Cover Story: Branded residences continue to appeal to HNWIs

This article first appeared in City & Country, The Edge Malaysia Weekly, on March 8, 2021 - March 14, 2021.
The Ritz-Carlton Residences is one of four completed hotel branded residences in Malaysia (Photo by Patrick Goh/The Edge)

The Ritz-Carlton Residences is one of four completed hotel branded residences in Malaysia (Photo by Patrick Goh/The Edge)

-A +A

Property experts believe that branded residences will have a special place in the real estate industry because of their unique offerings as well as the attention to detail and quality service provided. These products appeal particularly to high-net-worth individuals (HNWIs) with discerning tastes and who are willing to pay a premium for a luxury lifestyle.

From a transactional standpoint, property experts believe branded residences will continue to see steady demand despite the Covid-19 pandemic and ongoing economic challenges, especially those with strong brand names.

“The traditional branded concept is a hotel-led development with integrated or linked residences. They naturally benefit from the hotel brand (quality), management (smooth running) and services (luxury). In essence, this gives the owner the comfort and permanence of a home but with the full benefits and luxury of a five-star hotel,” says Knight Frank Malaysia associate director of international project marketing Dominic Heaton-Watson.

There are five broad categories of branded residences: hotel-led developments with integrated residences; luxury resorts with residences used as holiday rental property; residential-led developments with an adjacent hotel; residential developments with hotel management; and residential developments with a remote hotel tie-in.

“The branded concept is predominantly urban, with 62% of hotel-branded residences in cities, as opposed to beach or resort locations,” says Heaton-Watson.

“However, this does vary by region. In North America, two-thirds of [such schemes] are in cities, whereas in Asia, it is much more balanced, with almost half being in resort locations.

“As the market continues to expand, it is expected that developments are likely to concentrate in urban areas because, generally, across the global economy, there has been a sizeable shift towards major economic urban hubs.”

According to Knight Frank Research, there are more than 400 branded residences worldwide, with the majority being hotel brands. In Malaysia, there are four completed hotel branded residences — Four Seasons Private Residences Kuala Lumpur, The Ritz-Carlton Residences, The Residences at St Regis Kuala Lumpur and Banyan Tree Signatures Pavilion.

According to Knight Frank, future supply includes YOO8 @ 8 Conlay, Ascott Star Residences and So Sofitel Hotel & Residences, which will be completed between 2020 and 2023.

According to JLL Property Services (Malaysia) Sdn Bhd, Royce Residence (serviced by InterContinental Hotels Group) is scheduled for completion in 2022 and the Jumeirah Living Kuala Lumpur Residences @ Oxley Tower (to be managed and serviced by Jumeirah Group) will be completed in 2024.

As for resort-type branded residences in Malaysia, JLL points to the Anantara Desaru Coast Residences in Johor and Angsana Teluk Bahang in Penang. The former will be managed and serviced by Minor Hotel’s Anantara Desaru Coast Resorts & Village; and the latter, by Banyan Tree Hotels & Resorts, under its brand Angsana.

“These [branded residences] are not for the ordinary man in the street but for the discerning who want quality and require the highest level of service, security and privacy without having to check into a hotel,” says JLL country head YY Lau.

The buyers of these completed branded products are mainly from China, Taiwan, Japan and South Korea. “When it comes to premium branded residences, the property is often viewed as a trophy asset, holiday home or reserved residence during business trips,” she notes.

Banyan Tree Signatures Pavilion (Photo by Patrick Goh/The Edge)

The main difference between branded residences and high-end residences, apart from the brand and level of service, is that owners get a “membership that gives them access to special privileges and discounts within the brand or group’s operating portfolio”, says Lau. Moreover, the agreement between the brand or developer and the owner of the product normally has an expiry date and will need to be renewed, she highlights.

Buyers of branded residences are usually looking for something extra to add to their already lavish lifestyle. “It is about creating memories and an emotional link — for example, bringing in a celebrity chef or design team,” says Heaton-Watson.

“It is becoming more experience-oriented and eco-focused in design and operation. Demand trends suggest that purchasers are expecting branded residences to be far more holistic, with beautiful gardens and environment, a focus on wellness as well as being multigenerational.”

