This article first appeared in City & Country, The Edge Malaysia Weekly on January 1, 2018 - January 7, 2018

The Malaysian property market went through tough times last year, although some segments did better than others. While this year is expected to remain challenging, some local experts believe there will be a slight improvement in prospects. They give their views on the past year and what 2018 has in store.

Datuk Christopher Boyd
Executive chairman
Savills (Malaysia) Sdn Bhd

Overall, 2017 was a tough year for the commercial and retail property markets, as demand continued to shrink while supply continued to build up. However, we see this as a period of consolidation, as the market adjusts to the rapid “renaissance” happening around us, with the word of the decade being “disruption” in a positive sense.

There is a change in how office space is used, with new demand for office space coming from co-working companies that are continuing to take up large spaces in Greater KL. Many new fashion and food and beverage retailers have entered the Malaysian market from Dubai, China, South Korea and Thailand, among others. Housing developers have also been acquiring cheaper land out of the city centre, in order to be able to launch mid-priced and affordable homes which have seen good response from buyers.

2018, being an election year, will be a year of wait-and-see for the majority who are cautious, with some opportunities to leap to the forefront for the adventurous. We do not expect much movement in the property market in 2018. The residential market will continue to be price sensitive, offices will see more movement from upgraders rather than new entrants, and retail developers and owners will focus more on intensive management of assets in hand.

If you don’t already own a home, now’s a good time to look for one. For investors, the basic rules remain the same — location, connectivity, accessibility, catchment and so on.

Let’s hope for strong domestic growth, a stable environment and a whole bunch of analysts, industrialists, financial gurus and movie-makers to come and recognise the true potential of this country.

Foo Gee Jen
Managing director
CBRE | WTW

The property market showed a mixed performance in 2017. In terms of transaction volume, 2Q2017 showed an improvement of 1.9% quarter on quarter (q-o-q) , but year on year (y-o-y), the transaction volume in 1H2017 was below that for the first half of every year since 2014.

The occupancy rate of shopping complexes in 1H2017 dropped y-o-y but improved half on half (h-o-h). The opposite was true when it came to the occupancy rate for purpose-built offices and sales performance of residential properties — both of which were better y-o-y but worse h-o-h.

Malaysia’s economy expanded in 1H2017 and household expenditure expanded. This is reflected in higher retail sales growth in 2Q2017 compared with the same period last year. Up to 2Q2017, the Consumer Sentiment Index and Business Confidence Index were on the rise for consecutive quarters, according to the Malaysian Institute of Economic Research.

The year looks to be an uncertain one. One factor could be the ever-increasing cost of living and doing business, which resulted in cautious spending among home buyers and investors. Notwithstanding that, against the backdrop of strong economic expansion of 5.7% for 1H2017 and active infrastructure developments, optimists believe the property market will regain strength in 2H2018.

Investors should still look for opportunities, guided by conventional real estate principles such as prime location, quality property and accessibility. In view of the emergence of e-commerce and continuous foreign and local investments in infrastructure projects, Malaysia has the potential to become a regional distribution hub. As such, the industrial sector may eventually come under the spotlight, in particular, industrial properties that support logistics, warehousing and supply chain activities. Another prospective sector would be hotels, with a series of airport projects and other initiatives aimed at spurring tourism-associated industries announced in Budget 2018.

In the lead-up to the 14th general election, affordability will certainly dominate the public sphere. Bureaucracy needs to be simplified. The current application-to-approval process is lengthy and a slight hitch in-between would delay delivery time, which would impose higher cost on developers, which would then be transferred to buyers. As such, it is necessary to streamline and simplify the process.

Developers over-burdened with increasing compliance costs, for instance, are responsible for utility provision. There should be cost-sharing between utility suppliers and developers to minimise the costs that will be transferred to homebuyers.

Also, there should be a centralised agency for affordable housing — from application to provision, as well as property management. A one-stop agency would eliminate hidden or hindrance costs. Also, making one or a few agencies responsible would make simplification of bureaucracy possible and ensure efficient delivery of affordable housing through better coordination.

YY Lau
Managing director
JLL Property (Malaysia) Sdn Bhd

The market does seem to have bottomed with some recovery in asking prices for KLCC. The upward economic trend and strengthening of the ringgit have increased confidence in the high-end residential property sector in Kuala Lumpur. These stable developments, paired with a more stable employment market, will help drive a gradual recovery in the property market in 2018.

The recent freeze in development of condos and serviced apartments priced at more than RM1 million in Kuala Lumpur, will allow the market to absorb existing supply and prices will generally recover. We are not expecting the commercial market to recover anytime soon, but we observe more office-leasing activities in Greater KL, especially in IT, consumer goods and financial services, while that for oil and gas contracted.

