The year 2014 was challenging for the property market because of the imposition of cooling measures and more stringent bank lending policies, among other factors. However, properties with a good concept, in a good locale and at reasonable price points generally fared well. The year recorded a lower transaction volume but saw stable demand across the board.
The anticipated challenges facing the property market next year include rising construction costs (leading to higher house prices), land prices, uncertainty posed by the impending Goods and Services Tax (GST), and the inadequate supply of labour. To cope, developers have begun embarking on projects in locations further from the city centre, where land prices are lower, but which are still fairly well connected to the transport network.
Along with the uncertain global economy and inflation rates, developers will remain cautious in the new year, but are confident that the market is consolidating and will remain resilient.
On the wish list of top developers, among others, are more measures to support first-time homebuyers, better clarity in the implementation of GST, the timely realisation of government-planned infrastructure and the building of more sustainable developments.
Here is what the top 10 property developers think of the market this year and what they anticipate in 2015.
Datuk Abdul Wahab Maskan
Managing Director and Group CEO
Sime Darby Property Bhd
Demand for properties this year was not the same across the board. The property sector is consolidating and adapting to the cooling measures implemented since Budget 2014, especially the responsible lending guidelines introduced by Bank Negara Malaysia, and the prevailing uncertainty in the global economy. The effects of the cooling measures are more evident in the higher-end segment compared with the thriving demand in the mid-market and affordable segments. Bank lending rates in Malaysia are still reasonably low compared with the rest of Asia-Pacific but there are signs of an expected increase by 25 basis points.
End-financing issues remain top of purchasers’ concerns, such as income qualifications for a loan and the lower financing margin. Despite the effects of responsible lending guidelines, demand for our products remains stable. We achieved good sales and take-up in the Klang Valley and throughout our business operations.
We performed better this year than last by moving towards a more innovative and competitive local property market. This was complemented by product offerings that catered for diverse market needs, including managed industrial and business parks, and transit-oriented developments (TODs), which combine residential and commercial elements in close proximity of renewed public transport lines.
The primary industry driver will be the progress of major national transport infrastructure projects that ease commuting time. The growing population of young housebuyers will also be a key driver in the affordable and mid-market segments.
The challenges we foresee include the rising cost of doing business, such as development charges, higher conversion premium, as well as rising infrastructure cost contributions. The availability of utilities in some areas would also be a factor. The market will be challenged by GST beginning April 2015 but we are optimistic and committed to face the challenges with exciting products.
We believe the industry will continue to remain robust.
• To embed sustainable living in all our developments and to make these more accessible.
• For the government to continue providing incentives for sustainable development and the affordable housing segment to allow younger housebuyers to own a home, especially within the proximity of improved public transport, in both established and new growth areas.
• For us to deliver outstanding, innovative products to enhance the value of our existing portfolios.
Joint Managing Director of Property Division
Cooling measures, such as the increase in the Real Property Gains Tax (RPGT), abolition of the developer interest-bearing scheme (DIBS) and the minimum purchase price of RM1 million for foreign buyers, affected the property market significantly this year. However, the effect was mitigated by expectations of higher property prices and GST implementation, which helped drive sales. In overall sales, Malaysia will probably close 2014 at a level similar to 2013.
We believe that sales were not evenly distributed. With buyers becoming more discerning and cautious, properties in well-established and well-connected locations did better than others. Sunway’s developments have done quite well due to their integrated nature. Sales in 2014 were driven by genuine homebuyers rather than investors.
Much has been written about the negative impact of falling oil prices and the weakening ringgit. However, manufacturers and export-based industries will benefit from lower energy costs and increased competitiveness from the weaker ringgit.
Meanwhile, uncertain economic conditions may result in an interest rate increase being deferred by Bank Negara Malaysia, which has been a concern for property buyers.
We are cautious on the market in 2015, but think there are still opportunities in the sector. In the worst-case scenario, we are confident in our ability to withstand a slow market due to a strong property investment arm that will provide us with recurring income. Investment properties continue to do well.
There seem to be no further cooling measures planned by the government for 2015, but the imposition of GST from April next year caused a number of buyers to bring forward their purchase decisions to 2014. This will affect new sales in 2015, especially in the first half of the year.
Developers need to be different to attract buyers. We believe the theme next year will be similar to that for 2014 — developers that deliver products that appeal to genuine homebuyers will be the more successful.
