Klang Valley: The House Price Index (HPI) saw a 11.4% rise for Kuala Lumpur (above) in the first quarter, and a 9.6% rise for Selangor, the latter slightly lower than at end-2010 because of the continuing overhang of lower middle cost houses

The residential sector's performance for the first half has matched last year's, albeit at a slightly slower pace, realtors say, with new growth area Iskandar Malaysia being particularly impressive.

In the Klang Valley - the country's perennial property hotbed - the House Price Index (HPI) saw a 11.4 per cent rise for Kuala Lumpur in the first quarter, and a 9.6 per cent rise for Selangor, the latter slightly lower than at end-2010 because of the continuing overhang of lower middle cost houses.

CH Williams Talhar & Wong managing director Foo Gee Jen says that prices of upmarket houses have continued to increase steadily however, and the sales rate of new housing projects in the Klang Valley remains encouraging at 60-70 per cent.

Selangor Dredging managing director Teh Lip Kim expects prices to creep up by 10-15 per cent this year on the back of continued economic growth as well as growing interest among foreigners.

Certain 'hotspots' in the Klang Valley have seen prices soar by 20-50 per cent year on year over the past three years, Ms Teh said recently, adding that demand for landed homes will remain strong especially in the Klang Valley and Penang. Well-positioned, medium-cost, high-rise residential units will also attract strong demand from younger middle-class buyers.

Mr Foo lists up-and-coming hotspots as the Kajang/Cheras, Kota Damansara, Sungei Buloh, and Sungei Besi areas, owing to the 'spillover' of established neighbourhoods, as well as the anticipation of greater demand on the back of the implementation of a new mass rapid transit line and light rail transit extensions.

Down south, Johor is undoubtedly attracting a great deal of interest with the increased visibility of developments in Iskandar and the warmer ties between Malaysia and Singapore.

The special economic zone is expected to edge closer to a tipping point next year with the completion of a number of key infrastructure highways, such as the Eastern Dispersal Link, which will increase connectivity and improve accessibility to many areas in Johor. Newcastle University, Columbia Hospital and the Johor Premium Outlet are also expected to be operational soon.

Buyers started zooming in on Johor properties last year, after sitting on the sidelines for three years. Due partly to the pent-up demand for housing, a property exhibition in May saw sales of RM384 million (S$155 million), while a similar one in November last year chalked up RM331 million, according to Rehda Johor branch chairman Simon Heng.

Prices have been heading north, with double storey link houses in some areas going for RM450,000 recently, or RM50,000 more than a year ago.

Other than the 'Iskandar factor', which prompted a growing number of Klang Valley developers to head to Johor in search of landbanks, demand has been robust because buyers fear properties will cost more because of escalating construction and labour costs.

A spillover effect from the Singapore and Klang Valley property markets has also been a factor, with investors from both markets making a beeline for much cheaper Johor property in the belief it will offer better upside.

Singaporeans constitute the bulk of foreign buyers in the state. Most have businesses in Johor Bahru, Mr Heng observed, but there are also those who buy property for holiday homes. 'These come in on the weekend for relaxation and tend to their huge gardens.'

While Singaporean investors also buy for rental income - usually condominiums in choice locations to be let out to expatriates - other foreign nationalities purchase houses as holiday homes and also partly for asset appreciation, he added.

In his view, the Tebrau-Kempas corridor, Skudai and Nusajaya areas remain popular. New developments coming up in the city may also be worth keeping an eye on.

Up north, Penang is buzzing with activity, its vibrancy due to a transformation of sorts engineered by the new state government. Investments are on the rise and Penang's economy appears to be booming so much that media reports indicate there are property projects worth nearly RM30 billion in the pipeline over the next 10 to 15 years.

The past two to three years have been good for property and Rehda Penang branch chairman Jerry Chan expects landed property will continue to pull strong interest, 'but only in location specific or prime areas because prices have gone really high'.

Although the HPI for Penang showed a slight dip of 1.2 per cent, the decline is not reflected in the entire property market, given that terrace houses are transacting at about RM1.5 million and new property launches are seeing brisk take up rates of more than 70 per cent, CH Williams Talhar & Wong observed.

Mr Chan advocates caution in the high-rise high-end segment where solid demand in the past three years has resulted in new price benchmarks of RM1,000 per square foot (psf). Others have sold for between RM650 to RM950 psf and he believes projects selling at less than RM600 psf 'should not be an issue'. Purchasers are content to buy despite yields of less than 2 per cent as they perceive supply to be diminishing.

He estimates some investors made gains of 20-40 per cent over the past three years flipping their apartments - 'Some buyers have made more money than developers!' - but with yields sliding, those that have not sold will need holding power.

The Penang diaspora - mainly those based in Kuala Lumpur and Singapore - have been noticeably active in the residential sector. Europeans have been more interested in heritage buildings although the numbers are not large.

Mr Chan says that areas with potential include Pulau Tikus (the secondary market), and luxury homes in Sri Tanjung Pinang and The Light.

Currently under construction, the Second Bridge when completed by end-2013 is expected to be 'a game changer', especially for Batu Maung on the island and Batu Kawan on the mainland, although the latter might be more of interest to locals.

Equivalent housing on the mainland side is merely a fifth of the island's, but looks set to change as job creation is likely to be faster with more industries expanding there because of fewer land constraints. 'So expect housing needs to increase there,' observes Mr Chan, who is confident prices will rise because of the current disparity with the island.