By PAULINE NG
IN KUALA LUMPUR

MALAYSIA'S property market will consolidate over the next six months after ending last year with a whimper, says property firm Debenham Tie Leung (DTZ).

Despite the slump, DTZ does not anticipate immediate fire sales, but expects opportunities to emerge at attractive prices as investors demand higher yields.

'Should there be fire-sale units', it sees opportunistic buying in the residential secondary market, especially in the prime locations of Kuala Lumpur City Centre (KLCC) and Mont Kiara, where a large number of units are due for completion this year.

The main concern for investors in these areas is yield, DTZ says in a report released yesterday.

Some purchasers and investors could switch to landed property in prime areas, as landed prices have held better and landed property is considered a safer hedge, it says.

Investors from Singapore, Indonesia and the Middle East will still be keen to invest in Malaysian property because prices are lower than in other regional markets, DTZ believes.

'The most resilient properties will be urban mid-range residential products, which will drive the property market in 2009 due to strong population demographics and fundamental demand in this sub-sector,' it says, adding that lower interest rates will bolster demand.

To encourage property ownership in the current weak economic climate, Malaysia this week proposed a tax deduction of up to RM10,000 (S$4146) a year on mortgage payments for purchase agreements executed before the end of next year.

After two years of strong increases in rents and capital values, DTZ expects the office market to see 'some consolidation' - a situation it says will be healthy, as there is significant supply in the pipeline.

It notes that many business relocations and expansions have been put on hold, with leasing enquiries emanating mostly from small occupiers.

The office occupancy rate remained steady at 90 per cent in the fourth quarter of last year, but the average rent for prime office space dipped 1.6 per cent quarter-on-quarter to RM6.30 per sq ft per month. Still, the average prime office rent finished the year 8 per cent higher.

Prime office capital values suffered a quarterly fall of 7 per cent to RM824 psf in Q4 2008, and transactions since then have failed to breach the RM1,000 psf mark achieved in 2007 to early 2008.

In the retail segment, rents have flattened over the past two quarters and are under pressure as retailers seek concessions to cushion weaker sales as unemployment rises.

'Landlords face challenges of increasing operating costs, retail centre branding and unique positioning in a congested market place,' DTZ says.

But shopping centres with an optimal tenant mix, a good marketing strategy and a key location still enjoy stable occupancy of about 90 per cent, it notes.

This article was first published in The Business Times.