Other challenges include the rising cost of business from higher material prices, the labour shortage and subsidy rationalisation.
We will monitor costs more closely to ensure margins will not be affected too much, work closely with our construction arm for greater synergies in operations to manage construction costs better.
• More initiatives to support first-time homebuyers, as in Budget 2015, by the government or private financial institutions, so more people can buy their first property.
• Better clarity on GST issues so the public can make more informed spending decisions in the wake of its implementation.
• A holistic approach to how developers and government agencies can work out a comprehensive and sustainable approach to affordable housing.
Datuk Voon Tin Yeow
Acting President and CEO
S P Setia Bhd
The property market in Malaysia slowed across the board in 2014 but certain segments enjoyed good sales despite cooling measures introduced by the government and the tightening of bank-lending policies.
We achieved reasonably good total sales this year, which stood at
RM4.2 billion as at September 2014.
Our London project, Battersea Power Station Phases 2 and 3, were very well received. The take-up rate for Phase 2 stands at 95% and
Phase 3, which was launched on Oct 31, has had almost half the units taken up to date.
Meanwhile, our Melbourne projects Fulton Lane and Parque Melbourne, also fared very well in 2014. Australia’s strong macroeconomic conditions and affordable financing have supported the growth of its property market.
The market will continue to be resilient in 2015, underpinned by its young demographic and rising affluence. On the international front, we foresee the Australian and UK markets maintaining their current demand and pricing in 2015, depending on the type, location and price points of the products on offer. We are launching some exciting projects next year and are positive they will be well received.
We foresee the challenges faced in 2014 to continue next year. These include the oversupply of products in certain market segments in certain locations, cooling measures implemented by the federal government, strict regulations imposed by state governments on property developers, financing difficulties faced by property purchasers, rising construction cost, tight labour supply and higer land prices.
• The government is on the right path by developing the country’s transport network. The recent approvals for the infrastructure projects MRT2 and LRT3 in Budget 2015 will improve connectivity at the fringes of the city centre and unlock the value of undeveloped land. I wish to see more such projects implemented.
• There is currently a mismatch of supply and demand, going by the type of houses offered, their locations and prices. The government could review housing policies such as the classification terms for properties, and encourage the private sector to take the lead in meeting the housing needs of the lower and medium-income groups.
Anwar Shahrin Abdul Ajib
Managing Director and CEO
UEM Sunrise Bhd
Based on the Property Market Report 1H2014 (by the Valuation and Property Service Department, Ministry of Finance), the number of property transactions grew by 3% year on year to 193,405 units. The residential segment was still key, accounting for 64% of total transaction volume in 1H2014. The RM400,001 to RM500,000 residential property segment grew fastest in 1H2014. Generally, home prices held up in most key property states but the rate of growth declined and we saw some price correction in the high-rise segment in Johor.
We are likely to see front-loaded spending ahead of GST implementation in April 2015, based on trends in countries that have implemented the tax. However, demand is expected to taper off from April to June, 2015. I expect demand for mass market and mid-range residential properties, especially in the RM400,001 to RM500,000 and below RM1 million segments, to be relatively strong. These will be driven by first-time homebuyers and genuine homebuyers in the middle-income group. Potential homebuyers will seek well-located projects near the proposed Klang Valley MRT Line 2, LRT Line 3 and KL-Singapore high-speed rail (HSR).
We do not expect a drastic drop in residential transaction volumes or prices, assuming GDP growth of close to 5% in 2015. This is based on our observation of the relationship (positive correlation of 0.71) between quarterly GDP and the volume of transactions since 1Q2007. We observe a similar relationship between property transactions and the Kuala Lumpur Composite Index (positive correlation of 0.83 based on data since 1Q1997). So unless there is an economic crisis, I do not expect a significant drop in residential transaction volumes and home prices.
GST implementation will pose challenges of rising construction and compliance costs. We may not be able to pass on all cost increases to the customer, depending on market conditions and sentiment in a particular location. Hence, maintaining margins could be a challenge.
With the strong pipeline of government infrastructure projects, public investment should pick up next year.
• Productivity gains for Malaysians in all sectors that hopefully mean higher household income for all.
• With better purchasing power, I hope that most working Malaysians will be able to own a home.
