AFTER two long years enduring a downturn, investors can take comfort in the fact that property cycles come and go. But even so, recovery never means a return to the ways of yore. The status quo is never static and a “new normal” is being shaped.
Since peaking in 2011, the volume of property transactions has been sliding save for a negligible 0.77% growth in 2014 to 384,060 units, before falling 5.71% to 362,105 units in 2015.
Total transaction value, meanwhile, peaked in 2014 when it hit RM162.97 billion, up 6.96% compared to 2013. But 2015 saw transaction values fall 8.02% to RM149.89 billion, ending five consecutive years of annual gains (see chart).
Last year was no better. For the first three quarters of 2016, the total volume of property transactions fell 11.86% to 240,001 units, from 272,296 during the same period last year, according to the National Property Information Centre (Napic).
The total value of property transactions during the nine-month period, meanwhile, fell 16.15% to RM95.67 billion in 2016 from RM114.09 billion a year ago.
Full-year data has yet to be released for 2016. Nevertheless, Rahim & Co forecasts a relatively “sluggish” 2016 with total transaction volume for the whole year estimated at between 330,000 and 340,000, and the total value of transactions ranging from RM120 billion to RM140 billion.
The good news now is that Malaysia’s property market may have bottomed out and is “not another major slide into the abyss”, according to a new report by Rahim & Co.
The not-so-good news is that recovery is going to take awhile. Market activity is likely to remain subdued for most of this year before picking up the pace again in 2018 or 2019, the real estate consultancy says.
“The property market is expected to remain subdued this year. This year will be a buyers’ market. It is a period of adjustment and price consolidation in closing the gap between sellers’ asking prices and buyers’ expected prices.
“Last year, I said good things do come to those who wait and now we see the market being ever more cautious while developers are restrategising their businesses and market plans. A longer consolidation period will be expected and we all hope there will be a new impetus to reignite the property market,” Rahim & Co Group of Companies executive chairman Tan Sri Abdul Rahim Abdul Rahman said at a recent press briefing.
In each property cycle’s ups and downs, industry players learn from the past and evolve their offerings based on the market demand and dynamics at play.
Rahim & Co research director Sulaiman Saheh notes that the residential real estate subsector will see two broad trends at play: pricing and software.
“Whenever there is recovery, people actually learn that they cannot push the prices up so fast,” says Sulaiman.
Indeed, industry observers are already seeing a shift to address the supply gaps for affordable housing.
A property analyst points out that for residential real estate, developers know that it is getting increasingly difficult to sell small “shoe box” units that are under 600 sq ft as well as luxury high-end condominiums.
“The days of easy credit are over so investors find it harder to secure bigger loans for more expensive developments. It’s not so easy to leverage. Also, these days, rental yields for high-end condo are coming under pressure because there is an oversupply in the Klang Valley while tenants have the upper hand in bargaining,” says the analyst at a local research house.
What’s obvious is the gap in demand and supply for affordable homes, which will continue to dominate the real estate market for the next few years, says the analyst.
According to Sulaiman, some property developers have re-strategised their approach to pricing and design.
“In the past, what they have done was focus on size reduction so that the overall price is lower but the per square feet pricing is still high. Now, they are having a lower psf price which means the units are more affordable. So, instead of pricing a 400 sq ft apartment at RM400,000, they may do 600 sq ft for the same amount, for example,” Sulaiman says.
The second trend that residential real estate is likely to see is an evolution toward services.
Over the past decades, residential property products have evolved from mere townships and condominiums to gated and guarded communities, and towards residences with concepts.
“Moving forward, developers will also need to play with the programming of a property development, the non-physical elements of a project. They will focus on software as they do on the hardware,” says Sulaiman.
“Now, they need to walk the talk about lifestyle. Now, for big townships, developers have to inject the service element,” he says.
This could include managed services such as shuttle services to nearby public transport points, a fully-functioning clubhouse with managed facilities and so on.
In a nutshell, concierge-type services previously associated with branded residences are now moving towards the mainstream, Sulaiman adds.
A similar trend towards managed services in real estate will likely be seen in the commercial segment, specifically offices and industrial spaces.
According to Sulaiman, industrial spaces are moving toward managed industrial parks with a strong service element to it. Industrial park developers will also have to be mindful of the new requirements from tenants — especially multinational corporations — for strong security elements, renewable energy sources and green building features.
As Sulaiman points out, the changing nature of work and workspaces will inevitably change how office spaces are being designed.
The next generation of office spaces will be smarter spaces that offer more flexibility.
“It won’t be pure space for offices alone but smart spaces, space that can be converted for different types of use. So, it’ll be office plus retail or office plus multi-purpose function, more of open layouts like Google’s offices,” he says.
“It cannot be business as usual. We are not the 1980s or 1990s where Malaysia was a cheaper destination. We are moving up the value chain so the commercial real estate sector has to actually come up with smart working spaces as well as industrial spaces,” he says.
Rahim & Co’s report also notes that transit-oriented developments and transit-adjacent developments with high speed and stable internet connection may be the sparks to ignite the property market for the office sector.
Another commercial property consultant says although a sizeable amount of office space is due to come on stream in the coming years, there is still going to be demand for quality, Grade A offices.
“Nowadays, it is not enough to just offer people office space at competitive rentals. Tenants now want to see a lot of other things like accessibility, MSC status, Green Building Index ratings and so on. So, building owners that can offer these will have the upper hand even though there is a lot of space flooding the market,” he says.
Given the proliferation of retail space — about six to eight million sq ft is due to come on stream in the next two years — retail mall owners will have to battle it out on concept.
Firstly, a shopping mall will no longer be just a space for people to come and buy things. “It will be about the experience as well; what else you can do while you are shopping,” Sulaiman says.
Additionally, niche market malls will soon start to take hold, where an entire retail complex will be dedicated toward a single type of retail category.
A common example now is in the “digital mall” concept, which houses all things gadget and technology.
“There are people who say ‘I just want to have a place where we go to for all things related to home décor or fashion or automotive’,” he says.
In a nutshell, each property subsector is undergoing landscape changes that go beyond demand and supply. Real estate software is going to be as important as the hardware components.
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