Siva Shanker, CEO of real estate agency at Rahim & Co International Sdn Bhd, sums it up: “The buyer of a branded residence is looking to make a statement.”

Jean Chiew, senior negotiator at Knight Frank Malaysia’s residential agency, points out: “In Malaysia, international brands with larger market shares across the world garner better demand, as these discerning buyers would have heard of the brand while travelling across the globe. Also, the opportunity to own a luxury branded home in Malaysia at attractive pricing — owing to favourable currency exchange rates — allows foreign buyers to enjoy a better accommodation experience when visiting the country.”

She adds that the fast-growing ultra-wealthy population in Asia has fuelled the demand for branded residences that offer high-quality service and have potential for capital appreciation.

JLL’s Lau concurs. “Foreigners and expatriates who come from developed countries may actually find the pricing or rents of Malaysian branded residences less expensive, as they are not priced in US dollars,” she says.

Four Seasons Private Residences Kuala Lumpur (Photo by Patrick Goh/The Edge)

“Market demand depends on the strong growth of Asian economies as well as a larger expatriate population, with a greater number of multinational corporations setting up in the country. Of course, it is a smaller market, as the target group is confined to a small percentage of the population.”

Lau highlights that some branded residences promise a guaranteed return of between 5% and 7% for a few years, but she advises investors to be aware of what will happen after the guarantee period is over. “The maintenance charges of branded residences are usually higher than those of other projects, owing to the premium services they offer. The charges vary from 90 sen to RM2.30 psf per month.”

Also, capital appreciation may be hard to come by at the moment because of the pandemic and slower global economy. “Investors should consider the location, connectivity and other aspects, as with most developments, instead of being swayed by the beautiful fittings. Yields for existing branded residences range from 2.5% to more than 4%,” Lau says.

While there is interest in branded residences in Malaysia, the take-up rate is slower than for normal residential products, she notes. “The take-up rate for branded residences in Kuala Lumpur has been slower than that of serviced apartments or condominiums. There is close to 15% unsold inventory in completed projects compared with 3% for serviced apartments or condominium projects completed in the same years.”

Rahim & Co’s Siva says: “The market demand [for branded residences] is always there; it isn’t very high but it isn’t insignificant either because of the price of these properties. It is not easy to get someone to part with RM4 million to RM5 million today.

“As investments, they have not been a shining beacon because, one, capital values are not going up that much; they do go up, but slowly. And, two, the rental market for these high-end properties is not there because we don’t have a big expatriate population with a high rental budget. So, these products will either remain empty or are owner-occupied.”

Besides the monetary aspect, Knight Frank’s Chiew believes buyers of branded residences are looking at these products as something to bequeath to the next generation. “Most buyers of branded residences do not focus on returns, as they view these luxury homes as trophy assets. They see the homes as part of their collection throughout the world, with the familiarity of the brand name and services that come along with it. Some turn these assets into holiday homes; others buy them to leave as an inheritance for the next generation.”

The Residences at St Regis Kuala Lumpur (Photo by Patrick Goh/The Edge)

Outlook for branded residences

With the world still coping with the pandemic, the wealth of the ultra-rich has been affected. This could in turn have affected the branded residences market, says JLL’s Lau.

“According to data firm Wealth-X, the ultra-wealthy saw their net worth decline 1.7% to US$32.3 trillion in 2019, owing to a slump in investor sentiment and global equity markets. This, combined with the current restrictions on travel and a global recession, could have some impact on demand for branded residences around the world,” she says.

“By country, the US accounts for nearly a third of the global share of ultra-HNWIs (UHNWIs), followed by China and Japan. Unsurprisingly, the US has nearly a third of the global branded residences market.

“By city, Hong Kong has lost to New York. While Hong Kong has the highest density of UHNWIs, it has slipped in the rankings, as these individuals were affected by the slump in Asian stocks and a softening Chinese economy.

“The number of ultra-wealthy women has risen to a record high of nearly 15%, and they can shape the demand for the types of branded residences offered in the market. YOO Worldwide has been one of the most aggressive non-hotel brands to have expanded in Asia-Pacific.”

