The number one state for tourism in Malaysia is counting on more tourist arrivals and dynamic government policies to stimulate its stagnant property market.
My GRAB driver in Kota Kinabalu, a West Malaysian who is based in Sabah for the last 20 years due to her husband’s work, told me that everything in Sabah costs more than in West Malaysia except for GRAB rides and seafood. The rides are practically RM5 to every destination in downtown Kota Kinabalu (aka KK, Sabah’s capital city) and between RM7- RM11 to the Kota Kinabalu International Airport.
I had to agree with her – coming from West Malaysia, I noticed the gap in pricing much more acutely. I could have had everything cheaper in Peninsular Malaysia; even Malaysia’s capital Kuala Lumpur has many coffee shops that sell food and drinks cheaper than in KK.
Thus I empathise with the residents; they have among the lowest income per capita among all the states in Malaysia yet prices are higher than the rest of the country due to the need to import many items from West Malaysia including necessities like construction materials such as tiles, bathroom fittings, roofing and machines, stationery, IT and other technical equipment, etc. Due to its relative remote location on the island of Borneo, transportation charges have added up to the prices tremendously.
By all accounts, Sabah is a rich state due to its abundance of natural resources and attractions. Surrounded by a beautiful coastline, it is also rich in flora and fauna, mountains, rivers and even has Malaysia’s only Friesian cattle farm producing milk for local consumption.
Sabah is also home to the highest peak in Southeast Asia, Mount Kinabalu (4,095m) and its islands such as Sipadan and Mabul have been rated as some of the top diving spots in the world.
Tourism as such is one of the top draws in Sabah with visitor arrivals growing in numbers at 4% per annum over the past 10 years. Not surprisingly, tourism properties have done well despite the overall overhang situation.
In fact, many experts believe there is potential for more upscale resort hotels because the existing ones have been enjoying 80% occupancy. “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, and Mercure Kota Kinabalu Hotel,” says Chew Sang Hai, Sabah Housing and Real Estate Developers Association (SHAREDA) president (2019-2021).
A trend now in KK is to use the AirBnb platform to rent out short term to tourists as it is seen as more lucrative than renting out long-term. AirBnb strata properties have been doing well so much so that some developers are building 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, and The Crown Kota Kinabalu, according to Chew.
Amid the hype about AirBnb, one young operator who declined to be named reveals that not everything is rosy. “Some days in slow months, my expenses are higher than my income,” admits the entrepreneur.
EK Lee who runs several AirBnb units says most of her guests are from China followed by South Koreans. Each room costs about RM200 per night. Despite that, she too reveals that during slow months, it’s a struggle.
As in many other countries which are popular with the Chinese from Mainland China, Chinese developers are setting foot in Sabah
building apartment units for sale mainly to their own countrymen. The Chinese after all make up the largest number of arrivals in Sabah, followed by the Koreans. The Koreans have their own street in KK which offers the usual services like restaurants, karaoke bars, and provision shops.
Recently, 12 Memorandums of Understanding (MoUs) valued about RM20 billion were signed with various parties in China covering the education and industrial sectors, including glass, furniture and property development.
The Chinese presence with their big spending is making a significant impact in Sabah as in elsewhere in the world; even the natives have learnt Mandarin to cater to the hordes of Mainland tourists. Stalls which traditionally only accept cash, are even accepting cards for payment since that’s how all Mainlanders are used to paying with for whatever they buy. The durian sellers at Segama Street aka Durian Street, and the Filipino traders at the Filipino market are also adept in Mandarin greeting any Chinese-looking visitor with fluent Mandarin
Foreigners are not big property purchasers, currently making up only about 2% of all buyers in Sabah and properties they purchase are over RM1 mil, the minimum purchase price set for foreign purchasers. For condominiums, the percentage is higher ranging between 5-10%, says KL See, CEO of Metro Homes Realty Bhd.
Kashif Ansari, CEO of IQI Group, a Dubaibased real estate investment company now known as Juwai-IQI after a merger recently, confirmed that a majority of purchasers are Malaysians. Since setting up in Sabah a year ago, IQI has seen quite good sales in KK. “We work with most developers in KK and they are happy for us to handle their marketing on an exclusive basis. We target local buyers initially as we need to build trust and credibility first before we market to foreigners.”
Another West Malaysian import is Gamuda Land which made its first foray in Sabah in 2016 with a three-block condominium about 12kms from KK, Bukit Bantayan Residences. According to sources, all three blocks are expected to be completed by 2020. Over 95% buyers are locals with prices of the 99-year leasehold units starting from RM420K each.
That, according to a local, is still considered pricey for the average Sabahan, who feels that anything over RM350,000 is considered unaffordable. This is because of the state’s low salary level for a majority of wage earners. Added to that is the difficulty of obtaining financing under the present lending policy.
KK currently has an estimated 10,000 condo units and has a substantial incoming supply of 1,200 units this year and 2,400 units next year. However, the overhang situation is considered insignificant compared to other states in Malaysia. A number of experts even predict the market will see an uplift starting as early from Q4 onwards. Citing the attractive packages/ incentives offered by developers, the rebates offered under Home Ownership Campaign (HOC 2019), as well as the improving domestic market, Chew predicts that the recovery could begin as early as Q4 2019.
The perennial call to the government to attract investment to spur business activities and help generate more income for the people to achieve a better living is still ongoing.
Meanwhile, market watchers are unanimous that tourism and government drivers will help boost the property market in Sabah. The muchanticipated Pan Borneo Highway project in Sabah has reached almost 13% completion as of February 2019 and is touted to open up new areas in Sabah for development.
This will reduce prices of land as more infrastructure like road, water and power will ease transportation difficulties thus allowing greater accessibility for people, goods and other facilities. This will increase competition hence help to reduce prices of houses.
Increased connectivity of air flights among Asian countries like China and Korea is also expected to bring in more tourists, thus raising the demand for tourist accommodation.
Another catalyst is the upcoming RM5 bil KK Resort City in Lokawi which will have hotels, shopping and recreation centres, says Metro Homes See. KK already has several upmarket shopping malls like Imago which is just like another Kuala Lumpur mall transplanted in KK except for a few unique shops such as The Heng Chinese coffee shop, etc. The well-positioned and well-managed mall is currently the top mall in Sabah and is frequented by both locals and foreigners. It remains to be seen how more upcoming malls will perform given the relative glut.
In summary, Sabah’s continued progress rests very much on government policies and its implementation as well as its partnership with the private sector. The tourism sector will also receive a boost if public transportation and infrastructure can be improved. The increased number of tourists could also translate into more investment into the state as some of these tourists decide to stay in Sabah for the long term. The Korean street is a good example which saw investments coming in from Koreans who fell in love with Sabah and wanted to stay long term.