Chow Chee Wah
Managing Director of Property Division
The market was bullish in the first half of 2014, and our projects enjoyed brisk sales. However, the second-half of the year saw buyer interest soften as the market anticipated Budget 2015 to provide favourable policies to boost the property sector.
However, it was clear the government wanted to intensify its efforts at affordable housing schemes to benefit first-time homebuyers. Coupled with various persistent cooling measures to curb speculation, the entire market experienced a decrease in demand, particularly for offerings priced above a certain threshold.
Next year will generally be very challenging, given all the non-favourable circumstances, especially for enticing foreign investors and expatriates. However, domestic buying interest remains high. The key is to identify the needs of the buying market and offer products that exceed their expectations.
We will be venturing into both the northern and southern regions of the Klang Valley, where population growth is expected to be accelerated by new transport infrastructure that eases the commute to the city centre.
These new developments will also be significantly more affordable due to their distance from the city centre. Away from the city, customers will enjoy a better quality of life and home ownership experience.
With factors such as good location and attractive prices, and continued demand for our existing developments, we expect steady growth next year.
Challenges we foresee include the knee-jerk reaction to the introduction of GST in April next year, unfavourable raw material prices and the cooling of domestic liquidity to address household debt, such as the tightening of bank loans. These will hold buyers back.
Evidently, these will spiral the purchasing appetite downwards, creating a chain reaction of buyers who expect more competitive pricing and comprehensive deals to counter market sentiment. It all boils down to the withholding power of the dividend market: sellers against buyers. It will be interesting to see the outcome of this situation.
However, like all prior market conditions, demand and supply will normalise in due course.
• The successful implementation of our affordable housing framework. Although the execution will be very difficult, given the multiplier effect of rising building costs, we are confident our track record of innovative engineering solutions can overcome this.
• No more cooling measures for the property market, given softening prices.
• Favourable government policies and processes, such as a reduction in compliance costs and red tape.
• Greater revenue from offshore investments. We will be aggressively looking for opportunities beyond Southeast Asia.
Datuk Yau Kok Seng
Tropicana Corp Bhd
Market sentiment turned cautious this year due to the cooling measures introduced to curb speculation. Banks were also more stringent in their lending policies for the property sector. Given such a scenario, and the uncertainty created by the implementation of GST next year, the softer property market in 2014 was no surprise.
Nonetheless, buyer interest remained healthy, sustained by a growing middle-income population. Landed properties and integrated developments that are well located, with good accessibility, generally fared well compared with other developments.
Tropicana Gardens in Kota Damansara, which has a direct link to the MRT station, has been well received with the first two apartment blocks almost fully sold, followed by the recently launched third block. Similarly, the terraced houses in Tropicana Heights, Kajang, are almost 90% taken up.
There was a marked slowdown in demand for properties in Iskandar Malaysia, Johor, partly attributed to the aggressive property launches in the area. Nonetheless, we remain positive on Iskandar Malaysia’s long-term prospects, given the infrastructure and investment commitments in the region, its proximity to Singapore and the added catalyst of the proposed Kuala Lumpur–Singapore high-speed rail, which includes a line to Nusajaya.
We expect 2015 to remain challenging as the property market adjusts to cooling measures introduced by the government and GST implementation.
However, we believe there will be pockets of opportunity for property developers and that there is still demand for landed properties and integrated developments in good locations with great accessibility and attractive prices.
Our aim is to stay ahead of the market in the current environment. One of our strengths is the low entry cost of our landbank, which allows us to vary and adapt our launches to suit market demand, such as by incorporating higher value components in landed properties.
We will focus on launches in the central and northern regions in 2015, where the market is more resilient.
We foresee rising interest rates, the continued tightening of housing loan approval by banks, the rising cost of construction materials, inflationary pressures due to GST, and lifestyle adjustments post-GST, to affect prospective property buyers.
To mitigate these market issues, we will continue to enhance the value and maintain the appeal of our developments by focusing on accessibility, connectivity, innovative concepts and designs, generous open spaces, amenities, facilities, multi-tiered security and quality.
• The government to look into reintroducing DIBS for first-time homebuyers.
• Banks to ease lending requirements in the property sector and provide a higher margin of financing to homebuyers.
• Buying restrictions on foreign investors to be relaxed.
