Flat property market seen for Penang

Resilient values: Geh believes that both landed and high-rise units in prime locations will hold their values.

Research house says it will be buyers’ market over the short term

THE Penang property market is expected to remain flat yet resilient this year and could bottom out within the next two years.

CBRE|WTW Research in its Real Estate Market Outlook 2019 says it will be a buyers’ market over the short term, particularly for residential properties.

“Under the prevailing subdued market, launches of smaller, single phase developments would reduce in the short-term but larger integrated mixed developments or townships would carry on.

“The property market is anticipated to remain generally soft and flat in 2019. This is in consideration of the challenging global and domestic economy, rising cost of living, as well as supply-demand imbalances, particularly in the high-rise residential sector.”

The property consultancy however adds that Penang’s property market still demonstrates resilience, aided further by recovery in the economy.

“Meanwhile, the current excess in supply will effectively be absorbed by the market. Benefits of reforms undertaken by the new government could also trickle down to the local property market.”

Raine & Horne Malaysia senior partner and FIABCI Malaysian chapter president Michael Geh says transactions and values will most likely remain flat, at best.

“As residential market activity, in terms of transacted units, has been falling over the last few consecutive quarters, at best the year-on-year levels will hold. In light of the overall soft market, property values are not expected to rise in 2019,” he tells StarBizweek.

Malaysian Institute of Estate Agents Penang chairman Mark Saw says the Penang residential market will see “some correction” this year.

“However, long-term planning on infrastructure improvements will go some way towards ensuring those locations currently only accessible by cars are better served with public transport.

“For those who have been holding back their launches the past few years, there may be a need to start selling, especially if land were bought on loans.”

He adds that measures taken by the state government will help to spur the Penang property market.

“With the waiver of the 3% approval fee for foreign purchasers starting from Feb 1, Penang must be seen to be investor friendly and foreign buyers should be encouraged to come.”

Meanwhile, Knight Frank Malaysia in its latest research report Real Estate Highlights for the Second Half of 2018 says the general outlook for the Penang property market “remains mixed without a dominant overall trend”.

“However, resulting from the interplay of supply and demand as well as the general economy, different sectors are performing differently. The residential sector, which is the leading sector in terms of total volume and value of transactions, has shown some improvement during the first half of 2018. “It registered a 5.4% increase in the volume of transactions year–on-year. This trend is expected to continue.”

Saw says prices of landed property in Penang are unlikely to drop.

“However, the high-rise market will remain challenging and developers will need to continue to offer incentives as well as alternate options of home ownership.

“Developers with deeper pockets or less loans may look into rent-to-buy schemes in tandem with the recently-announced National Home Ownership Campaign by the government.”

Geh believes that both landed and high-rise units in prime locations will hold their values, while speculatively-purchased condominiums will be affected.

“Government announcements on transportation plans, infrastructure and stimulus plans are among actions that can help stimulate the Penang property market tremendously,” he says.

Easing overhang

CBRE|WTW Research says the overhang within the Penang residential property market is likely to ease over the next two to three years, with developers offering special packages and postponing launches, all of which would allow demand to catch up with supply.

“The medium to long-term outlook remains positive given that various policies and efforts are being undertaken by the government,” it says.

Citing data by the National Property Information Centre, CBRE|WTW Research says there are over 2,200 high-rise overhang units worth nearly RM1.6bil as at the second quarter of 2018. “This is due to the abundant apartment and condominium units launched, constructed and completed within the past three-to-five years, coupled with the high rejection rate of end financing, unreleased bumiputra units and low demand for units in secondary locations.”

In terms of unsold residential units, CBRE|WTW Research says around 34% or 1,300 of the overhang units are in the RM500,001 to RM1mil per unit price range.

“On the other hand, units priced at RM1mil and above form the bulk (58%) of the total overhang valued at approximately RM1.75bil.

” The property consultancy adds that high-rise projects, particularly, are experiencing increased sales pressure amidst an oversupply situation.

“Under the challenging market, developers have resorted to offering incentives such as rebates on selling prices, zero or low downpayment, easy instalment payment of up to 24 months, deferred payment of (say) 30% of the selling price over five years at 0% interest, free legal fees and one year’s maintenance fee.

“Complimentary packages include interior design package, kitchen and electrical appliance vouchers as well as referral and reward schemes.”

Office and retail markets

Knight Frank Malaysia says the office sector is still enjoying stable rents and high occupancies, pointing out however that the overall occupancy rates in some buildings have dropped marginally.

“This favourable state of affairs is expected to continue for the next few quarters as new supply is only expected to come on-stream beyond 2020.”

CBRE|WTW Research says pent-up demand for newer and prime offices persists in Penang.

“New supply of offices in Penang in the past ten years was limited. New prime purpose-built office buildings completed within the past three years such as HunzaTower and Straits Quay Commercial Suites are enjoying commendable occupancy rates, although charging new benchmark rentals.

“Newly set-up offices, as well as offices relocated from older office buildings, comprise the tenants in these new buildings. Office occupiers are seeking newer office buildings that serve their contemporary needs and enhance their corporate image.”

It adds that pent-up demand for newer and prime offices would continue in the short-term, as most of the upcoming purpose-built office buildings are scheduled for completion in year 2020 and beyond.

“Older buildings are likely to experience a slide in demand thus lower rentals and capital prices.”

CBRE|WTW Research says stable occupancy rates can be anticipated, adding that rentals will increase.

“As at mid-2018, the overall occupancy rate of purpose-built office buildings in Penang declined slightly to 77% from 82% year-on-year. Occupancy rates are anticipated to generally remain in the region of 80% in near future.

