Following the unprecedented freeze on approvals for shopping malls, offices, serviced apartments and condominium over RM1 mil in Malaysia, Asian Property Review finds out what lies ahead.
A spate of negative comments on the 2018 outlook of the Malaysian property market and the government’s temporary suspension of all approvals for new shopping malls, offices, serviced apartments and condominium projects above RM1 mil beginning Nov 1, had elicited varied responses from market experts and commentators.
A myriad of factors had converged to cast 2017 as possibly the worst ever year for the Malaysian property market. Tight controls in financing, capital controls from China, growing oversupply and negative sentiments have resulted in prolonged sluggish sales with very few exceptions.
Worse, citing more incoming supply, Moody’s Investor Service has even predicted the situation will worsen over the next 5 years with a sharp decline in prices. It predicts the large incoming supply of retail and office space will raise vacancy rates across Kuala Lumpur, Penang and Johor to about 30%. It also believes that suspending new property developments would not correct the oversupply situation over the next five years.
Now that all the bad news is out, could this mean 2017 has reached bottom and 2018 will be the turning point?
Some experts seem to think so.
Citing his earlier forecast that 2018 will be a good investment year especially for Kuala Lumpur City Centre, investment consultant Dato’ Sri Gavin Tee affirmed his earlier forecast that there will be some hotspots emerging in 2018. “2017 was the bottom; but we will see the market picking up in 2018. Although in general, the whole of Malaysia may experience slow sales, some hotspots throughout the country will see increased demand,” he told Asian Property Review recently.
In particular, he singled out 2 types of property that will continue to attract investors’ attention:
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1. Properties with global appeal which have been attracting foreign investments such as Tun Razak Exchange (TRX), KLCC and Bukit Bintang. These have high potential of appreciating from 2018 due to its low price relative to its regional peers. For such highend commercial properties, prices have reached the lowest point and are the lowest in the region, hence the potential for a rebound is very high.
2. The other type of properties are those that are functional and used for productive purposes such as Jack Ma’s Alibaba regional distribution hub (part of the Digital Free Trade Zone at Aeropolis KLIA), medical centres, educational and entertainment centres as well as tourism properties. These types of properties attract established world class brands.
In particular, Tee says the tourism sector is expected to see more arrivals due to strong encouragement from the government. Budget 2018 proposes to set up a RM2 bil fund for SMEs in the tourism sector as well as designate 2020 as Visit Malaysia Year. The current tourism hotspots such as Penang, Kota Kinabalu, Melaka and even Kuala Lumpur have a shortage of hotels and resorts; furthermore higher demand is anticipated within the next 3 years with a corresponding rise in prices.
Elaborating further, Tee says many tourism hotspots are also scattered nationwide and can range from a small jungle town to areas offering eco-tourism activities such as durian plantation tours and buffet, fishing and aquaculture.
“I strongly recommend investors to look into such areas which are currently under-invested. It may however require some expertise and a more proactive study to develop those areas into hotspots.”
On the recent freeze on luxury developments over RM1 mil, Tee opines that the ban should not be applied across the board.
“My personal opinion is that the high-end market in the right location is the future of Malaysia as long as our policies are pro-foreign investment. We have a shortage of high-end commercial properties that can cater to the global market.
“On the other hand, I forecast an oversupply of medium cost apartments (costing around RM500K), even in Kuala Lumpur. I foresee a huge number of completions or deliveries within the next few years, which will result in an oversupply in these areas.
Rentals will fall due to the oversupply resulting in instalment shortfall for the young owners. Having said that, in the longer term, medium cost houses will be in demand but there is a risk of oversupply if too many are built in certain areas.”
In summary, Tee says the blanket decision to ban developments over RM1 mil is made too hastily as the policy is made based on conventional research methods that have not kept up with the latest trends. “In a fast-changing globalised world where we see substantial changes taking place in a short span of time due to advances in technology, research in general is too slow to respond to market changes in terms of pricing and demand.
Stressing that the decision-making should be based on current and future trends – especially taking into account the upcoming infrastructure and advanced technology which can cause demand and supply to move very fast, Tee says property investment is very localised and must be looked at zone by zone and not on a blanket nationwide basis. “This is because supply and demand varies across localities and types of property.”
He adds that with new technology which will make transactions and pricing more transparent, trends and hotspots will be easier to spot. New trends such as ride-sharing, co-working and co-living will also change the demand and supply equation while the economic situation can also change very fast.
In a recent report following the freeze, Finance Minister II Datuk Seri Johari Abdul Ghani has said that his ministry will speak to Prime Minister Datuk Seri Najib Razak to grant approvals to high-end residential projects in selected locations, such as Kuala Lumpur City Centre, where land cost is high.
The Real Estate and Housing Developers’ Association (REHDA) has also urged the government to reconsider the moratorium, recommending that unoccupied offices and retail spaces should “re-purposed” to properties with strong demand.
Meanwhile, describing the government’s decision as a misguided move, Sarkunan Subramaniam, Managing Director at Knight Frank Malaysia opined that the freeze should be removed because even without the freeze, “the market has been self-correcting to find its equilibrium as developers are holding back and delaying launches, and also re-planning their products to cater to a changing market and buyers’ profile”.
Malaysian Institute of Estate Agents (MIEA) president Eric Lim has also reportedly said that the property market is expected to improve after the general elections (GE) are held. The GE must be held by August 2018.
The newly listed Sime Darby Property Bhd (SD Property) in its listing prospectus has said the market is expected to recover in the coming years as it is underpinned by solid socioeconomic fundamentals such as higher population, and stable GDP growth rates between 4.5% and 5% from 2017 to 2021.
From a Feng Shui perspective, Prof Joe Choo, President of the Malaysian Institute of Geomancy Sciences predicts that 2H 2018 will present a lot of good deals for investors.
There is also some speculation among oil analysts that oil prices may go up to USD80 per barrel in 2018. This bodes well for Malaysia as it is a major oil-producing country.