While the trend may continue to gain momentum, some of the retail sales are likely to benefit e-commerce. Nevertheless, we still think bricks and mortar will be here to stay. Shopping malls in the city centre will continue to benefit from tourism and high-net-worth clients while suburban malls will suffer from many new competitors.

We will see demand continuing to pick up in the industrial sector in Greater KL with the limited supply, especially in Shah Alam. With limited supply of industrial properties in Kuala Lumpur, we expect the demand dynamics to shift outside the city. The recently observed e-commerce activities will also support the demand for logistics.

Apart from KLCC, there are other locations such as Bangsar, Damansara Heights, Petaling Jaya, Bandar Utama and Mutiara Damansara that have improved connectivity and mixed-use developments. The strategy would be to look for residential properties close to where the jobs are.

Many investment-grade office buildings are owner-occupied or owned by large institutional funds that are likely to hold onto the assets. There are a number of land owners that offer partnership opportunities. A joint venture in these developments could be an opportunity for investors to look at as an entry into the office investment market.

Our wish list for 2018 would be sustained economic growth, which is important to grow jobs and incomes for Malaysians. As the price of residential properties in Kuala Lumpur has become severely unaffordable in recent years as indicated by Khazanah’s study on housing affordability, our second wish is to have more affordable housing closer to the city centre.

The third is to have a good mix of developments constituting residential and commercial components that are well connected. The improvement in the transport system and developments will help workers commute to work. The mixed-use developments would allow people to live, work and spend their leisure time around the vicinity.

The fourth wish is to have easier financing for new homebuyers. I believe the financial institutions can do more to help working Malaysians own their first homes.

Finally, it is the stability and strengthening of the ringgit that will bring back confidence into investments in the country.

Samuel Tan
Executive director
KGV International Property Consultants (Johor) Sdn Bhd

The mood of the domestic property market has been cautious. Following the euphoria in the residential sub-sector market in 2012 to 2014, most buyers are genuine owner-occupiers at this juncture. Property investors are mostly adopting a wait-and-see attitude. Property speculation is practically non-existent.

Most developers have been concentrating on clearing existing stock in the past 12 months, especially for high-rise residential developments. Having said that, we understand there is still pent-up demand for affordable residential properties priced at RM500,000 and below.

The Johor property market is likely to remain stable in 2018. We do not foresee a “fast and furious” widespread recovery. The demand for reasonably priced landed houses will remain healthy. Local purchasers who want to upgrade and buy for their own occupation will go for landed houses. In general, high-rise residences will face price pressure in view of the number of project completions in 2017/2018.

We are cautiously optimistic about Iskandar Malaysia next year. Amid cautious sentiment, there will be opportunities in the following areas:

Properties for auction

There will be some good properties up for auction in the secondary market. Capitalising on the developer interest bearing scheme, some speculators overstretched themselves and could not service their loan repayments. Some units could be substantially below market value, especially those that remain unsold after several rounds of auctions.

Old landed properties in mature locations

Land is getting scarce. It is tough to find new landed schemes in central and mature locations. It is worthwhile to keep a lookout for old landed properties in such locations and spend some money to spruce up the buildings.

High-rise developmentsin good locations

Many buyers are shunning high-rise residences in view of oversupply concerns and perceived fear of high prices. It is worthwhile keeping an eye out for high-rise residences in strategic locations with good accessibility and catalytic developments that are reasonably priced and built by reputable developers. Developments with easy access to the Johor–Singapore Causeway and Malaysia–Singapore Second Link are popular with those working in Singapore.

Landbanking

For individuals or corporations that are financially strong, the current downturn is an opportunity to add quality properties that fit their requirements to their land bank. The land will eventually appreciate in value.

Our wish list for 2018 is to modify the stringent requirements for release of bumiputera units so that schemes that bumiputeras are not interested in can be opened up to non-bumiputeras; a waiver of stamp duty for first-time buyers for houses below RM500,000; interest repayment for housing loans to be tax-deductable; construction of the Middle Ring Road to enable connectivity with kampung folk; and ease the lending policy by Bank Negara Malaysia for first-time house buyers.

Michael Geh
Senior partner
Raine & Horne International Zaki + Partners Sdn Bhd

In 1H2017, transactions in the Penang property market totalled 7,884 units, amounting to RM4.07 billion. The residential segment had the lion’s share of 5,697 units, valued at RM2.45 billion. The first half was active although total transactions were lower than the previous year.

Primary and secondary properties in prime, flood-free locations that are close to future prime locations are expected to hold their values.

Recent incidents of landslides and widespread floods in urban areas resulted in state and municipal councils freezing and reviewing approved development orders for projects located close to hillsides and slopes. This has cast a shadow of uncertainty on projects with regard to completion, sales commencement and signing of sales and purchase agreements. This, in turn, dampened confidence.