“Rentals of prime office space in Georgetown were between RM2.50 and RM3.50 per sq ft. Prime offices outside George Town, particularly newer buildings in Bayan Lepas/Bayan Baru and Tanjung Pinang (Tanjung Tokong), registered higher rentals of RM3.30 to RM4.50 per sq ft.”

Due to increasing maintenance cost, CBRE|WTW Research says rentals of office space in most buildings are expected to increase in the short term.

“The overall average rental of prime offices would also increase, pulled-up by new entrants with higher asking rentals.”

As for the retail sub-sector in Penang, Knight Frank Malaysia says the current supply remains unchanged, adding that a more challenging scenario is anticipated for this sector with new supply to come on-stream with the expected opening of IKEA in Batu Kawan in the current quarter and the extension of Penang Times Square.

“Other retail centres/expansion of retail centres will be adding on the supply in 2020 and 2022.”

CBRE|WTW Research says the retail sector in Penang is likely to be flat, buffered by cautious optimism.

“Mixed performances will be more evident between the better and under-performing retail complexes, of which the latter is likely to drag down the overall occupancy and average rental rates.

“With abundant supply in the pipeline, shoppers can look forward to exciting shopping experiences.”

It says the overall occupancy rate stood at 72% as at mid-2018, with 79% for Penang island and 63% for Seberang Prai.

“Retail lots on the ground floor of selected prime retail complexes on the island commanded higher gross rental rates of up to RM45 per sq ft.”

Meanwhile, Geh says better-managed malls in prime locations are sustainable.

“These malls have sustained rental rates but vacancy factors have certainly increased by 5% to 10%.

“There is no oversupply but a rise in vacancy factors. Going forward, the general population’s purchasing trend remains cautious and wary of big-ticket items.”

Saw is less optimistic about the Penang retail sector, saying “this sector has been saturated for a few years and there is no end in sight”.

By Wugene Mahalingam, The Star

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Deflation hits Malaysia for the first time since 2009

 
MANY international experts and organisations have expressed concern about the global economic outlook this year.

Tighter monetary policy, weaker earnings growth and political challenges are confronting major economies.

The long-running US-China trade war and uncertainty around the UK’s exit from the European Union have soured business and consumer sentiment in recent months. However, the risk of a recession remains small, say economists.

Developers shift focus to higher-priced residential properties in Penang; Busy in construction sector 2016

Projects worth RM41bil in Penang next year

 

Chan: ‘We still foresee the volume and value transactions of properties to contract in 2016. However, the contraction this time won’t be so sharp." (Default Alternate Text: "Chan: ‘We still foresee the volume and value transactions of properties to contract in 2016. However, the contraction this time won’t be so sharp.

GEORGE TOWN: Five developers will undertake RM4.33bil in property projects in Penang next year despite a challenging year for the property market.

The developers planned to price their mostly residential properties from between RM480,000 and RM3.3mil.

The price range came on the heels of this year’s launches of between RM200,000 and RM400,000 in strategic locations.

The developers would be shifting their focus to higher-priced residential properties.The condominium units in Bayan Lepas will be from 1,000 sq ft and priced from RM480,000 while three-storey houses with built-up of 5,300 sq ft will be priced at RM3.3mil in Seri Tanjung Pinang.

The developers are IJM Land Bhd with gross development value (GDV) of RM415mil, Ideal Property Group (RM1.46bil GDV), Hunza Properties Bhd (RM600mil GDV), Eastern & Oriental Bhd (RM650mil GDV) and Mah Sing Group Bhd (RM1.2bil GDV).

Real Estate & Housing Developers’ Association (Penang) chairman Datuk Jerry Chan told StarBiz that developers could be shifting their focus to properties priced from RM400,000 as there was a large supply of housing priced between RM200,000 and RM400,000 targeting first-time buyers.

This did not mean that buyers have lost interest in affordable housing with built-up of 900 sq ft and priced from RM500 to RM600 per sq ft.

Chan pointed out that developers would continue to build housing in the affordable range to leverage on the higher density for plots of land but there would be a gradual shift to the “non-affordable” range.

He added that there would be fewer launches in 2016, due to the difficulties in obtaining bridging and end-financing loans from banks.

Referring to the incoming supply of housing that were currently under construction, Chan said this would be spread over a five- to 10-year period, depending on market demand and the size of the schemes.

The National Information Property Centre (Napic) report revealed that the state would see an incoming supply of 72,114 units into the market.

According to the Napic report, the existing stock of houses in the state stood at 393,303, compared with 383,484 in the first half of 2014.

“We still foresee the volume and value transactions of properties to contract in 2016. However, the contraction this time won’t be so sharp,” Chan said.

Ideal executive chairman Datuk Alex Ooi said the group had developed 4,840 units of affordable projects on the island for the last two years.

“We have sold about 60% of these properties. Moving ahead, the strategy is to move into the non-affordable range priced between RM400,000 and RM600,000.

“Ideal Property still has around 300 acres of land bank on the island. We have some 25,000 units of properties planned for the land bank.

“There are still 8,000 units of properties with more than RM4bil in GDV to be implemented over the next 10 years, priced between RM400,000 and RM600,000,” Ooi said.

‘Moderate to flat’ outlook

Ooi expected property market conditions to be “moderate” to “flat” in the coming year.

Mah Sing (North) senior general manager Law Wei Keong said the company had recently completed a survey on the preference of housing products in the country.

“The study revealed that a majority of the 6,000 surveyed favoured houses priced in the range of RM500,000 to RM700,000,” he said.

Of the RM2bil worth of housing projects launched in the country this year, about 16% were priced from RM1mil, while the remaining 84% are below RM1mil, according to Law.

