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Is The End Of The Great Malaysian Property Malaise At Hand?

By George Styllis

Malaysia is on course for a big 2018; one that will decide the fate of politics for the next few years, and possibly business too.

For an industry that has been in the doldrums for the past few years and struggling to adjust to a new rhythm of market forces, inertia is the last thing it needs; although the lull has bought time for reflection. Indeed, some optimism can now even be detected among the foreboding voices as the economy sticks to its path of solid growth and China flexes its economic muscle.

For three years now slow sales have become the new normal amid low affordability and large incoming supply. The luxury market, especially, has felt the pinch, with only the bravest developers bothering to launch new projects in the current climate.

In fact, following a warning by Bank Negara Malaysia that there is an oversupply of property due to aggressive launches in recent years, the government implemented a freeze on luxury developments last November in an effort to stabilise the market. But some experts believe this will not go far enough to shrink the gross oversupply.

“We believe the tightening measure, if implemented, will do little to resolve the grave issue of supply glut in the near term given that newly delivered properties have progressively entered the market,” AllianceDBS Research analyst Quah He Wei wrote in a January update.

The update adds that the total number of property transactions in Malaysia dipped by 4.3 percent in the first nine months of last year. This was mainly attributable to residential and commercial properties which account for 62 percent and 7 percent of the total transactions, respectively.

Moody’s Investor Service released a report shortly after Bank Negara’s that was equally gloomy, echoing the unlikelihood of a freeze correcting oversupply and predicting that as market valuation adjusts to reflect the lack of demand, it expects a sharp dip in property prices.

Moody’s found that Johor has the largest share of unsold residential units in Malaysia at 27 percent, followed by Selangor at 21 percent, Kuala Lumpur at 14 percent and Penang at 8 percent.  Many of these unsold properties were priced above MYR250,000 (USD63,670), the price line between affordable and non-affordable housing.

Despite the figures offering much the same overcast picture as last year, some relief has come to the industry in the belief that a full-scale crash appears to have been averted as GDP numbers indicate healthy growth.

Malaysia’s economy grew 5.9 percent year-on-year in 2017, yet analysts have predicted 2018 will be less vigorous. The central bank said growth “is expected to remain favourable” in 2018, with domestic demand continuing to provide the power and growth hovering between 5 and 5.5 percent.

In light of the GDP figures “and a relatively benign unemployment rate of between 3.3 and 3.4 percent, we are confident that the property market, although sluggish, will not likely crash in the foreseeable future,” says Tang Chee Meng, chief operating officer at Henry Butcher Real Estate Sdn Bhd.

“The Malaysian property market is expected to be stable and in no immediate danger of a crash. Performance wise it will be more or less like last year…those who are predicting a crash in the market in 2018, are probably being too pessimistic,” he adds.

Tang says that to spur demand property developers are refocusing on the affordable homes market segment priced under MYR400,000, “while those undertaking developments in the prime areas have adjusted their product mix to include a larger share of small-sized units to keep absolute selling prices lower.

“The more active residential markets continue to be KL, Selangor, Penang and Johor whilst Melaka is beginning to attract foreign interest with the entry of Chinese investments in the state’s infrastructure and development scene.”

Meanwhile,, an international property portal for Chinese investors, predicts China’s One Belt One Road will lead to a flurry of investment in Malaysian real estate.

The culturally rich island of Penang has traditionally been one of Malaysia’s most active residential markets and it continues to be a hub for new projects

Despite the mainland Chinese government’s imposition of capital controls in late 2016, which some observers said would see Chinese investment in Malaysian real estate plummet, expects the country’s major One Belt One Road [OBOR] economic policy to counter any slack.

“Malaysia is in a privileged position and is expected to benefit from the growth in regional trade, investment flows, and economic cooperation that OBOR is intended to foster,” a recent report by the portal stated. “Chinese buyer interest has been on a rapid upwards trend since the fourth quarter of 2015. Of course, it is important to note that Chinese real estate demand in Malaysia started from a relatively low basis.”

The report adds that demand has at least doubled year-on-year every quarter since January 2016, while Chinese buying enquiries have more than tripled since 2015.

Echoing the potential of Chinese investment, Knight Frank Malaysia managing director Sarkunan Subramaniam, believes that state-owned companies should continue their plans to invest in port and rail infrastructure to ensure “all roads lead to China”.

China, through its Belt and Road fund, is building the MYR12.5 billion Kuala Linggi International Port in the southwest coastal state of Melaka; the MYR8.9 billion Gemas-Johor double-tracking railway; and the MYR55 billion East Coast Rail Link (ECRL), which will act as a land bridge between Port Klang and Kuantan Port and other ports along the East Coast of the peninsula.

Kuching, capital of Sarawak, one of several key states in this year’s general elections

It was this year’s vote for the new prime minister that gripped the industry’s attention, however. Local media covered the run up to the election in August with healthy, warranted cynicism, largely presenting candidates Mahathir Mohamad and Najib Razak as unworthy choices given their records of mishaps and financial scandals.

Siva Shanker, head of investments at Axis Reit Managers Bhd, a real estate investment trust, believes the election presented too many unknown quantities to be able to see how the property market would be affected by the result, adding that “both teams have their own set of problems.”

“I am going to take it that everything will be status quo because there are just too many unknowns – too many permutations of possibility,” Shanker then said, noting that the worst-case scenario is a rejection of the result by one side and chaos.

“If that doesn’t happen, the market should recover slowly. It will not be shooting upwards…but it will be recovering nevertheless.”

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