This article first appeared in City & Country, The Edge Malaysia Weekly on January 10, 2022 - January 16, 2022
The Covid-19 pandemic has had a tremendous impact on the local property market. There have been opportunities arising from new trends such as work from home (WFH), a growing demand for logistics and industrial properties, and the increasing adoption of property technology or proptech.
Nevertheless, industry observers note that the market is still facing challenges and disruptions. Will prospects be better this year? Will there be opportunities and bright spots for investors and homebuyers to look forward to?
More importantly, will the market bounce back to what it was before the slump? We talked to industry experts about the lessons learnt and key takeaways from 2021, and got their insights and predictions for this year.
CBRE | WTW group
managing director
Malaysia’s real estate market is in the midst of a major realignment, with some businesses needing to revamp and adapt to changes to survive. Technology is the way forward for most of them. However, during this time, houses continued to be sold, projects were launched, malls opened for business, and workers commuted to office buildings as the wheels of commerce and industry moved forward, albeit at a slower pace, powered partly by the momentum of past years.
The key takeaway for 2021 was probably the reminder that the growth and rise of the property market is driven by the economy. It is dependent on higher industrial productivity putting money in the hands of homebuyers and consumers; spending and investment by foreign investors, residents, tourists; innovation, entrepreneurship and dynamism. All aspects of society are interdependent: the economy, politics, health, property.
The challenge for property players is to appreciate the fact that buyers/consumers have an equal role in the future direction of the market, unlike their past belief that customers can be influenced by market strategies, pricing and freebies.
In 2022, we foresee that the market will be more sensitive to customer needs and demands, providing more value for money, quality and functionality. Developers, investors and buyers will all be more cautious; transactions will be on a need basis and, to some extent, may surge owing to pent-up demand.
The residential sector could recover first as basic housing is an essential need for a growing population. Affordable housing is expected to lead. This will be followed by basic commercial activities catering to the provision of food, essentials and other basic needs.
Homes, which many regarded as personal or family space, have now also partly become office workspace. Using the internet to access the office server and conduct discussions and meetings has become a necessity at home. Developers should redesign unit layouts, sizes and facilities to meet this changing lifestyle and work culture. Energy-saving features and safety aspects would be the other key drivers for the residential market.
If WFH becomes more widespread, proximity/convenience in commuting to the office will not be at the top of the list in house selection. This may enable more families to move to more affordable locations with more space/land, further from the city centre.
The economy and the property market have been presented with the rare opportunity to reset/reboot, discard unprofitable practices, experiment with innovation and match prices to market needs.
JLL Malaysia
country head
Although economic activities have resumed in 2022, the evolution of work culture brought about by the Covid-19 pandemic continues as more people opt to have better living spaces, which serve as their alternative workspace and a comfortable studying space for their children. Hence, the residential market continues to enjoy fairly good demand, largely because of the incentives provided under the HOC.
The industrial sector saw high demand in the last few years. The logistics ecosystem and supply chain have improved following the high demand in e-commerce, warehousing, as well as sub-sectors such as medical devices, electrical and electronics (E&E) and data centres for cloud services. The growth of the logistics sector can be seen in the numerous investments by major players in recent years such as Axis REIT’s acquisition of a logistics warehouse in Johor. E-commerce value increased considerably to RM36.1 billion in 2021 from RM9.6 billion in 2016.
The country’s exports of medical devices increased to about RM30 billion as a result of the pandemic and we saw a significant expansion by medical device manufacturers such as Hartalega Holdings. Technology sectors also saw investments and expansions — Taiwan-based electronics manufacturer Wistron Corp purchased a factory in Sungei Way Free Trade Industrial Zone in Petaling Jaya, while Penang saw investments from Lam Research Corp, ViTrox Corp and Simmtech Holdings, among others. The rapid increase in demand for E&E partially led to the recent shortage in semiconductors/chips. Data centres will also continue to be in demand as connectivity is increasingly important for reducing physical contact.
The challenges and key takeaways in 2021 included the property market ecosystem being disrupted by the various iterations of the Movement Control Order (MCO). There were several bureaucratic challenges, including the time taken to receive approvals or consent from the authorities. Additionally, evolving market norms resulted in the need for some property sectors, such as those in the retail sector, to adapt to the latest consumer trends and preferences.
The high and rising vaccination rate in the country is the key differentiating factor in 2022, as compared with 2020 and 2021. More travel bubbles will be formed and more border openings will lead to higher economic activities and investment in the property market. The decentralisation of various sectors would also mean that there will be more opportunities in other parts of the country.
The pandemic has led to a higher demand for better/improved infrastructure, logistics and last-mile delivery services, enticing more people to consider locations that are traditionally less popular. In addition, the government is making efforts to restart the economy, and the incentives announced recently are some of the opportunities that we can capture in 2022.
Nawawi Tie Leung Real Estate Consultants Sdn Bhd managing director
The residential property market in 2021 saw signs of recovery, owing in part to the HOC. The total number of residential transactions for the first three quarters of the year increased 2.65% compared with the first three quarters of 2020, while the total value of transactions for the same period rose 16.4%.