IJM Land senior general manager (north) Datuk Toh Chin Leong said despite the weak market sentiment, the company would continue to launch properties priced below RM800,000.

“It will be a slow year for the property market in 2016,” Toh said.

 TrehausIJM Land’s pipeline of projects for next year in Penang included the RM232mil Waterside Residence in The Light Waterfront project next to Penang Bridge, the RM64.7mil Trehaus Condo Villa scheme in Bukit Jambul, and the RM118.4mil Senjayu Terrace project in Jawi, South Seberang Prai.

The Trehaus and the Waterside Residences scheme would be launched in the second quarter of 2016, while the Senjayu Terrace would be introduced in late 2016.

“The price of the three property schemes ranged between RM730,000 and RM1.3mil,” he said.

Meanwhile, Ideal would be launching the RM460mil Forestville, RM600mil Queens Waterfront Residences, and RM400mil Camerlina, located in Bayan Lepas, priced between RM480,000 and RM800,000.

“There is still growing need for mid-range houses that is reasonably priced, located within mature township, surrounded and supported by amenities such as schools with good accessibility, lower density with lifestyle concept,” he said.

Eastern & Oriental will develop the recently launched RM482mil Tamarind and 50 units of terraced houses with a RM168mil GDV in Seri Tanjung Pinang.

The Tamarind units, ranging between 1,000 sq ft and 1,770 sq ft, are priced around RM691,000 and RM1.16mil, while the terraced units, with built-up areas of 5,300 sq ft, are priced from RM3.3mil.

Its general manager (marketing and sales) Christina Lau said the Tamarind was scheduled for completion in 2019.

No date has been set for the completion of the 50-terraced properties.

Mah Sing to unveil Ferringhi Residence 2

Mah Sing will launch the RM735mil Ferringhi Residence 2, the RM350mil Icon Residence and an unnamed RM150mil project in Southbay City, Batu Maung.

“We are targeting the Ferringhi Residence 2 launch in the first quarter,” Law said.

The Ferringhi Residence 2 consists of three blocks offering 632 units with built-up areas from 1,208 sq ft to 2,910 sq ft, priced from RM775,265.

Law said the pricing for the unnamed project would be below RM680 per sq ft.

“The units have built-up areas of 750 sq ft to 1,000 sq ft,” he said.

Meanwhile, Hunza will develop the RM600mil Alila 2 project in Tanjung Bungah, 270 units which have built up of between 1,900 sq ft and 3,300 sq ft, priced from RM775 per sq ft.

“We will promote the 9.8acre project in Indonesia, Hong Kong, and Singapore early next year.

“The key attractions are the size of the units, which are extremely scarce on the island nowadays,” group managing director Khor Siang Gin said.

By David Tan The Star

Construction sector to be busy in 2016 with projects worth RM83bil 

KUALA LUMPUR: WITH over RM83bil worth of infrastructure jobs to be awarded next year, it is going to be a busy year for the construction sector in 2016.

“The 11th Malaysia Plan unveiled in May 2015 has reaffirmed the strong pipeline of construction jobs till 2020. The record awards of project delivery partners (PDPs) for four major infrastructure projects with total value of RM80bil have further reiterated the potential works,” said Maybank IB Research in a recent strategy report. This flow of contracts if they are rolled out according to plan, is a new record, outpacing the high of RM28bil dished out in 2012.

The strong job flows are expected to be driven from new tenders in public transport, oil & gas downstream infrastructure and water-related jobs.

New award phase for the Klang Valley Mass Rapid Transit Line 2, is set to take off from the first half of next year while the other rail project coming on strean is the Klang Valley Light Railway Transit (KVLRT) 3. The Gemas-JB double track, which is being reviewed, is another potential.

The total value of rail-related construction jobs was estimated at RM39bil in the medium term, said CIMB Research. “These could be broken into 17-20 chunky packages worth between RM800mil and RM1.5bil each, excluding underground portions,” the research firm said in its recent outlook report.

As for highways, there are the RM4.2bil Damansara-Shah Alam Highway (DASH), the Sungai Besi-Ulu Kelang Elevated Expressway (SUKE), and the remaining West Coast Expressway (WCE) packages to be awarded. In East Malaysia, eleven more packages of the 1,090km Pan-Borneo Highway is expected to be tendered out in phases next year.

As for oil and gas infrastructure, Petronas’ Refinery and Petrochemicals Integrated Development (Rapid) project in Pengerang, Johor, is expected to see investments worth RM18bil based on Budget 2016.

On water-type contracts, CIMB Research reckoned that over RM2bil worth of jobs could be dished out and this excludes potential jobs from the private sector side.

The country’s strengthened ties with China have also injected further optimism into the construction sector.

“Chinese contractors have expressed interest in the rail projects, specifically, the Gemas-JB double track rail and Kuala Lumpur-Singapore high speed rail. Local contractors could partner them in bidding for the projects. With the Chinese companies’ ability to offer attractive financing packages, this would raise their chances of winning the projects, while allaying concerns on project funding issue,” said Maybank Research.

One other key project to watch for is the Penang Transportation Master Plan (PTMP) that is said to have contract value of RM27bil.

As for stock picks, Maybank IB Research has Gamuda Bhd at its top pick. The stock was a likely beneficiary of the PTMP and could also clinch additional jobs from the mega rail projects including KVLRT 3 and Gemas-JB double track rail, the research firm said.

CIMB Research also has Gamuda as its big-cap pick for the largest exposure to MRT 2. Among small/mid-cap it has Muhibbah Engineering Bhd as the preferred stock for the company’s US-dollar theme and exposure to Petronas’ Rapid.