Heaton-Watson believes the branded concept will continue to grow globally. “A key reason that branded residences will continue to do well in international markets is that the branding can take care of some of the worries about an unknown international city where someone may be relocating.

“Investors place trust in the reputation of renowned brands and it can provide a degree of confidence. Attracted by factors such as convenience and design principles, HNWIs and global citizens [can be expected to] continue to be willing to pay a premium over and above the price of non-branded developments in the same area.”

As for Malaysian branded residences, Rahim & Co’s Siva says the local housing market has taken a beating and is generally slow right now, with the pandemic and weak economy. But, in every economic turmoil, there is an opportunity for people to buy branded residences.

“In the light of Covid-19, demand for branded residences may have slowed, as buyers in this category may be careful with their spending. As vaccines are rolled out and sentiment improves, however, demand will return. There will always be top-tier people looking for branded residences as a measure of their success and lifestyle,” he says.

JLL’s Lau believes the market for these prized products depends on the growth of economies, which has been hampered of late. Still, she is optimistic that things will turn around.

“Branded residences are a niche product and can prove to be irresistible. International brands such as Armani, Porsche and Versace, which have lent their names to developments abroad, have yet to enter the Malaysian market. These are unique and exquisite products for buyers enamoured of these brands.”

KL branded residences update

Ascott Star KLCC Kuala Lumpur

These branded residences will occupy the third and final residential tower at Star Development in Jalan Yap Kwan Seng. The integrated development features three residential towers and a retail, food and beverage, and entertainment hub on a four-acre parcel. It is being developed by Alpine Return Sdn Bhd, a joint venture between Symphony Life Bhd and United Malayan Land Bhd.

The developer says Ascott Star KLCC Kuala Lumpur is 90% completed. The 58-storey residential tower will have 471 units. Under the management agreement, The Ascott Ltd will manage 272 units on Levels 7 to 33. The units measure 700 to 2,972 sq ft, with prices starting from RM2,500 psf. The take-up rate is 80% and buyers are from key markets such as South Korea, Japan, China and Hong Kong.

YOO8

Located in Jalan Conlay, Kuala Lumpur, YOO8 is part of 8 Conlay by KSK Land and takes up two of the three towers in the development, with the last housing the Kempinski Hotel. Owing to the delays caused by the Covid-19 pandemic, the developer says the Tower A handover has been pushed to early 2022 and Tower B is scheduled for end-2022.

There is a total of 1,062 units: 564 in the 61-storey Tower A and 468 in the 56-storey Tower B. The built-ups of units in Tower A ranges from 700 to 1,308 sq ft, with an average selling price of RM3,283 psf, and in Tower B, from 705 to 1,328 sq ft, with an average selling price of RM3,370 psf. So far, Tower A is 80% sold while Tower B is 40% sold.

About 75% of the buyers are from overseas — including Hong Kong, Taiwan, China, Japan, Europe, South Korea and the Middle East — while the rest are locals.

SO Sofitel Kuala Lumpur Residences and Jumeirah Living Kuala Lumpur Residences

It was reported that Oxley Towers KLCC by Singapore-based Oxley Group will feature two branded residential towers. It will comprise a retail space, an office block, the 78-storey SO Sofitel luxury hotel and serviced residences and the 49-storey Jumeirah luxury hotel and serviced residences.

The developer says these brands decided to have a presence in Malaysia because hotel branded residences are becoming popular in the country and buyers favour the convenience of high-quality services delivered by a trusted brand, along with the potential for capital appreciation.

SO Sofitel Kuala Lumpur Residences will have 590 units and Jumeirah Living Kuala Lumpur Residences will have 267 units. The former is open for sale, offering studios to 3-bedroom units, including duplexes. Built-ups range from 566 to 5,044 sq ft and the selling price is from RM2,300 psf. So far, about 65% of the units have been sold.

Buyers of SO Sofitel Kuala Lumpur Residences come from Hong Kong, Singapore and China. The potential buyers of Jumeirah Living Kuala Lumpur Residences are most likely to be from the Middle East, as it is an esteemed brand in the region, says the developer.