This also means that the overall property transaction prices have increased, reflecting the optimism in the market. In fact, the total value of transactions has almost recovered to the pre-pandemic transaction value achieved in 2019 (9M2021: RM52.36 billion versus 9M2019: RM52.78 billion).
There is more interest in the property market as indicated by the number of loan applications for the purchase of residential properties, which increased by 33.7% for the first nine months of 2021 compared with the same period in 2020.
More importantly, the ratio of loan approvals against loan applications for the purchase of residential property improved from 33.9% for the nine-month period in 2020 to 35.3% for the same period in 2021.
As at 3Q2021, the residential property overhang, defined as unsold completed properties that have been in the market for more than nine months after launch, was 30,290 units, an improvement of 2.1% compared with 3Q2020. The property overhang is most pronounced in Johor (6,441 units), followed by Penang (4,638 units) and Kuala Lumpur (3,863 units).
The pandemic has also changed buyers’ preferences, and units with more bedrooms or study rooms are an important consideration now to accommodate the WFH (and study-from-home) situation. Good internet connectivity is another consideration that has gone up in terms of priority.
People are also more amenable to locations further from the city centre if they do not need to commute to their workplace every day or if they adopt a WFH or hybrid working arrangement.
The market is expected to recover in 2022, in line with the recovery of the economy. However, there are still uncertainties in the market, including the political scene, where the timing of the general election and its outcome will affect market sentiment.
While Budget 2022 did not announce an extension of the HOC, it is still an excellent time to buy properties, as there are many incentives and freebies being offered by developers in an effort to clear their unsold inventory. Investors should, however, remember to do their homework and not overstretch themselves financially.
It is good to adopt a longer-term view of the market. This is the best time to buy properties, with the market already on the cusp of a recovery. Look for properties with good access to amenities, that are well connected, located in a great neighbourhood, and if possible close to an MRT or LRT station. Prices are very attractive in today’s price-sensitive market, but are not expected to remain at these levels as construction costs have gone up and it is a matter of time before property prices follow suit.
PPC International Sdn Bhd
managing director
A description of the property market in 2021 would not be complete without mentioning the impact brought about by the Covid-19 pandemic, which resulted in business closures, unemployment and a weakening of the economy in general.
The pandemic resulted in an economic downturn and a property market slowdown. However, the first half of 2021 saw some recovery, with the volume and value of property transactions recorded higher compared with 2020. Residential transactions in the price range of RM300,000 and below recorded the highest volume of transactions among sub-sectors.
While market demand is inclined towards properties priced at RM300,000 and below, developers have to strike a balance between size and price in order to have a viable project in the midst of rising building cost.
The major challenge in the Covid-19 era is compliance with SOPs, and physical and social distancing leading to a shift in behaviour — from working at the office to working from home or flexible work arrangements. This has led to some pressure being exerted on the occupancy rate of commercial properties, with offices recording the lowest occupancy rate since 2000.
One significant activity that emerged from this pandemic was the rise of tech trends such as online shopping, digital payments and developers adopting proptech in selling properties. With e-retailing businesses on the rise, the industrial and logistics sectors became more important as demand for warehousing grew. The changing supply chain strategies led to industrial development being geared towards setting the first and last-mile connectivity in logistics within a city. This sector is poised to be a leading sub-sector of the property market in the short term.
We envisage that the RPGT exemption in Budget 2022 may stimulate transactions in the secondary market, to some extent attracting investors to the residential market.
The RM2 billion allocation under the Housing Credit Guarantee Scheme in Budget 2022 will assist young buyers, especially gig workers who do not have a fixed income, to purchase residential units. This will help many from the B40 group qualify for affordable home loans.
We believe that any mega infrastructure project that comes onstream hereafter will have a positive impact on the property market and the economy as a whole. However, this may be a challenge with funding limitations.
Rahim & Co International Sdn Bhd
research director
Malaysia as a whole saw its market activities rebound at a strong 21% to 29% growth from 1H2020 to 1H2021, albeit lower than the pre-pandemic level.
Nevertheless, market sentiment was still in a cautious mode as uncertainties remained — though it was steadily improving as the vaccine and booster programme rolled out, coupled with the pent-up demand fuelled by the hope of a better 2022. For the retail and office markets, there was a continuing slight decline in occupancy rates and an increase in vacant spaces as the pandemic had not only pushed tenants to their limits with MCO periods and challenging economic conditions, but had also severely impacted the foreign consumer pool as international borders remain closed.
For the property sector, online marketing, virtual inspections and digital signatures are here to stay, with developers having adopted “proptech” solutions — providing virtual tours and online bank loan applications. Commercial spaces have also undergone a change as the integration of e-commerce and an online presence has become a vital component that is complementary to a physical presence, as opposed to a threat as previously felt.
Based on the vaccination rate the nation has achieved and the reopening of the market thanks to such a progressive vaccination rate, 2022 will be a more settled year as consumers, suppliers and regulators have adapted and integrated themselves fully into the new reality we are living in now. Many are looking forward to the reopening of borders for a much-needed boost.