“In the water segment, Salcon Bhd could emerge with a bigger share of wins. The company’s tender book currently stood at RM1bil to RM2bil,” said CIMB Research.

On the other hand, Public Invest Research has a neutral “call” on the sector as “most of the counters under our coverage were already fairly valued.”

“Currently, the construction index is priced at 13 times one-year forward earnings, which is also equal to its long-term mean. Hence, we believe the sector is fully valued for now, with most positives already priced in.”

As for stock picks, the research firm favours WCT Holdings Bhd as its job replenishment was better than expected with RM2.7bil clinched to-date, bumping up its unbilled orderbook to more than RM5bil. “Hock Seng Lee Bhd is expected to benefit from the Pan Borneo project, while Gamuda also looks attractive after the stock dipped below our fair value.”

By Gurmeet Kaur The Star

Immigration & education drive property prices; Secondary property sales may take lead

Immigration and education are two drivers of property prices in cities in the next 10 years to 2024, said property consultancy Knight Frank International.

Its Asia-Pacific reaearch director Nicholas Holt said up to 76,000 Ultra High Net Worth Individuals (UHNWI) from China have immigrated the last 10 years - the highest - while up to 72% of Malaysia’s UHNWI send their children abroad, the highest. (See graphics below).

The cities include London, New York, Hong Kong and Singapore.

Holt was presenting his Wealth Report 2015 updated till third quarter 2015 at the 25th National Real Estate Convention in Kuala Lumpur.

He defined UHNWIs as those with US$30mil and above in investible income excluding their primary residence.

In an Attitudes Survey involving 600 advisors of UHNWIs by Knight Frank, the advisors - bankers included - said about 10% of their Malaysia’s ultra-high net worth clients were considering changing their domicile in the earlier part of this year.

“This compares with an overall 12% in Asia who are considering changing domicile,” said Holt.

Data show drop in primary market transactions

SUBANG JAYA: The ongoing slowdown in the local property sector could see transactions in the secondary property market overtaking that of the primary market.

Citing data from the National Property Information Centre (Napic), PPC International Sdn Bhd managing director Datuk Siders Sittampalam said the economic slowdown has affected transactions in the primary property market this year.

"Siders: ‘Total volume of transactions in the primary market has dropped, and this has also resulted in values dropping. >>

“Total volume of transactions in the primary market has dropped, and this has also resulted in values dropping.

“As such, there will come a time when the secondary market will lead the primary market,” he said at a press conference after the launch of the 25th National Real Estate Convention (NREC) 2015 yesterday.

Siders said it was difficult to provide a specific timeline on when he expected transactions in the secondary market to exceed that of the primary market.

“In terms of value, the primary market will find it harder to match the secondary market due to rising land and building costs,” he said.

Siders said he expected transactions in the primary market to improve once cooling measures imposed on the local property sector have been relaxed.

“Once the economy picks up and Bank Negara backs off on its cooling measures, the primary market will pick up again.”

He also said a drastic hike in interest rates will have an impact on the property sector.

“Over the last few years, the property market had been steadily growing due to various measures such as the developers interest bearing scheme (DIBS). Because of these measures, pricing in the market has been distorted.

“Now, when people have committed to their loans, especially youths and first time buyers, and there is a sudden hike in interest rates, there will be a dip in the market.

“Loans go bad and many properties will go under the hammer. This will not be a healthy market.” Siders said he was hopeful that any interest rate hike by the central bank would be a “sustainable increase.”

Bank Negara maintained its overnight policy rate in September at 3.25%.

The NREC was organised by the Royal Institution of Surveyors Malaysia and the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia.

The event highlighted major concerns for the future of the real estate industry in Malaysia during the current economic period.

BY EUGENE MAHALINGAM

Related posts:

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  Penang property market to be resilient on sustained demand

  PETALING JAYA: Penang’s property market is expected to stay resilient on the back of sustained demand, especially from Penangites workin...

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  Malaysian property market is still 'sparkling'

  Away from the city: Developers are now turning to more affordable areas outside the Klang Valley like Negri Sembilan. Continuing an exam...

Penang property market to be resilient on sustained demand

PETALING JAYA: Penang’s property market is expected to stay resilient on the back of sustained demand, especially from Penangites working abroad planning to return and prospective retirees eyeing homes in the state.

“There has been a slowdown in the last year. There are a few categories of investors in Penang; those who are owner occupiers, those who are investors for the cultural developments, those who are in the Malaysia My Second Home (MM2H) and Penangites who work abroad but would like to settle in Malaysia,” said Penang Institute CEO and head of economics studies Dr Lim Kim Hwa (pictured) at the National Real Estate Convention (NREC) 2015 yesterday.

“For the last two categories, the properties in Penang would be priced significantly cheaper, thus I believe the demand in the property sector in Penang would remain rather constant,” concluded Lim during his presentation entitled “Penang: The Next Metropolis”.

In terms of the wider economy, Penang is expected to register a 5% to 6% growth in its gross domestic product (GDP), outpacing the overall country’s growth by 1%, he said, noting that last year, Penang’s GDP grew by 7.4% while Malaysia’s grew by 6%.

According to Lim, Penang contributes 21.8% of the balance of Malaysia’s trade surplus, specialising in machinery, transport equipment and miscellaneous manufactured articles.

“Penang’s economy is more export-orientated, and now there is a better demand for electrical and electronic goods,” he said.

The export sector is expected to improve with the recovery of the US economy and the weaker ringgit, he added.

“It is important that Penang provides the best environment to attract more investments. Penang is the main manufacturing and economic hub for electronic and electrical items. Bayan Lepas is already full. It is important to provide more space for industrial growth.”

