This article first appeared in City & Country, The Edge Malaysia Weekly on October 18, 2021 - October 24, 2021

There was a time when Kampung Kerinchi was perceived by many as a squatter area. In the 1990s, as development extended into the area, the homes of some squatters were demolished to make way for the development of low-cost flats and medium-cost apartments, to be undertaken by Kuala Lumpur City Hall (DBKL).

According to Savills Malaysia Sdn Bhd director of research and consultancy Amy Wong, Kampung Kerinchi was established in the 1870s by an Indonesian, Abdullah Hukum, who hailed from Kerinchi in West Sumatra. 

The transformation of Kampung Kerinchi into what we know today started with the acquisition of more than 60 acres of land by UOA Group in 2005. It developed Bangsar South, a mixed-use development comprising commercial, hospitality and residential components that have attracted middle- to upper-middle-income buyers as well as multinational corporations and local companies to set up base there. 

According to Rahim & Co International Sdn Bhd director of research Sulaiman Saheh, rental activities in Kampung Kerinchi have flourished due to a major boost from Bangsar South. The presence of Grade A office towers and several retail and food and beverage establishments within the immediate vicinity have transformed the area into a thriving mixed-use development hub.

“This is further enhanced with the reliable and convenient access created by the presence of the Universiti and Kerinchi LRT stations as well as the Pantai Dalam KTM station. It is also easily accessible via the Federal Highway, Sprint Highway and New Pantai Expressway,” he says.

Sulaiman notes that rents of residential properties in Kampung Kerinchi have held steady, with the demand driven by the quality of the accommodation, facilities and amenities, while its location is easily accessible from the Kuala Lumpur city centre, Petaling Jaya, Shah Alam and Klang. The proximity of the area to the University of Malaya has made it a popular choice of residence for students seeking rental accommodation.

Wong says the average rental performance in Kampung Kerinchi has generally remained stable, increasing marginally from an average of RM2.52 psf in 2019 to an average of RM2.56 psf in 2020, an increase of 1.74% year on year (y-o-y).

The rental market for residential properties in Kampung Kerinchi has been performing well, she adds. “This is attributed to the strong pull factor of expatriate presence and local talents working in the corporate office towers, which directly create a housing demand for the units in the area.”

Based on data provided by the National Property Information Centre (Napic), rents for open market high-rise residential units remained stable y-o-y, while units in the affordable high-rise residential schemes, such as the Residensi Kerinchi and Angkasapuri low-cost flats, showed positive movements during the same period.

“The average rent at Residensi Kerinchi appreciated from RM1.65 psf in 2019 to RM1.80 psf in 2020, while the average rent at the Angkasapuri low-cost flats increased from RM1.60 psf to RM1.80 psf,” says Wong.

With the increasing popularity of Kampung Kerinchi, including the established Bangsar South development as a hot rental market, potential buyers would include those looking to purchase a residence there for its investment prospects, as a rental home or for their own use, says Sulaiman.

“With more new developments coming up and a growing community, Kampung Kerinchi holds positive prospects in its future growth as a modern transit-oriented development (TOD) of today, 

strategically located along the KL city-Bangsar-Petaling Jaya conurbation,” he adds.

“The rejuvenation exercise in Kampung Kerinchi has made the area so liveable that the outlook is promising in terms of investment returns and liveability. Furthermore, the area is equipped with leisure venues and commercial office blocks, which will complement the housing demand in the vicinity,” says Wong.

Sulaiman also foresees more people buying and renting units in the area as new developments are expected to enter the market to meet the growing demands of buyers and renters. “Adding further potential to the area is the upcoming MRT station proposed as part of the upcoming Pantai Sentral Park township located adjacent to Bangsar South. There is, however, increased competition for tenants and buyers as more units are offered and expected to be completed in the coming years.”

Data provided by Rahim & Co shows that units in Novum @ South Bangsar, Camellia Serviced Suites, Southview Residence, KL Gateway Residences, Residensi Kerinchi and The Park Residences, with built-ups of 400 to 2,097 sq ft, command a monthly rent of RM1,200 to RM6,800, offering a yield 3% to 6.5% per annum.

