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2019 Q4 RECOVERY FOR SABAH PROPERTY?

Asian Property Review talks to Chew Sang Hai, SHAREDA president (2019-2021) on the Sabah property market.

Q1 2019 has been said to be challenging. How has it turned out so far as we enter 3Q2019

After the 14th general election held on 9th May 2018, Sabah made history in changing to a new government (WARISAN/PAKATAN HARAPAN). It was a challenging year to wait for the new government to announce their new Budget and subsequent new policies for 2019.

In 3Q2019, the international world economy is not foreseen to be favourable. Challenges that affect the real estate market include volatile commodity prices, the Sino-American trade war and stagnant domestic economy. The trade war has caused much anxiety amongst developers as property investors constitute about 70 per cent, while only 30 per cent are actual homebuyers. Whenever investors hit their brakes, real estate transactions would come to an abrupt halt.

Kudos to the new Malaysian government’s initiatives to bring back several stimulus packages in the National Budget 2019. This has boosted the economy in the country by giving stamp duty exemptions in instruments for transfer and loan agreements, discounts by developers, etc. These were applied in the sale of residential properties valued from RM300,001 to RM2.5 million during the National Home Ownership Campaign (HOC) 2019 from 1st January 2019 to 30th June 2019.

HOC 2019 is piloted in collaboration with the housing developers’ associations in Malaysia, such as the Real Estate And Housing Developers’ Association (REHDA), Sabah Housing And Real Estate Developers Association (SHAREDA) and Sarawak Housing And Real Estate Developers’ Association (SHEDA). It aims to revitalise the real estate industry during this subdued period and has been well received by homebuyers.

As at 30 June 2019, HOC 2019 in Sabah has 32 developers registered with them for 42 projects involving 4,062 units totalling RM2.2 billion. Out of this, about RM382 million of 679 units for both landed and strata units were transacted with the sale and purchase agreements signed.

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SHAREDA members participating in this HOC also gave attractive packages and discounts or rebates to their homebuyers for the purchase of residential units on top of the stamp duty exemptions given by the government. The last HOC incentive given by the government was carried out after the financial crisis hit the property market in year 1998 till 2001.

Under the HOC 2019, a house priced between RM300,001 and RM2.5 million purchased from a developer registered with SHAREDA or REHDA or SHEDA gets a discount or rebate of about 10%, stamp duty exemption of 100% which is limited to the first RM1 million of the house’s value and the remaining value is subject to a 3% rate

There is also a 100% stamp duty exemption on the entire loan agreement. There is no limit in the total number of units purchased by first time homebuyers and all Malaysian citizens during the 6-month period from 1st January to 30th June 2019. It has now been extended to 31st December 2019.

We are hopeful that the HOC will increase the affordability in pricing for the home seekers and encourage home ownership throughout the country. With attractive packages/incentives offered by developers, we hope this will ultimately reduce the overhang of residential property. Housing loan approval rate is higher and sales have moderately recovered at the end of 2018 as shown in Q4 by NAPIC.

Table 1: Sabah – House Price Index 2017 & 2018

Source: NAPIC

Q2 Is there a serious mismatch between prices of property and income levels in Sabah? If yes, what are the causes?

The price of property is determined by market force, supply and demand while the income of people depends on the standard of living. In the private sector, the developer builds houses based on demand and market forces. It is beyond the developer’s control to build according to the threshold price based on the income index.

Other contributing factors are the high cost of living in Sabah; being one of the lowest income residents compared to other states in West Malaysia.

Table 1 indicates that the price of property escalates faster than income level. Hence, there is a mismatch made up of high demand for property versus slow growth in income level which creates a gap in buying houses in Sabah for 2017/2018.

Q3 Do you have data of price changes since a year ago (1st half 2019 (projection) compared to 1st half 2018? Have prices trended higher or lower? How about rentals?

The pricing starts to recover in 2017 and 2018. Rental is lower while pricing is stagnant.

Q4 Where do most transactions take place and why?

Most of the transactions take place in the West Coast due to higher income salary earners there.

Q5 What types of properties are most in demand?

Strata types are most in demand as the selling price is much lower than landed property. Despite that, single or double storey terraced houses are also in demand for those who prefer landed properties.

Q6 What are the demographics of most buyers?

Most buyers are from the West Coast such as Kota Kinabalu, Inanam, Penampang, and Likas.

Q7 How much percentages of transactions involve foreigners?

Based on the MM2H 2018 statistics, transactions involving foreigners comprised only about 2%. China takes the lead in buying the most properties in Sabah, followed by South Korea and Japan.

Q8 What is the outlook for the market in the 2nd half 2019?

2019 is a very challenging year and it is a continuation of the challenges brought forward from 2018. Developers are still encountering difficulties in sourcing for business loans or bridging finance. Therefore, there is no improvement of end financing due to the ongoing tight lending policy by banks.

This year, the property market will see a continuity of the increase in property overhang in Malaysia especially in Selangor, Penang and Johor. However, Sabah is experiencing stagnant growth in overhang property due to the reduced number of new launches, and Sabah only constitutes about 2% of the total national overhang value.

Notwithstanding the above, the real estate sector is the biggest beneficiary of the National Budget 2018. The Federal Government had approved the stamp duty exemption for any sales which are transacted during the Home Ownership Campaign. It also gives partial exemption to the stamp duty exemption to residential properties transacted from 1 January 2019 to 31 December 2020 for first time home buyers in respect of residential properties below RM300,000.

This amount was subsequently increased to not more than RM500,000 per unit transacted from 1 July 2019 till 31 December 2020.

With the above new measures, stabilisation of the world economy and improvement of the domestic market, SHAREDA would expect the real estate market to recover in the forthcoming Q4 of 2019.

In the past one year, SHAREDA found that one of the main factors affecting the property market is the poor credit rating of buyers. Therefore, SHAREDA had engaged a boutique financial adviser to explore the feasibility of establishing a RENT-TO-OWN (RTO) special purpose vehicle (SPV) company

Q9 What are the catalytic projects that can drive more investments into the Sabah property market?

Hotel tourism is one of the mega or catalytic projects that can drive and draw huge investments into the Sabah property market such as building more 4-Star to 5-Star hotels like the Centric Hyatt Hotel, Hilton Kota Kinabalu, Marriott Kota Kinabalu Hotel, Mercure Kota Kinabalu Hotel and the new trend of AirBnB.

Long term investment in buildings is developed by hotel owners. Other developers will build hotel apartments at affordable prices for the mass market based on AirBnB concept to generate higher revenue [for the owners]. Examples can be found in the newly launched projects such as Bay21 Suites in Likas, Jesselton Quay, The Crown Kota Kinabalu, etc.

Today, there are more and more upcoming developments comprising high-rise buildings beautifully designed or blending well with the beautiful surrounding environment. Examples are developments by Hap Seng Properties Development Sdn Bhd, Sinaland Sdn Bhd, Wah Mei Holdings Berhad, etc.

There are also a few iconic buildings like Jesselton Twin Towers, Bukit Bantayan Residence, Coral Bay @ Sutera, and others built to drive more investments into the Sabah real estate property market.

Q10 How does a higher tourism arrival translate into more property sale transactions?

Due to the higher tourism arrivals, developers are focusing more on the AirBnB business model in order to generate income.

Table 2: Sabah – House Price Range (RM)

Note: The housing price range shows an increase in every quarter since 2017. Source: NAPIC

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