Some of the projects and initiatives that are expected to contribute to this growth is the IT-BPO at Bayan Lepas, BPO Prime at Bayan Baru and Changkat Byram, south of Batu Kawan.

Other projects that will benefit Penang overall include the Penang Transport Master Plan, Penang Heritage Arts District – Ilham Penang at Sia Boey, Creative Animation Triggers at Wisma Yeap Chor Ee, and Komtar refurbishment. “All of these projects involve the private sector,” added Lim.

“The Penang Transport Master Plan (PTMP) is the catalyst to [turning Penang into a] metropolis, as it involves alleviating a lot of the problems locally in Penang, especially traffic congestion,” said Lim.

Expected to be completed in 2030, the RM27 billion project would include amenities such as trams for the heritage zones, LRT for the island and mainland, and water taxis.

Lim said Penang is on track to achieving its metropolis status.

“It is an ongoing process, and there is no deadline. Penang aims to transform into an international, intelligent city filled with life. To create a great metropolis, it has to be unique, and it has to attract people to want to live and expand the growth of the city,” he said.

NREC 2015 saw more than 250 participants from the banking, development, property and consultancy industries.

NREC is organised by the Royal Institution of Surveyors Malaysia (RISM) and co-organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS).

Themed “Homes For Generations – Redefining Development Trends”, the convention highlighted concerns for the future of the real estate industry in Malaysia.

By Hannah Rafee / theedgeproperty.com 

Malaysian property market is still 'sparkling'

Away from the city: Developers are now turning to more affordable areas outside the Klang Valley like Negri Sembilan.

Continuing an examination of the property sector post Budget 2016, Sunday Star discovers that, despite high prices, investors remain upbeat because demand for property continues to outstrip supply many times over.

INVESTOR Ahyat Ishak says for the rakyat, property prices are “beyond annoying”.

They see all these new properties springing up – but, he points out, these are not “rumah mampu milik” (affordable houses) and are only “rumah mampu tengok” (houses you can look at but not own) for most of us because of the high prices.

“Property has become something of a bad taste in the mouth and people have become negative. And the market feels negative even though property prices continue to rise,” he says.

Although there is this “huge disconnect” between what’s being built and what people can buy, many developers continue to “defy gravity”.

“They do business as usual and offer properties beyond afforda­bility,” says Ahyat, who runs workshops for potential property investors and is the author of the 2013 bestseller, The Strategic Property Investor. Dr Daniele Gambero, a marketing and strategic consultant for developers, says over the past few years developers have been over-delivering high-end, high-cost properties.

Towards the end of last year, however, they started developing more affordable areas further out from Kuala Lumpur, such as south, east and west of the city within the Klang Valley, as well as in places like Semenyih near Selangor’s border with Negri Sembilan and Nilai, Negri Sembilan.

Gambero says most of the big property developers in the country have had launches in these areas, quoting as an example, Malaysian Vision Valley, a 108,000ha development extending from Nilai to Port Dickson in Negri Sembilan.

He notes that developers have been buying up land in these areas at affordable prices like RM15 to RM25 per square foot compared with several hundred, or even several thousand, ringgit they would have to pay for land in the Klang Valley or KL.

At such prices, he points out, developers can actually build affordable houses of say 1,600sq ft to 1,800sq ft, which are reasonable sizes for families, and which are in such high demand.

“But instead of doing that, one of the things I find a bit funny is that developers have been building huge homes of 2,500sq ft to 3,000sq ft.”

Doing the math, Gambero points out that a 1,600sq ft house selling at RM300 per square foot would come up to RM480,000, but a 3,000sq ft house at RM300 per square foot would cost a whopping RM900,000.

“So unfortunately, developers have again brought the end house price to an unaffordable level!” says Gambero who is the CEO of the REI group of companies and who is an Italian expatriate who has been in Malaysia for almost two decades.

He has been doing extensive research on per capita income, household income, and the value of affordable homes in both Selangor and KL, which represents one-third of the country’s population and says that, “If you get it right here, then you can replicate it in other areas”.

He breaks the figures down into categories.

There is this ‘huge disconnect’ between what’s being built and what people can buy, yet developers ‘defy gravity’. - Ahyat Ishak

For Selangor, he estimates the need for low-cost houses is relatively low as only 8.2% households need houses that costs RM120,000 and below, while the figure in KL is 6.2 %.

The majority of households (63.6% in Selangor and 61.6% in KL) can afford houses priced between RM260,000 and RM600,000 (see chart for break down).

Gambero notes that only 15.4% in Selangor and 16.3% in KL can afford houses above RM500,000 up to a maximum of RM700,00.

“But if you look at what the big property guys are offering, most of the houses are above RM600,000. It doesn’t make sense,” says Gambero.

And, he points out, banks are no longer providing 90% financing for these huge houses because of overpricing.

“Banks are not stupid. They have been doing their homework and they have been coming up with the same conclusion that I have been coming up with, which is that there is going to be an oversupply of big homes and you (developers) are not going to clear your stock.”

Gambero points out that in the last three to four years, more than 60% to 65% of the supply of houses that developers built have been directed toward the top 20% of Malaysians who hold 40% of the country’s wealth.

“These are the people who can afford to buy whatever the market is throwing at them.”

But what about the rest?

You don’t hear of prices dropping. Because demand is 10 to 20 times higher than the supply of homes. - Dr Daniele Gambero

Prices won’t drop

Adrian Un has been involved in a number of property launches.

And he says that it is not true the property sector has been lacklustre.

One has to just look at all the pictures on Facebook and other social media sites to see that there are still a lot of people queuing up to buy properties.

“These are actually people queuing up to buy. I have seen huge numbers placing their cheques to buy. Whether they are first time buyers or not, we don’t know. But the situation is not as bad as being portrayed in the media or as claimed by the developers.