Datuk Seri Robert Tan
Group Managing Director
IGB Corp Bhd
Malaysia has experienced an increase in property prices in the past few years, driven mainly by local demand, increased investment in the property market and favourable interest rates. This trend continued in 2014, despite the cooling measures introduced by the government last year.
Overall, Kuala Lumpur and Selangor saw fewer overall transactions, but higher total transacted values, which reflect the nationwide trend of the past few years.
Demand and prices for properties with good infrastructure and amenities in strategic locations will continue to climb. This was reflected in the sales of IGB’s G Residence and 328 Tun Razak strata developments, registering a comfortable take-up rate of over 95%.
We also witnessed strong interest in the secondary market as evident from our Sierramas development.
We find the property market to be generally stable and expect it to continue growing, with resilient and continued demand, because Kuala Lumpur and the greater Klang Valley continue to be the most populated areas in the country, with more than eight million people. With a relatively young demographic, these areas continue to be under-housed. We expect this trend to continue into the foreseeable future.
Thus, we remain relatively optimistic and expect to launch more residential projects next year, including Stoner 3, a joint venture with Mitsubishi Jisho Residence, with a gross development value of RM650 million.
We expect the local property market to remain stable next year, barring unforeseen circumstances. However, the biggest challenges will be external, and come primarily from the global economy. Although the economy in Asia is relatively stable, a cushioned contagion effect cannot be discounted if the US and European economies do not perform or recover, based on market expectations, in 2015.
Our main challenge is to deliver value-for-money properties at different price points, given the rapidly rising cost of land and building materials. Such cost increases may be somewhat mitigated by innovative designs and products.
It remains possible that the number of property transactions will be affected when GST is implemented in April 2015, as this may raise property prices. Although residential properties are exempt from GST, prices of building materials would rise and cause developers to pass these on to buyers.
We believe that continued urbanisation will sustain demand for well-located properties at different price points, and the prices of these properties will continue to grow. Hence, any drop in the overall number of property transactions may be offset by higher transacted values.
• For the government to incentivise developers to keep the cost of their products reasonable. The cost of doing business for developers should be lowered by either lowering or abolishing capital contribution charges. Developers are currently required to pay various capital contributions, such as for sewerage, electricity, water, telecommunications and CIDB (Construction Industry Development Board) levy.
• Although land is a matter for the states, the federal government should come up with a uniform set of laws, rules, regulations and requirements for property development.These are currently governed by the individual states, which are not uniform and lead to uncertainty and possible delays arising from having to comply with new conditions that are peculiar to one or more states.
• The federal government should consider a reduction in stamp duty to help keep the costs of home ownership down for house buyers. Currently, typical house buyers pay ad valorem stamp duty on loan and transfer documentation, which adds substantially to the cost of acquiring property.
• Borrowing costs/interest rates should be maintained at a favourable level for property purchasers.
Tan Sri Leong Hoy Kam
Group CEO and Managing Director
Mah Sing Group Bhd
We have been very careful with location, pricing and the type of properties launched by Mah Sing Group in 2014.
We believe demand will remain strong for owner-occupiers and long-term investors for rental income. Our products target these markets. We achieved sales of RM2.5 billion within nine months this year, coupled with unbilled sales of RM5.1 billion, which were locked in earlier.
We have relatively strong sales momentum for our mid-range mass-market products, such as Southville City in Bangi, M Residence 1 and 2 in Rawang, DSara Sentral apartments in Sungai Buloh and Lakeville Residence.
There is still strong overall demand for mass-market properties next year. With government incentives for first-time homebuyers announced in Budget 2015, we expect the property sector to continue to do well because it is still considered by many to be the best hedge against inflation.
New growth corridors will benefit from the ongoing and proposed major infrastructure projects, such as the MRT and LRT line extension and the proposed KL-Singapore high- speed rail.
Among the foreseeable challenges in 2015 is the implementation of GST. We look to mitigate the impact of GST with the use of unconventional construction methods, and reviewing the design of buildings to ensure a high build-ability index, among other measures. There could be a temporary adjustment period post-GST.
However, the property market post-GST should be stable due to the healthy fundamentals of the Malaysian property market. These include GDP growth and low unemployment rate. There are also the ongoing infrastructure projects, the KL-Singapore HSR, short supply of properties in key growth locations, the young population, increasing urbanisation, and preference for properties as a hedge against inflation.
