Local Consultants’ Poll: Market to consolidate in 2014

The property market was fraught with challenges in 2013, according to consultants polled by City & Country. Developers, sellers and buyers played the “wait-and-see” game prior to the 13th general election. Transaction values and volumes in the first nine months shrank from the previous corresponding period as a result (see Table 1).

Even though the market shrank, some launches performed well. As expected, these launches comprise landed homes in the prime suburbs or fringes and smaller units in sought-after localities.

The aftermath of the election did not bring much clarity and relief as pressure mounted on the government to enable potential homeowners priced out of the market to buy homes, either by introducing affordable units or bringing prices down. While the market picked up around June, the Budget 2014 announcement in October dampened the market.

Affordable homes and infrastructure were 2013’s key themes. Under Budget 2014, a raft of cooling measures was introduced to curb runaway prices in hotspots such as Kuala Lumpur, Penang and Johor.

Some of the measures include doubling the Real Property Gains Tax on property sales to 30% for the first three years, 20% in the fourth year, 15% in the fifth year and an exemption thereafter (for citizens and permanent residents), while imposing a 30% rate on disposals in the first three years by foreign owners and companies, and 5% thereafter.

Other rules meant to address the distortion of property prices such as the abolition of the developer interest-bearing scheme (DIBS), more transparency in developers’ sales packages and the use of net property values to determine loan-to-value ratios were also announced.

In Johor and Penang, a “consent fee” of 2% and 3% respectively will be imposed on transactions involving foreign ownership. Meanwhile, to address the supply of affordable homes, the government plans to jointly develop with the private sector 223,000 homes for the low- and middle-income groups. Private sector developers were also offered RM30,000 per unit to develop affordable homes.

Consultants largely lauded these moves to rein in runaway prices of selected areas, although it remains to be seen whether these moves will work in the long term.

Infrastructure projects, most notably the light rail transit (LRT) extensions and the mass rapid transit (MRT), still buoyed the Klang Valley property market. Some consultants noted that they created new hotspots and it was no surprise that properties with some measure of integration with the LRT and MRT enjoyed strong sales.

Over at Iskandar Malaysia, the numerous catalytic projects came into fruition and their spillover effects became more apparent, with no signs of the market slowing down.

Despite the mixed sentiments, however, a number of landmark deals were struck this year (see Tables 2 and 3). Meanwhile, significant projects were planned (see Table 4).

Next year, the market will likely be subdued as the various cooling measures instituted by the government coupled with other issues such as subsidy rationalisation and the new goods and services tax (GST) — from which residential properties are exempted — will raise construction cost.

The abolition of DIBS and other interest capitalisation schemes is expected to reduce the volume and value of transactions, especially in the primary market. Overall, the market is expected to consolidate, with some properties and locations expected to face price corrections.

The office market, however, is expected to face even stiffer competition from a number of mega-projects that are either underway or will commence soon.

City & Country asks property consultants for their outlook for the market for 2014 and their hopes going forward.

James Wong
Managing Director
VPC Alliance Malaysia

Outlook
In 2014, we expect consolidation in the property market. We foresee interest rates going up and continued tightening of credit, which will impact property market activities. Another factor is the glut and oversupply in many property subsectors.

We expect to see more affordable homes and properties near the proposed MRT and LRT extension lines will continue to be popular. The landed residential sector is expected to stay resilient with stable growth, especially properties within gated and guarded communities. Sales of residential property to foreigners will be slow due to new measures. Condominium transactions will slow down with a possible price correction.

There will be an oversupply of office space, especially in the city centre. New offices include 26 office towers in Tun Razak Exchange, 12 blocks of boutique offices in KL Eco City and the 118-storey office block called Warisan Merdeka. This could result in downward pressure on the occupancy rates and rentals. Older office buildings will be challenged as tenants relocate to newer buildings with similar rates. The oversupply will also put other developers who own small parcels in the city at a disadvantage.

It will be a challenging year for retailers due to consumers’ lower purchasing power due to the recent petrol price hike, proposed assessment rate hike in Kuala Lumpur, and continuation of subsidy reductions for fuel, sugar, electricity and other items and locals flying by budget airlines to shop in the neighbouring countries.

Hotspots within the Klang Valley are affordable homes, especially high-rises with small built-ups, within 1-5 km of LRT extensions or proposed MRT lines; landed properties in gated and guarded communities in Petaling Jaya, Klang, Puchong, Desa ParkCity, Sungai Besi, Sungai Buloh, Shah Alam, Subang Jaya, Kajang, Rawang and Gombak; and student accommodation in Cyberjaya, Semenyih, Subang Jaya, Seri Kembangan and Petaling Jaya.

