This article first appeared in City & Country, The Edge Malaysia Weekly on December 30, 2019 - January 5, 2020
As we usher in the year 2020, City & Country looks at the developments and technologies that impacted the Malaysian property sector in the last 10 years (2009 to 2019). While some of the initiatives launched in recent years are still in progress, others have served the local property market well.
Together with industry experts CBRE | WTW managing director Foo Gee Jen, Knight Frank (M) Sdn Bhd managing director Sarkunan Subramanian, Rahim & Co Sdn Bhd CEO of real estate agency Siva Shanker, PPC International managing director Datuk Siders Sittampalam, Nawawi Tie Leung managing director Eddy Wong and Reapfield Properties Sdn Bhd chief operating officer Jonathan Lee, we examine the key events that shook up the real estate industry.
2009
Developer Interest Bearing Scheme
DIBS resulted in the artificial inflation of residential property values at the time and set housing prices in the country on an upward trajectory. According to Foo, the scheme also partly contributed to the current oversupply situation in the market. The chart shows the continuous climb in overhang volume and value since 2016, a result of the property hype between 2010 and 2014. The impact surfaced after three to four years of development.
Siva says people were buying properties that they could not afford so that they could get the freebies.
Nawawi’s Wong concurs, saying that while DIBS helped with the homebuyers’ cash commitments, it also encouraged speculative activity in the property market. Many bought more units than they could afford on the assumption that they could resell the properties upon completion for a profit. What they did not realise was that they were buying the properties at inflated prices as the cost of DIBS was added to them.
Rise of property investment clubs
This trend encouraged people to buy properties at ridiculous prices based on the promise of big returns and rent. But that is not happening now. Siva says the buyers are either struggling to service their loans or are unable to repay them.
According to him, many of the so-called property investor clubs were run by unqualified and inexperienced teams. He says they influenced people to buy properties that they claimed were good investments and marked up the prices in order to get fees from the developers.
Change in office segment
The office segment turned from a landlord market to one driven by tenants. According to Sarkunan, the landlords of existing and newly completed buildings offered attractive leasing terms to compete for, retain and draw new tenants.
Residential property market bottoms out
Malaysia’s housing market slowed sharply with the introduction of higher stamp duty on high-value properties coupled with sluggish economic growth. Sarkunan says although the housing market is weak, it is expected to improve gradually, supported by Malaysia’s healthier economy, liberal policies and better political conditions since the 2018 general election.
2010
Iskandar Malaysia
From its inception in 2006 to the first half of 2019 (1H2019), this southern economic corridor had recorded cumulative committed investments of RM302.09 billion, according to the Iskandar Regional Development Authority. At its current pace of growth, Iskandar Malaysia is expected to exceed the targeted investment amount of RM383 billion by 2025, according to Sarkunan.
Foo says Kota Iskandar, which is equivalent to Putrajaya and Puteri Harbour Waterfront, is an early completion, followed by other major components such as Legoland, EduCity, Senai Hi-Tech Park and Premium Outlets.
Emergence of disruptive technology and new property platforms
Foo says Airbnb and co-working spaces were some of the created hybrid properties where the property type was redefined and space use reinvented.
Boom of e-commerce and logistics
The logistics/industrial subsector continued to perform well in 2019 despite growing global and domestic headwinds, fuelled by strong foreign direct investment (FDI) in the manufacturing sector and continued robust growth in retail e-commerce. According to Sarkunan, the logistics and industrial subsector is expected to remain the industry’s sweet spot in the Klang Valley and Johor.
Townships with stratified landed property
It was a new concept back then but gained in popularity over time and became the norm among reputable developers, according to Foo. Most of the townships were well received as they offered a sense of self-sufficient community living, proper maintenance and security.
Bank Negara Malaysia’s introduction of the loan-to-value ratio for housing loans
Under this policy, a maximum LTV ratio of 70% was imposed on borrowers with three or more outstanding housing loans.
Siders says the government implemented the policy to moderate excessive investments and speculative activity in the residential property market and to tackle the overhang issue.
2011
Bandar Malaysia
With its location on the old Sungai Besi Air Force base, Bandar Malaysia was seen as having great potential if its development was planned carefully. Sarkunan says with the announcement in April 2019 of the resumption of the mega project, as well as the East Coast Rail Link, more Chinese foreign direct investment is expected to pour into Malaysia. This augurs well for the country’s slowing economy and property market.
2012
Tun Razak Exchange
The objective of the financial district was to spur the local economy and financial sector. In the next decade, TRX will be a significant addition to the KL skyline and will contribute its share to commercial supply.