The residential sector is still expected to see a larger seller-to-buyer ratio as a result of new units coming onstream continuously as well as property owners looking at utilising the extended RPGT exemption announced in Budget 2022. The office and retail sectors would face a more evolving nature of demand adjustment as new practices and spatial designs influenced by the pandemic would result in a change in consumer preferences and tenant requirements. Progress in infrastructure construction will further catalyse developments and revitalise economic growth areas by way of better connectivity and convenient access points.
The market in 2022 is expected to maintain its gradual recovery pace from 2020’s bottom point, braced by the stimulus measures and assistance programmes, barring any “other unforeseen situation”.
For homebuyers, the market is expected to remain in their favour. Prospective buyers, especially owner-occupiers, should always be on the lookout for bargain sales as the moratorium period is generally over, which means there may be some opportunities in the market. Developers too are offering special packages to entice buyers. As demand for the high-end segment takes a back seat, the market could swing back after a price consolidation, though it may not come too soon. The fundamental attributes of a property remain key for any asset’s prospects, be it location, quality, neighbourhood and transportation-connectivity as well as the soft aspects that make a house a home that is sought after by the market.
Henry Butcher Real Estate Sdn Bhd
chief operating officer
After the sharp drop in the volume and value of property transactions in 2020, there was hope that the property market would recover in 2021 with the pickup in the pace of vaccinations.
1H2021 saw a significant jump in the volume (21%) and value (32%) of transactions compared with the corresponding period in 2020. The value of residential loan applications and approvals for this period also shot up and were the highest recorded over the past 10 years.
Overall, the secondary residential market was still sluggish but saw improvement owing to pent-up demand for higher-priced residential properties, for which there were no new projects launched in recent years.
2H2021 was, however, impacted by the restrictions imposed under Emergency and MCO SOPs, and this affected the overall performance for 2021. The key challenges during the year included the slowdown in the economy, decline in investors’ confidence, increase in business failures and unemployment rate, closure of developers’ sales offices during the MCOs as well as stringent criteria adopted by banks.
Property developers, however, have been quick to react to the situation and refocused on landed residential developments as well as affordable homes priced at RM500,000 and below, which enjoy stronger demand.
With the achievement of the government’s vaccination targets and the relaxation of SOPs, including the reopening of all sectors of the economy and interstate travel, the property market is expected to benefit from the ensuing improvement in business sentiment.
As the political situation becomes more stable after the change of prime minister and the signing of a memorandum of understanding with the opposition, the business environment has improved and the property market is expected to continue its recovery in 2022. The pace will likely be gradual in the first half but may pick up speed in the second half, provided there is no fresh Covid-19 outbreak or a deterioration of the political situation.
Budget 2022 did not introduce any substantial goodies that can boost the market. Housing developers are hopeful that the HOC’s incentives will be extended into 2022. Nevertheless, the property market should continue its gradual recovery. Homebuyers will have a wide choice of landed properties as well as affordable high-rise residences priced below RM500,000 as this market segment will continue to be the focus of developers in 2022.
KGV International Property Consultant (Johor) sdn bhd
executive director
The key challenge in 2021 was the difficulty in juggling between lives and livelihood. The pandemic caused the economy to come to a standstill as our priority was to save lives. On the flip side, if we were to place the economy as the priority, many lives would be lost. This irony makes the whole economic recovery extremely challenging.
With our high vaccination rate and the booster shot (exercise) that is underway and the forthcoming antiviral pills that are expected to be rolled out soon, we might be seeing the light at the end of the tunnel. The efficacy in winning the battle is subject to externalities such as a virus mutation, which culminates in something that is even more deadly and infectious. The lower loan approval rate was another dampener as banks took a cautious stance and were more circumspect in approving loans.
After almost two years of lockdown and reduced activities, we foresee the building up of pent-up demand, especially for owner-occupied housing. We expect those who are eligible and have been doing their homework to start buying their dream home. Savvy investors will also be on the lookout to buy good investment properties as prices have come down to a very reasonable level.
Developers were expected to actively clear their unsold stock by capitalising on the HOC measures. Some may even offer special packages to entice prospective buyers and get the cash flow moving. A rate hike may be possible and this will increase borrowing costs and deter some from purchasing big-ticket items.
The property market in 2022 will still be a buyer’s market in general. Despite the improved market conditions and sentiment due to the likelihood of an improved economy and gradual border reopening, we do not foresee a V-shape pickup in transaction and prices, and hence, the market recovery is likely to be a gradual one.
Two-storey terraced houses and high-rise residences in selected locations in Johor Baru will see demand picking up. Residential units that are spacious with excellent connectivity will be well received as WFH has become an alternative working mode.
There could also be opportunistic purchases from the auction market when banks cease their moratoriums. Most of the auctioned properties currently are low- and low-medium priced houses, particularly high-rises. When it comes to the crunch, there will be some landed residential houses offered, albeit limited and selectively. We are only beginning to see some developers clearing some non-core unsold stock, often with attractive discounts, and these are items that investors should look out for.
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