In Penang, commercial hotspots include Tanjung Tokong, Tanjung Bungah and Bayan Baru, while residential hotspots include Batu Feringghi, Tanjung Bungah, Tanjung Tokong, Pulau Tikus, Batu Maung, Balik Pulau, Sungai Nibong, Bukit Mertajam, Nibong Tebal, Simpang Empat and Sungai Jawi. In Johor, Iskandar Malaysia will continue to be hot.

Wish list
• The government to review the proposed annual assessment hike in Kuala Lumpur;
• More affordable homes to be launched in KL, especially near or along the proposed MRT lines and LRT extensions;
• Implement a law to enable en-bloc sale of old buildings for redevelopment like in Singapore, and compel the minority owners to sell their units to the en-bloc buyer;
• Introduce more prefabricated housing systems to fast-track the construction of affordable housing; and
• Plan and implement an integrated public transport system for Greater Kuala Lumpur to get 50% of the public to use public transport by 2025

YY Lau
Director
YY Property Solutions Sdn Bhd

Outlook
With the foreseeable excess supply of office space, take-up of office space is expected to be relatively slow, especially in the CBD. Rental and occupancy rates are expected to face downward pressure as competition becomes increasingly intense.

However, new MSC status and green-certified office buildings in strategic locations are expected to have an advantage in securing tenants if the landlords offer reasonably higher rental rates than the buildings without such features.

The government has worked at attracting foreign MNCs to Malaysia by aggressively promoting the Economic Transformation Programme (ETP) and through “Invest KL”.

Investors in the office market need to take a longer-term view, as upside in the short term could be limited. There are still buildings that may draw more tenants as landlords can either upgrade them or offer reasonable leasing deals.

Greater KL, KLCC, KL fringes, decentralised areas and Cyberjaya are still attractive as main addresses for businesses. We foresee Johor Baru and Penang gaining more prominence going forward.

Wish list
• More concerted efforts to promote foreign direct investments;
• Better management of crime rates in Greater KL; and
• Clear and consistent government policies at the federal and state levels.

Jerome Hong
Managing Director
PA International Property Consultants (KL) Sdn Bhd

Outlook
In the Klang Valley, we expect more launches, especially landed residential units in fringe locations and upcoming suburbs, as land is scarce and expensive in prime areas. Launches near upcoming LRT extensions and MRT lines will likely comprise stratified residential/mixed-use components with smaller units.

In Johor, future growth will be fuelled by rapid developments in Medini, Nusajaya, Danga Bay, Desaru and Pengerang, the proposed Rapid Transit System, High Speed Rail and Rail Double Tracking from Gemas to Johor Baru, as well as catalytic developments in other sectors such as education, retail and tourism.

Overall, the property sector is expected to take a breather in 2014, impacted by the various cooling measures as well as state policies. While the volume of transactions is expected to decline further, property prices are expected to remain competitive, with growth seen in selected locations/property types, albeit at slower pace.

The rental market is expected to pick up in the short term, as purchasers are more cautious. However, in the long term, demand for residential homes will remain for those who want to own a home and/or seek long-term rental income.

On the primary market, investors should look at mixed-use developments linked to the transportation lines, especially units with good sizes that are competitively priced and have good leasing prospects.

On the secondary market, investors should look at stratified homes in established locations or popular suburbs that are still reasonably priced, have a good rental market and give reasonable returns. The locations include Taman Desa, Old Klang Road, Petaling Jaya, Subang Jaya and Mont’Kiara. Two- and three-storey shophouses in established or upcoming commercial precincts of popular townships and schemes will also enjoy a good rental market.

Despite the cooling measures, Malaysians looking to own or invest in properties are expected to continue to buy good products in strategic locations, as proven by the strong responses to recent property launches that contradict the so-called prevailing cautious sentiment.

As long as there is liquidity in the market and the low interest rate environment continues, demand for residential products will remain, albeit at a more muted level, as property is a safe haven, especially when the stock market is volatile.

The latest measures will further dampen market sentiment, both among local and foreign purchasers/investors. Hopefully, there will not be more drastic cooling measures. Instead, there should be more concerted efforts to attract foreign investments.

States such as Johor and Penang, however, are proposing an additional levy on transactions involving foreign property buyers on top of the sharp hike in RPGT rates. This will further dampen their buying interest as they look elsewhere, to where policies are more favourable.