Foo says mega projects such as TRX could change KL’s property landscape and have a huge impact on the city’s ecosystem.
Diversified property products such as SoHo, SoVo and SoFo
These products emerged from the need to cater for a wider range of purchasing preferences. Foo says that in the early stage, this segment was in uncharted territory but the authorities have since started to look at drawing up a regulatory framework for such developments.
According to Siva, the SoHo, SoVo and SoFo shoebox units, which were sold at incredibly high prices of RM1,000 to RM1,500 psf, have created a massive oversupply in the sector.
The serviced apartment phenomenon
Serviced apartments make up a major portion of the current property overhang. According to Siva, there is an overhang of 39,000 residential units in Malaysia, which increases to 50,000 if serviced apartments are included. The rise in property prices is due to the increased number of developers rushing to build such properties and higher land prices. Serviced apartments were projected to offer high returns and yields, which proved to be too big a temptation for buyers.
2013
Strata Titles (Amendment) Act 2013
This amendment ensures that strata titles are passed to purchasers upon vacant possession of properties, increasing the certainty of the allocation of units right from the early stage of development as well as providing better checks and balances on developers during the various stages of construction. According to Lee, this amendment has made the process of issuing strata titles a lot easier, thus helping reduce the risk of abandoned projects in certain areas.
Belt and Road Initiative
Over the past 10 years, Malaysia has been a major beneficiary of Chinese capital with investments totalling US$43.8 billion. This is the highest amount recorded in Asean, according to Knight Frank’s report New Frontiers: Prospects for Real Estate Along the Belt and Road Initiative released on April 30. Singapore (first) and Malaysia (ninth) were the only Southeast Asian countries to make it to the top 10.
Sarkunan says Johor has been a notable recipient of Chinese real estate investments with its port facilities as well as industrial and logistics sectors attracting keen interest from the country’s investors. The Belt and Road Initiative will continue into the next decade but Malaysia will be cautious not to over-borrow but instead encourage local participation.
High-speed rail and rapid transit system
The HSR and RTS projects will continue to be the catalysts for the Johor property market. According to Sarkunan, demand for Johor properties will increase if these two projects are resumed. Towns with HSR terminals, in particular, will benefit the most from the revival of the project.
The RTS will ease the long-running congestion issue on the Causeway.
Foo says the extension of LRT2 and the soon-to-be-completed LRT3 extension, MRT1 and soon-to-be-completed MRT2 augur well for the Klang Valley. These are connectivity boosters that will unlock new areas of growth and promote transit-oriented developments in the Klang Valley.
2014
Kwasa Land’s Sungai Buloh development
A wind of change blew through Sungai Buloh, which in the past had been associated with commercial nurseries. According to Sarkunan, Sungai Buloh has undergone a transformation since the Employees Provident Fund announced plans to develop 943ha in the area through its unit, Kwasa Land Sdn Bhd, more than five years ago.
2015
Transit-oriented developments
TODs have become popular in recent years, especially with the urbanites. Today, says Siders, more developers are jumping on the bandwagon. The first TOD — KL Sentral — was launched in 2001 and completed in 2015. It boasts the largest railway station in Malaysia. Other TODs include KLCC and TRX as there is sufficient land and infrastructure in those areas.
Nawawi’s Wong points out that integrated developments comprising a shopping mall, offices, residences and a hotel are the standard offering near MRT or LRT stations. However, the proliferation of such developments contributed to the overbuilding and subsequent glut in the office and retail sectors of the property market.
2016
East Coast Rail Link
The ECRL, whose original cost was RM65.5 billion, was cancelled when there was a change of government. Sarkunan says the project was put back on track in April 2019 at a lower cost of RM44 billion. With new agreements for the revived ECRL and Bandar Malaysia projects, Chinese firms will be looking at Malaysia again, and the industrial segment is expected to benefit the most.
2018
Change of government
Malaysia’s historic change of government in May 2018 returned former prime minister Tun Mahathir Mohamad to office under the Pakatan Harapan coalition. Sarkunan says the government has since introduced new housing policies and measures to address issues affecting the real estate industry.
2019
National Home Ownership Campaign
One of the most impactful events in 1Q2019 was the launch of the HOC with the objective of increasing homeownership among Malaysians and addressing the property overhang. It was well received by both homebuyers and developers. According to Sarkunan, many developers have participated in the HOC as it presents them with a good opportunity to clear existing inventory, which is positive for the residential property market.
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