“The buying sentiment for units costing from RM300,000 to RM800,000 is still pretty much positive,” says Un who is the CEO and cofounder of Skybridge International, a property education and investment company.

But with everyone saying property prices are now sky-high, are there still properties out there going for RM300,000 or RM400,000?

Un says developers have been building small shoebox units of about 450sq ft to 600sq ft to entice Gen Y people to enter into the property market. These are priced between RM300,000 and RM500,000 and are often near the LRT and other amenities.

“So even if it is RM700 per square foot, a young graduate earning RM3,000 calculates it based on his affordability to pay the instalment. So he sees it as being quite affordable because the absolute entry level is RM400,000.

“A lot of the Gen Y have been on a learning curve on how to be a millionaire.

The Gen Y see owning a property as an investment. It also gives them bragging rights. - Adrian Un

“They are starting off early to be financially free and see owning a property as an investment. It also gives them bragging rights,” he says.

So these small units are still very much in demand and selling, he says, even though the rental might not be enough to cover the loan instalment.

“It’s already happening now. Demand for these units (to rent) is not big in numbers. Buyers would have to lower their expectation on the rent. So over the next one or two years, it is going to be a renters’ market. And it still boils down to location – if you are within 12km to 15km of the city, and there is a good infrastructure hub with the LRT and amenities like a shopping mall and hospital nearby, I don’t think it will be that bad,” he says.

It is the higher end properties priced at RM1mil and above which are struggling, says Un.

He says sales for these have been slow because many investors have already chalked up a lot of loans over the last four to five years for properties, so it is not as easy to secure more financing to buy another.

For Un, it is the secondary market that is going to struggle next year.

This is because there is a mismatch of perception between owner and buyer: the owner is positive the price of his house, even though it might be old, has climbed substantially but the buyer will not be willing to pay that price because he has an alternative to go to, which is the primary market to buy a new house.

Un agrees that banks are very careful when giving out loans these days. Instead of one valuation quote for the property, he says, most banks now demand for quotes from two valuers. “Valuers are very cautious. They are professionals, so I don’t think they are willing to give the offered price for a new housing area that has just been completed.

“Once a house is completed and the seller asks for a sky high price, the valuers will not justify his asking price.”

But says Un, even with the mismatch, the price of landed semi-detached properties and bungalows will not drop.

He reckons to have bought a house priced at more than RM1mil, the buyer would need an income of at least RM15,000 a month to qualify for the loan, and logically the buyer would have to be at least 28 years old to earn that kind of money. So at that age, he says, the buyer would probably have understood how borrowing costs work before making the purchase and would have the holding power.

“He will hold it until the market recovers,” he says.

Optimistic about the economy

Two weeks ago, Budget 2016 was tabled in Parliament.

With regards to housing, there was no change in the measures already in place to curb property speculation, such as real property gains tax (RPGT) rates and prohi­biting developers from offering the Developers Interest Bearing Scheme (DIBS).

For Un, there was not a single exciting thing for the housing industry in the budget. But this is not unexpected, he says, because the industry was not anticipating any freebies or goodies anyway.

He says the measures implemented over the last two years have “somewhat worked” to cool down property prices “a bit”.

“For the government to do away with the RPGT or actually come back to DIBS now will create some kind of uproar among the public.

“I don’t think they want to be in the bad books of the public,” he says.

So naturally, he says, “affordable housing” was the main property sector element in the budget, devised to please the people.

Ahyat, however, has a more upbeat take on Budget 2016 for the housing sector.

He says while there was nothing big for the housing sector itself, there are huge plans for development and infrastructure.

He loves that RM5bil has been allocated to develop Malaysian Vision Valley and that RM7bil has been earmarked for developing a KL International Airport “Aeropolis”.

He feels “vindicated” that RM11bil is being pumped into Cybercity Centre in Cyberjaya because, while other investors shy away from Cyberjaya, he is one of the few who see potential there.

For him, the MRT II Sungai Buloh-Serdang-Putrajaya line coming up, which will be completed in 2022; the LRT 3 line from Bandar Utama to Johan Setia, Klang, which will be ready in 2020; and the KL-Klang Bus Rapid Transit (BRT) are exciting. There are also plans to build new hospitals and upgrade airports, he points out.

He says these are clever ways to spur growth, although it does not solve the massive problem of spiralling house prices and income levels that do not rise as fast to keep up.

“The budget is not a magic tool to fix problems. It is the Government’s forecasted expenditure,” he says.

Ahyat says he likes to “sniff” at the direction of development.

“I follow the infrastructure and investment. The moment they talk about billions in development, I stop, take a look and follow the money (to invest).”

Gambero’s first impression when reading Budget 2016 was that it was like an “economic crisis budget” where “you keep low, try to find shelter, stay put and wait for the next year to pass”.

But after reading through it for the third time, he finds it a “pretty decent” populist budget.

It is good, he says, that Sabah and Sarawak are getting funds to complete their long-awaited Pan Borneo highway, and that there are incentives, subsidies, and tax exemptions in the budget that will put more money in the pockets of the people.

“Increasing the welfare of the bottom 60% of the rakyat will definitely spur, in the medium term, the housing market. They might find enough money to buy a long-awaited home.”

Gambero sees the Malaysian Vision Valley development as “just the opening chapter of a totally new history of infrastructure for the southern corridor” and he loves the BRT because, unlike trains, buses are flexible and can go anywhere.

For him, Malaysia’s economic fundamentals are in the right place.

He says the GDP is quite steady although this has decreased a bit, the unemployment rate is still very much under control, foreign reserves are still very high, the economy is still developing, and the current account balance is still positive even though crude oil prices have dropped.