We expect to see the flattish property market to continue while the focus will be on affordable housing.

Cash-rich investors are always on the lookout for investment-grade properties that yield returns of above 5% per annum, and which have appreciation potential. Serviced apartments, small office/home office and hospitality products in prime locations, at the right price and package, will be picked up by “old money” families, professionals and entrepreneurs.

Investors should do research on the next big prime locations. Commercial properties related to the tourism trade are popular buys.

The affordable housing sector needs to be boosted by providing assistance to first-time homebuyers. The cost of building units priced at RM350,000 and below — including contributions and payments to municipal, state and federal authorities — needs to be relooked.

Datuk Seri Fateh Iskandar Mohamed Mansor
President
Real Estate and Housing Developers Association Malaysia (Rehda)

The market in 1H2017 was quite slow, but some signs of improvement could be seen coming into the second half. Rehda’s Property Survey showed that almost half of the respondents were pessimistic on the 1H2017 outlook and expected the market to be better in 2H2017.

Bank Negara Malaysia’s monthly reports also showing improvement in the first few months of 2H2017. With GDP growth at 5.8% at the end of the second quarter plus an increase in the trade surplus, we can see that the broad numbers for the country is good and we hope this will translate into a higher confidence among the public.

The signs of recovery are slowly emerging at certain good locations. Developers are shifting their focus to affordable housing to cater for the demand. Projects in good locations as well as those near public transport hubs will receive good response.

The Rehda Property Survey 1H2017 also reported sales performance picking up slightly by 6% compared to 1H2016. The market will likely find its level in 2018 with the first half anticipated to be challenging for most developers before gradually levelling out.

Affordable housing is among the main priorities of the government and Rehda is very supportive of the aspiration to deliver more affordable housing units to meet the needs of the growing population. One of the issues plaguing the industry is the mismatch of demand and supply, with insufficient affordable housing developed in areas that need them the most, and vice versa.

To address the mismatch, we have proposed to the government that a single federal agency be established to not only to monitor the implementation and provision of affordable housing, but more significantly, to capture data such as pricing, location and demand.

Another issue with regard to affordable housing is that the policies of the respective states are not consistent with federal policies. The requirements for provision of affordable housing by the various states make it difficult for us to come out with a practical solution that meets expectations and satisfy all parties. There is thus a need to streamline state-level policies with that of the federal government for efficient delivery of affordable housing. The formation of a federal agency will also help address this problem.

Rehda has also urged the government to review some unnecessary impositions as they add to the cost of development. The government and its agencies can assist by relaxing some development costs over which they have direct control such as compliance cost, high subsidy, planning requirements, capital contributions to utility companies, and utilities and infrastructure.

Sulaiman Saheh
Director, research
Rahim & Co International Sdn Bhd

Overall, the domestic property market in 2017 is still softening but at a slower rate compared with 2016. The number of launches by developers, as well as sales performance, is declining. However, there are projects that still perform well due to products, concept, location/accessibility and marketing strategies. Developers are strategising to provide products in demand targeting the mass market, mainly affordably-priced products, albeit with smaller built-ups.

Homebuyers and sellers both have multi-factorial concerns. The demand from buyers is still there but they are unable to purchase due to the inability to get end-financing. Loan guidelines and regulations are often cited as the reason for slower sales.

Despite this, we back such measures aimed at creating a more sustainable and solid financial environment, especially for home buyers. Markets are tilting towards the affordable market segment, so creative products within that segment are going to be well received.

We foresee another challenging year for the property market as it will continue to be soft but things may be improving, although at a slower rate.

For the residential sector, 2018 will be a year of more affordable homes offered by federal/state governments as well as private developers.

For the office sector, looking at the incoming supply, we expect about 14 million to 18 million sq ft to come online in the next five years. This will create pressure on rentals and occupancy rate.

For the retail sector, an estimated 8 million to 9 million sq ft of retail space will come online in the Klang Valley alone next year. There are concerns about oversupply, especially in view of passive consumers and deteriorating consumer sentiment. Retail malls, meanwhile, have to contend with the growth of e-commerce. The market is expected to move with the new opportunities created by the digital economy, such as the Digital Free Trade Zone.

Government agencies should aggressively promote cash management education as households must learn how to calculate their household and lifestyle expenses before they make any loan commitment.

There should be more rent-to-own residential schemes by private developers, as well as the setting up of a central housing agency to construct, monitor, promote and sell affordable homes.

Governments should conduct a full audit of the delivery system of Program Perumahan Rakyat and low-cost housing projects, including an audit of owners and occupiers. Info-sharing should also be facilitated to collectively address the supply-and-demand gap and wastage of resources.

For new property developments, a new policy should be introduced where submission of the approval plan to the local authority should come together with an in-depth market study by independent property consultants to assess the viability and marketability of the development, specifically its absorption against total projected new supply in the area.