Wish list
• The good progress of the on-going MRT work to continue; and
• More PR1MA and affordable homes to be launched to cater for growing demand from first-time homebuyers and those in the lower-income segment.

Tang Chee Meng
Chief Operating Officer
Henry Butcher (Malaysia) Sdn Bhd

Outlook
With the announced cooling measures, the market will soften in 2014. The value and volume of transactions are expected to decline. However, prices are unlikely to drop although there will not be a rapid price increase as seen over the past four years. This is because the drop in transaction volume was greater than the drop in value in the first nine months of 2013, so average prices did not drop as a result. We expect to see the same thing in 2014.

Landed residential properties are expected to enjoy stronger demand than high-rise residences and more developers will refocus some of their energies on the affordable homes market segment.

Investors should restrategise and look at areas with strong rental demand, as they should not be aiming for rapid short-term capital gains anymore. At the very least, investors would be able to enjoy a good cash flow to help cover their mortgage repayments while waiting for prices to appreciate to levels that will motivate them to sell.

Medini Iskandar would be a good target in Johor. In KL, safe bets would be future growth areas along major infrastructure projects such as stations along the Sungai Buloh-Kajang MRT line and new proposed highways, such as the Damansara-Shah Alam Highway, Kinrara-Damansara Expressway, Serdang-Kinrara-Putrajaya Highway and the Sungai Besi-Ulu Kelang Elevated Expressway.

Established areas near the city with good public transport and amenities and where prices have not yet reached stratospheric levels would also be good areas to look at. They include Cheras, Bukit Jalil and Wangsa Maju.

Wish list
• The government to adopt policies that recognise the differences between each state and different categories of buyers; and
• While banning DIBS is good for the property market in the long term, the government should consider giving first-time house buyers below a certain income threshold access to DIBS to make it easier for them to own houses.

Previndran Singhe
CEO Zerin Properties Sdn Bhd

Outlook
Kuala Lumpur and Penang will see an active market and prices will inch up further due to the lack of incoming supply to satisfy demand. Demand is fuelled domestically, driven by full employment, a positive GDP and growth in the economy. Johor will be flat for the first two months until the market adjusts to the 2% levy on foreign ownership. Then it will see activity again. Prices will remain stable in Johor Baru.

Where should investors look at? Kuala Lumpur, Penang, Nusajaya and Kota Kinabalu. Landed and freehold properties will be my theme for next year. Notwithstanding, I see tremendous opportunity in condos in KLCC, Damansara Heights and Bangsar as the MRT and LRT works there are mostly underway. However, I also think condos will thrive in Penang and Puteri Harbour, Johor.

Wish list
• The authorities to realise that the only way to control escalating prices is to increase supply by shortening the approval period and process as the cost of this is transferred to the rakyat, and that is why prices are increasing; and
• With the removal of non-sustainable subsidies, the government should now use some of the subsidies to help build affordable housing.

Nabeel Hussain
Associate Director
CB Richard Ellis Malaysia Sdn Bhd

Outlook
We expect activity in the residential market to slow in 2014 in response to the cooling measures introduced in Budget 2014. Projects that will perform well will be those located near new infrastructure projects such as MRT lines and those that are targeted at true occupancy demand.

The city centre office market should fare well, boosted by limited new completions between now and 2017.

Competition in the suburban retail market will continue to be strong, as a number of projects are scheduled to be completed over the next two years, and there will be pressure on discretionary income from the recent petrol and electricity price hikes as well as other subsidy rollbacks.

Within Greater Kuala Lumpur, well-located and well-conceived residential developments around new infrastructure projects (not just MRT/LRT extensions, but also new roads and highways) may be a wise bet. With the proposed restrictions on primary market sales, it is also likely that we will see greater activity in the secondary residential market, and this may be a good time to snap up undervalued existing properties.

Outside Greater KL, Iskandar Malaysia remains a popular destination, although it remains to be seen exactly what measures or changes the state government has in mind.

Wish list
• An MsC-type designation for new hotels in Malaysia, giving tax breaks, automatic visit passes (work permits) for approved migrant workers, and lower utility costs; and
• A genuine concerted effort to clamp down on unlicensed and unregistered agents with a few showcase prosecutions. This would involve widespread education of the public, the press and local authorities, with a special unit to be set up in the Commercial Crimes Division.

