 80 three-floor villas, priced between M$3.04 million and M$3.9 million, within two weeks of the launch. 'The Klang Valley is very popular, and increasingly so,' Murphy says. 'You need to make sure you have got good security, since security for large landed properties can be more of an issue. But there's a shortage of it because they mainly build high-rise apartments. 'As an investor, I like apartments, they're very easy.' Rental yields on houses are poor, at 2 per cent to 2.5 per cent, but can be 5 per cent for apartments, he adds, making the investment case much more compelling for flats.