Sulaiman notes that during the pandemic, the actual rents for deals closed have been stable but the asking rents in the market have seen a correction. “Prices of residential properties in the area have also seen a correction, but they have generally remained stagnant due to sustained demand. At present, the rental yields in the area range from 3% to 5% a year while some may even reach about 6%, depending on the initial investment.”

The growth of Kampung Kerinchi and Bangsar South can be seen as a natural progression or a spillover from the growth of the city fringes, to Bangsar and towards Petaling Jaya. “The gap filled by Kampung Kerinchi and its surroundings complement this growth momentum, fuelled by the established Mid Valley City and KL Eco City, among others, nearby. These have helped sustain the area’s market attractiveness, be it in the rental market or sales market, between the investors and tenants themselves,” says Sulaiman.

In terms of the commercial segment, Sulaiman reckons that the rental of commercial properties lean more towards corporate office tenants and those seeking office space outside of the central business district but still want to be connected within the larger golden triangle of the city centre, Petaling Jaya and Bangsar.

The transformed Kampung Kerinchi has become an address of choice for commercial tenants, thanks to its existing residential base that has been upgraded alongside the newer commercial developments, he says. “With its origins being more low-end and organic residential offerings, it has now expanded to include affordable and high-end homes. Hence, the offices and shops in the area will have access to a more diverse pool of potential consumers and employees, including expatriates, and these could emulate the trends observed in Mont’Kiara and Bangsar.”

Although the majority of purpose-built offices (PBOs) in the area are strata-titled, they have managed to attract strong brands and established corporates due to a proper tenancy mix, controlled by the building owners, and well-managed common areas that set a benchmark corporate office image for the buildings, says Wong.

Hence, these aspects will contribute to differentiating the rental rates, as opposed to the conventional strata offices that command relatively less than the RM5.10 psf mark achieved.

According to data provided by Savills Research, the average asking rent for The Horizon, The Vertical Business Suites, The Vertical Corporate Tower, UOA Corporate Tower, Menara Suezcap 1 and Menara Suezcap 2 range from RM4.50 to RM6.10 psf per month.

“The rents have been competitive and managed to see asking prices of more than RM5 psf. Smaller start-ups or small and medium enterprises can opt for the smaller office unit plates at Menara Suezcap 2, which has an average rent of RM4.50 psf. As for the recently transacted rents, the office blocks at The Horizon saw transactions of RM3.20 to RM6.90 psf per month, with an average rent of RM5.10 psf,” says Wong.

Notwithstanding the current economic conditions, Sulaiman believes that Kampung Kerinchi has the potential to see more growth due to its popularity as a renter’s destination. “But as we have seen in the past several years, commercial demand has been under constant pressure due to high supply but stagnating demand. It has been a challenge for both developers and commercial building operators to come up with new and innovative ways of attracting tenants amid a very competitive market.”

With the new norm of working remotely and the sharing economy model of co-working spaces, the suburbanisation of offices and commercial centres seen about 15 years ago could be given another boost. 

“Having commercial hubs close to the residence of the talent pool minimises travel time and has its benefits. More competitive rents in these out-of-city urban centres with facilities and quality that are of similar grade to those in the city area could attract local and foreign companies,” says Sulaiman.

As with any other developing/redeveloping areas, however, progress may be hindered if rapid growth and gentrification are not kept under control to ensure balance between supply and demand.

“The market remains challenging, and even when we overcome the pandemic, we will have to face the underlying challenge of supply and demand mismatches, employment- and income-related challenges as well as geopolitical concerns in the market. Growth should be nurtured carefully to be in line with market demand to avoid an unsustainable bubble effect,” he says.

Wong opines that the magnetic pull of Kampung Kerinchi will be in the integrated developments that play an integral part in the overall ecosystem of work, live and play. The corporate office tower cluster will create demand for the surrounding residential towers and be supported by the retail malls in one place, which qualifies as a self-sustaining locality, and even have a spillover effect on areas like Pantai Dalam.

The rents for both residential and commercial properties in Kampung Kerinchi will likely remain stable in the medium term, not to mention having the capacity to cushion the negative impact of Covid-19, says Wong. 

“The large imminent supply in the larger context of the property and commercial sector of Greater KL has slowed rental growth as a whole. Similarly, the planned supply of high-rise residential units and office buildings will likely cause rents to increase slowly but surely after a period of economic recovery. However, this will take place over a period of time until the economic conditions are better in the future.”

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