He says most international agencies have given Malaysia a positive outlook even though Malaysians themselves like to “cry and look down on the country”.

“The worst thing right now is the political instability. That is not a small joke.

“We have this political uncertainty about the future. A lot of laymen are asking ‘what if’ and ‘what comes next’ and saying that ‘if the Opposition takes over, the country will be a mess’, and ‘if Umno keeps ruling the country there is a big question mark about the future’, and ‘who is going to rule Umno? Do you choose someone based on loyalty or capability?

Despite all this uncertainty, Gambero remains optimistic about the economy.

“We have to take shelter for the next three to six months, but some shy signs of recovery are already visible.

“It will be more visible after Chinese New Year. The general feeling is that after the Chinese New Year, consumer confidence will begin rising and the housing sector will start moving ahead again.”

He says Malaysia’s under-supply of houses is still high compared with general demand.

He points out that even though developers have been experien­cing negative sales in the last few months and that there are a number of uncompleted sales with buyers pulling out because of uncertainty and perception, developers are still not dropping prices.

“There has been a big fall in the number of transactions in property this year but prices are still stable. You don’t hear of prices dropping. Because demand is 10 to 20 times higher than the supply of homes.”

He reckons Malaysia has at least another seven to eight years of a “sparkling” property market.

By Shahanaaz Habid, The Star/|Asia News Network

Penang property in steady demand, will the housing market facing a glut?

Investment-friendly: A file picture shows visitors at the recent Star Property Fair in Penang. Affin Hwang believes that property developers with land bank and established presence in Penang will benefit from rising property demand.

PETALING JAYA: An increasing population in Penang coupled withlong-term property demand will be supported by major projects driven by public-private partnerships (PPPs), according to Affin Hwang Capital Research.

Among the PPP projects, the largest being the RM27bil Penang Transport Master Plan (PTMP), could be awarded by September. Singapore’s Temasek Holdings also has a proposed joint venture with Penang Development Corp (PDC) to develop an RM11.3bil business process outsourcing centre and an international technology park.

The research house said in a report that its top stock picks for infrastructure and property exposure to Penang were Gamuda Bhd, IJM Corp Bhd, and Eastern & Oriental Bhd (E&O).

It said the Penang government had pushed for the economy to move up the value chain by encouraging knowledge-intensive and innovation-led manufacturing and services.

“Property development companies such as E&O, Eco World Development Group Bhd and Ewein Bhd are embarking on new large-scale mixed development projects in the state with total gross development value (GDV) of RM60bil,” it added.

E&O has the highest exposure to Penang with property development projects in the state comprising 77% of GDV totalling RM34bil. The multi-billion ringgit PTMP has seen keen interest, with six consortiums submitting bids to be the project delivery partner (PDP) while Affin Hwang Capital understands that discussions for the joint venture with PDC were in the final stages.

“The joint development agreement is expected to be inked in July or August. Work on the BPO Prime is expected to start in the first quarter of 2016.” The entry of Temasek would also attract more Singapore companies and other foreign investors to Penang.

“We believe Gamuda will likely be appointed the PDP for the project. Also, being one of the largest contractors in Penang, IJM Corp is expected to win a substantial portion of construction work for the PTMP,” it said.

“The Penang government also managed to convince Hewlett-Packard to choose Penang as the location to set up its new RM1bil manufacturing facility instead of Iskandar Malaysia.”

The plant would produce high-speed inkjet printer heads for the global market.

A ready pool of skilled workers out of a total workforce of 797,700, developed infrastructure, established information technology eco-system, and consistent and investment-friendly state government policies could be the reasons why Penang continue to be attractive compared with Iskandar Malaysia.

The island’s popularity with tourists, diverse culture, historical attractions, beautiful coasts and famous cuisine were added attractions.

“We believe property developers with land bank and established presence in Penang will benefit from rising property demand in the long run.

“Job creation from rising investments in industrial and service sectors should support population growth from organic expansion and inbound migration,” said Affin Hwang Capital Research.- The Star/Asian News Network

The housing market in Penang today

With an abundance of newly built high-rise condominiums, is Penang facing a property glut?

Malaysia’s population crossed the 30 million mark in February 2014. According to the Population and Housing Census 2010, about three in 10 people fall in the 20-40 years old age group – the one most likely to be firsttime home buyers. By 2020, that group is projected to grow to 11.3 million. In Penang, the current estimate for this age group is at 0.6 million, or 36% of the state population. The average property price in Penang currently stands at RM336,521. Even with the 50% stamp duty cut, middle-income earners with two dependents can only afford houses priced at RM300,000 and below [1], and looking at the current national average price for all types of properties, RM300,000 is well below the average (Figure 1).

Besides increasing prices, public concern is on whether or not the property market is overheated; many suspect that currently there is an oversupply of properties, especially in Penang. The current existing stock of residential properties can house more than six people per household (Table 1), and as smaller households are the global trend for developed and developing countries, statistics indicate that there is still a growing demand for housing.

Source: The Malaysian House Price Index Q1-Q2 2014, National Property Information Centre (NAPIC).

To meet market demands and expectations, a steady addition of incoming and planned supply to the existing property stock in Penang is still expected in the near future. Based on the population projection given by the Department of Statistics for Penang (1.75 million in year 2020), Malaysia Property Incorporated found that there is an oversupply of about 45,000 units this year and 22,000 units by 2020 [2], assuming that the average household size stays at 3.98 people and housing supply stops after 2015.

A growing demand for housing with a potential oversupply of properties sounds contradictory enough, begging the question: will the potential glut be for a certain type of residential property, and are the right kinds of properties being built in the right areas?