The challenges include higher interest rates and the cap on foreign ownership. The Malaysian property market has benefitted from a favourable interest rate environment for the past 12 years. The impact of the interest hike should be minimal and will be considered reasonable if it is gradually increased. For instance, a 25-basis-point rise will see an increase in the amount of a monthly instalment payment by about RM100 only for a house costing RM750,000, 90% margin of financing and 30-year loan tenure. We believe a rising interest rate will not deter genuine buyers who still see property as the best hedge against inflation.
As for foreign ownership, these buyers make up only 8.6% of our group’s purchasers. The impact is minimal as projects with high foreign take-up are already above the threshold amount. Medini is exempted from the foreign restriction rule.
• To continually offer products in the right locations in line with market demand. We expect 84% of new launches to be priced below RM1 million in 2015.
• To continue carving out a niche in a crowded marketplace, roll out relevant products at attractive price points, and maintain market leadership.
• To attract more good talent to join our group.
Eric Chan Kok Leong
Deputy Managing Director
Eastern & Oriental Bhd
This year has been challenging for many sectors in Malaysia, including property. Unforeseen tragedies, most notably the MH disasters, took a toll on economic performance and overall market sentiment. With a dampened property market still adjusting to government cooling measures on the local level, global uncertainties also contributed to the more cautious stance of potential foreign purchasers.
I believe confidence will return in 2015 and the Malaysian property market will consolidate, given that it is fundamentally sound and resilient. Developers with a good track record who are prudent and agile in responding to market changes will be able to take advantage of opportunities. Having consistently invested in building the E&O brand, we are confident that its emphasis on anticipating trends and delivering unique products of quality will hold us in good stead as we continue to meet the aspirations of our customers.
Inflationary pressure has been commonly cited as a potential key challenge, with GST being implemented in 2015. Nonetheless, the market has been given ample notice to prepare for this change and we believe that the normalising of business operations will occur in due course.
Given the property sector’s longer gestation period, E&O prefers to look beyond short-term assessments and instead adopts a medium to long-term perspective guided by our three-year business plan. This focuses on strengthening our brand presence locally and internationally, forging strategic partnerships, building a sustainable financial position, as well as human and technical capabilities.
In line with this longer-term stance, we anticipate that the steady progress of infrastructure projects across the country’s main property destinations where E&O has a foothold will be a boon for the property sector.
• From a macro perspective, I hope 2015 will provide a stable platform on which E&O will leverage and operate, reaching out to our markets within Malaysia and overseas. If positive measures are introduced specifically for property buyers, this impetus to improve consumer sentiment would be very welcome.
• E&O looks forward to our new property launches and projects to create sustainable value for all stakeholders. In each of these endeavours, our wish is to constantly raise the bar and introduce new concepts. These will continue to differentiate E&O for our existing database of discerning buyers, as well as attracting those new to E&O. An example is our coming launch of 18 East seafront condominiums in Penang.
Teh Chin Guan
IOI Properties Group Bhd
Overall, the Malaysian property market performed satisfactorily this year, given the cooling measures introduced by the government in Budget 2014 to curb speculation and allow genuine buyers fair access to the housing market.
With the implementation of GST in April 2015, we see an increase in construction cost which may push the prices of homes a bracket or so higher. To cope with rising land cost in urban areas, property developers will consider or concentrate on developing tracts of strategic landbank further away from the city centre and that are sufficiently serviced by good transport infrastructure.
As the rising cost of living becomes a real concern for average wage earners, stretching the ringgit’s value becomes ever more vital. Transport cost has to account for not only the price of cars, but also fuel and toll charges. Hence, the easy access of residents to everyday destinations remains pivotal to their choice of property purchase. The concept of a transit-oriented development (TOD) is good because it encourages the use of public transport, which reduces road congestion and saves on the cost of the daily commute.
• The realisation of the government-planned infrastructure, with the ongoing and planned projects to be completed on time.
• Foreign labour policy that enables a stable and adequate supply for the construction industry.
• Increased incentives to encourage property developers to build more green and sustainable developments.
• Encourage the development of TODs, by reviewing the allowable plot ratio/density, among others. The benefits of a TOD will bring positive impact to the public, as seen all over the world, including in neighbouring countries.
This article first appeared in City & Country, The Edge Malaysia Weekly, on December 29, 2014 - January 04, 2015.