Samuel Tan
Executive Director
KGV International Property Consultants (Johor) Sdn Bhd

Outlook
Landed properties in choice locations will remain positive. However, there will be fewer transactions in the secondary market because of the real property gains tax. We may see an increase in transaction volume, as vendors would want to avoid the GST, which will be implemented in 2015.

Borrowing costs should not be raised too much or it will affect sales, and financing should not be too restrictive to have a vibrant 2014. Interest will still be on Medini Iskandar because of the incentives. I also predict that interest will widen to non-residential, industrial and land.

If the Eastern Dispersal Link is tolled, there will be some effects on properties in the Tebrau region, although it will not be significant. I also expect developers to innovate with new marketing techniques.

Investors should look at landed properties in popular locations, properties near the rapid transit system site that is to be announced soon, development lands outside the developed areas and projects by reputable developers, who will be building in phases, in order to enjoy the appreciation created by the developers.

Wish list
• Stable local and global financial markets;
• Consistent and long-term beneficial housing policies;
• The authorities should consult with stakeholders prior to the announcement or implementation of any policies; and
• Iskandar to continue to grow at a sustainable and healthy pace.

Michael Geh
Director
Raine & Horne (Penang)

Outlook
We see a continued contraction in the market due to declining transaction volumes and a tightening of credit. If you need to buy your first house or sell your house to upgrade or downgrade, do so. The secondary property market, which has a 70% share of total transactions in Malaysia, will be prominent in 2014.

Wish list
• More clearly defined key terms in real estate investment. For example, we must distinguish between first-time homebuyers, speculators and flippers. They should all not be lumped together under the term property investor!

Brian Koh
Director
DTZ Malaysia

Outlook
It is likely to be a challenging year for the property market, foreshadowed by the end of quantitative easing in the US, potentially rising interest rate, tighter credit, and pending completion of properties across the various sectors. A significant number of these properties may have been purchased on a speculative basis.

Neighbourhoods with a proposed MRT station and residential projects targeting owner-occupiers that are priced competitively should be able to hold their value in the long term.

Wish list
• An acceleration I the supply of more affordable houses by both private developers, especially the government-linked companies that have large land banks inherited from their plantation days, and Perumahan Rakyat 1Malaysia (PR1MA)

KH Chen
Managing Director
Landserve Sdn Bhd

Outlook
We believe the Malaysian economy will remain resilient, although rising household debt and inflation can be a concern. Thus, we expect the property market to soften in 2014 in response to the new cooling measures.

Nonetheless, such measures will not deter genuine homebuyers and investors with a long-term view. We have clients making transactions even in December, some of which are at record prices. Genuine property investors may be more cautious but they will never leave the property market.

As projects under the Economic Transformation Programme gain traction in 2015 and 2016, prices in hot areas are expected to rise sharply. That is why 2014 is the year to start looking and pick whatever “looks” good. But always be well informed. Consult your property consultants or estate agents.

We still like landed homes in the secondary market because it has not been influenced by undue speculation, unlike the primary market.

In the Klang Valley, we like houses or strata homes in established schemes near any of the proposed MRT stations such as those in Petaling Jaya, Bangsar, Cheras, Kajang and Sungai Buloh. Outside of the Klang Valley, we like landed homes in major cities and towns such as Rawang, Kajang, Bangi, Seremban and Melaka. Towns that will have a station on the proposed high-speed rail between KL and Singapore are expected to benefit.

In Penang, Tanjung Tokong, Pulau Tikus, Jelutong, Bayan Baru, Relau and Sungai Ara are good areas. For Sabah, Lintas, Kepayan, Tanjung Lipat, Luyang, Bundusan and Kolombong are our top picks. In Johor, we like established schemes in Molek, Tebrau, Bukit Indah and parts of Nusajaya.

We hope the economy will stay resilient on the back of rising exports, foreign direct investment into the country and strong domestic activities. Upgrading our country’s credit rating will be a plus. While we expect inflation to increase in 2014 following the subsidy cuts and the electricity tariff hike, hopefully, it will be contained below 3.5% so that there will be no major hikes in interest rates.

Wish list
• Our banks to continue to be supportive in funding property ownership;
• Unemployment rate will stay below 3% and there will be no massive lay-offs;
• Foreign investors to return in a big way as Malaysia transforms into a developed nation by 2020; and
• Affordable homes under PR1MA and other initiatives by the government can be rolled out as soon as possible to help the low- to medium-income groups, with priority being given to first-time homebuyers.


This article first appeared in The Edge Malaysia Weekly, on December 30, 2013.