Whither the low-medium cost housing?

On Penang Island, the most densely populated district is in the north-east; the area encompassing George Town, Jelutong, Air Itam, Gelugor, Tanjung Tokong and Tanjung Bungah still remains one of the most sought-after places for property. Despite limited land spaces, incoming and planned unit supply to this district has seen no sign of abating.

However, in recent years, the south-west of the island, where the airport and the industrial area are located, has become the hottest investment spot for bigname developers. The highest growth of property supply on the island is expected to be in this area, with the likely addition of 17,518 incoming units (33.3%) and 17,058 planned units (32.4%).

Source: Property Market Report First Half 2014, NAPIC and own calculation.

On the mainland, the more populated central Seberang Perai (SP) is expected to see more new housing units in coming years, compared to north and south SP. The opening of the Second Penang Bridge and the announcement of a series of development projects in Batu Kawan, including IKEA and branch campuses of University of Hull and KDU University College, certainly give south SP a huge appeal for future housing development. So far, the housing demand there has not jumped markedly. However, as a prelude, following the announcement of the projects, land prices in south SP skyrocketed to between RM50 and RM60 per sqft, compared to previous prices of RM8 to RM9 per sqft [3].

Within the high-rise category, there is a trend of developers preferring to build higher value condominiums (Table 3). In coming years, especially on Penang Island, a higher proportion of new highrise units will come from condominiums. Although the construction of low cost flats is emphasised by both the federal government and the Penang state government, the supply of such units is slow and short in coming – at just half the number of the future supply for condominiums. The future supply of medium cost flats also cannot catch up with the supply rate and units of condominium, indicating that condominium sales seem more profitable for developers and that there may be an oversupply of higher value high-rise units in the near future.

Probably as the result of an influx of affluent local or foreign buyers, the supply for bungalows (detached) units has increased significantly. Service apartments have also become a new niche in the property market; the number of service apartment units is expected to double.

Source: Property Market Report First Half 2014, NAPIC and own calculation.

The island factor
Penang Island’s attractiveness as a place to invest or settle in can be seen from its property prices; one condominium unit on the island normally costs more than twice or thrice that on the mainland. The same goes for the price of landed properties (Table 3).

Although this tendency is likely to persist for some time, the number of residential property transactions slowed down on the island for the first three quarters of last year whereas property sales in SP were generally unaffected (Table 4). Due to market-cooling measures – i.e. the introduction of more stringent real property gains tax (RPGT) and maximum loan-to-value ratio for individual and non-individual borrowers – laid by the federal government and Bank Negara to curb property speculating, the upward price index trend for both landed properties and high-rise units slowed down significantly for the first half of 2014. Given that the number of sales was also at a lower level in the third quarter compared to the previous year, property prices on the island for the latter half of 2014 were probably stagnant.

Source: Residential Property Stock Table Q2 2014, NAPIC.

With the implementation of the goods and services tax (GST) on April 1, firsttime home buyers may rush to make property purchases in the first quarter of 2015 to avoid paying the incremental cost. Although residential properties fall under the “Exempt Rated” basket of goods, property prices look set to increase due to the inflation cost of construction materials. According to a market survey, developers are facing ever higher compliance costs. Therefore, it is unlikely that house prices will drop this year when higher inflation is expected. Meanwhile, the “Youth Housing Scheme” announced in Budget 2015 may encourage young families from lower and middle income groups to make their first home purchase. Under the scheme, those who qualify and are selected will be given RM200 monthly financial assistance by the federal government to pay the loan instalments, 50% stamp duty exemption on loan and transfer agreements as well as 100% loan financing.

Source: Residential Property Stock Table Q2 2014, NAPIC.

Old is gold
Interest from investors in George Town’s pre-war heritage properties has never been greater since the city was inscribed as a Unesco World Heritage Site in 2008. Under the draft of the George Town Special Area Plan, there is a total of 4,665 buildings located within the core (50.2%) and buffer (49.8%) zones. Given the immense potential for capital appreciation or gain from investments, these heritage properties are in red-hot demand. With the booming tourism in George Town, many investors have transformed old, neglected heritage shop houses into boutique hotels or commercial premises.

Before the repeal of the Rent Control Act in 1999, there were very few transactions and the price index did not move much for properties situated within the conservation zones. Since then, the compound annual growth rate for such properties from 1999 to 2013 was at 12.7% [4]. For the first half of last year, the average price for pre-war properties in George Town registered a new highest record at RM1,300 per sqft.

Source: Henry Butcher Malaysia (Penang) and NAPIC.

Similarly, the number of pre-war property transactions also soared especially after 2008 (Figure 2). However, despite the new highest record of average transaction price, there were fewer property transactions last year; the Penang Real Estate Market Research Report on pre-war properties published by Henry Butcher Malaysia (Penang) [5] suggests that the prewar heritage property market has more buyers than it has sellers due to a limited supply of good listings. Because of this, the pre-war property market price could be very much distorted. For example, in March 2012, a 2,000sqft shop house along Lebuh Pantai (considered a prime heritage area) was sold at RM4mil (or RM2,000 per sqft) [6] – an isolated case but way above the average market price nonetheless.

Since the number of pre-war heritage buildings in the historic George Town is fixed and more than a thousand of such properties were transacted since 2008, the proportion of “sellable” properties in the market will shrink by year while market demand for such properties remains high. Hence, it is reasonably expected to see even steeper transaction prices and fewer transacted pre-war property units in years to come.

 By Lim Chee Han
Lim Chee Han received his PhD in Infection Biology from Hannover Medical School, Germany. He is a senior analyst in the economics section of Penang Institute.