Eddy Wong
Managing director
Nawawi Tie Leung Real Estate Consultants Sdn Bhd

The property market continued its downtrend from 2015, with transactions in the residential sector dropping a further 7% in the first half of 2017, compared with the previous corresponding period.  This is due to the tight credit situation and generally weak sentiment. The household debt to gross domestic product (GDP) ratio remains high at 88.5% and it is likely that Bank Negara Malaysia will continue with the tight credit policy until the numbers improve. We expect the market to remain challenging in 2018 and price movement, if any, to be minimal.

There are more opportunities in a soft market and investors and homebuyers are advised to start looking if they have the intention to buy. Developers are more willing to offer goodies and freebies in a down market and there will be good opportunities if you put in some effort to seek them out.

The best strategy is always to adopt a longer-term view. The market will eventually recover and the next peak is always higher than the last. Fundamental factors such as access to amenities and connectivity will always be at the top of the list of criteria for most buyers and if you find a property that ticks all the boxes and going for a reasonable price, seize the opportunity and buy instead of waiting to see if the market will soften further.

The recovery in the global economy seems to have gathered momentum and my wish for 2018 is for the Malaysian economy to strengthen further and that household incomes rise to keep pace with the rising cost of living. It would also be good if the government can consider additional measures to assist first-time homebuyers such as allowing developers to offer a developer interest bearing scheme to buyers of properties below RM500,000.

James Wong
Managing director
VPC Alliance (M) Sdn Bhd

This year is still a buyers’ market, as they adopt a wait-and-see approach. The property sector remains challenging as demand is constrained by affordability. According to Bank Negara Malaysia’s 2016 annual report, the increase in household income (12.4%) was slower than the rise in housing prices (17.6%).

The landed residential sector saw price stability with minimal growth and a drop in transaction activities. Prices dropped slightly for high-end residential apartments. However, prices stayed resilient for residential properties in established townships with good accessibility to highways, mass rapid transit Lines 1 and 2, light rapid transit Line 3 and other transport infrastructure.

The property market is expected to be soft and subdued because of an oversupply in most subsectors. Moreover, developers and buyers are adopting a wait-and-see attitude, pending the announcement of the 14th general election. Nevertheless, following the announcement of a tax reduction, abolishment of several tolls, and subsidies for basic necessities and transport in Budget 2018, disposable income will increase and is expected to boost demand in the property market.

Budget 2018 also included an allocation of RM2.2 billion to build more affordable housing — 210,000 units priced at RM250,000 and below under PRIMA over a two-year period. We should see a recovery in the property market in the second half of 2018.

We recommend homebuyers wait until after the general election and the property market becomes more certain as “cash is king”. However, for first-time homebuyers, many developers are offering attractive packages and incentives with minimum down payment to clear unsold stock, and it is thus a good opportunity to buy. For investors and homebuyers, there are opportunities to buy properties below market value at auctions. Property prices are high and rental yield is lower as the market has reached its peak. To maximise rental income and finance their loans, investors should choose the right products with good yield, apply for longer terms for loan financing, and maximise use of the property by renting to more than one tenant.

The property market is still facing many challenges such as oversupply, overbuilding, high cost and end-financing issues.

We hope that the government will come up with measures to overcome these problems and help revive the property market.

We wish that bank lending guidelines can be relaxed. Last but not least, as the population is ageing, we hope more senior housing and/or retirement villages with aged care facilities can be built.

Sarkunan Subramaniam
Managing director
Knight Frank Malaysia Sdn Bhd

The domestic market came under tremendous pressure in 2017. Despite the pressure, it survived. While it was not an exciting year for the domestic market, especially the residential sector, there were some significant commercial transactions.

One interesting deal was Vista Tower — which we were eagerly awaiting last year — to a Japanese fund tying up with AmanahRaya REIT. It is a new twist in the local commercial investment market.

I expect the market to be sluggish till the general election, which is expected to take place in April/May. After which, it depends ... but I do not see the market recovering. Which way the vote swings will also be a factor. If it is to the existing government, then it will go back to normal.

It also depends on the administration. It will certainly look better towards the end of the year and 2019.

However, it is good to note that Malaysians are not poor or desperate. For the middle income and wealthy groups, while they may experience a squeeze, they will definitely not go for fire sales. They still have the power to save, and thus sustain the real estate industry.

The opportunities now are various attractive offers by developers to sell existing stock. Investors are looking for distressed assets which, frankly, are limited.

Developers are trying innovative ways to sell existing stock in areas where they have reached saturation in sales. We have seen developers selling 20% to 30% of unsold units in completed projects. Some might even sell the units at the original launch prices a couple of years ago. This would be a great opportunity for homebuyers.

I believe big investors are looking at our market. Foreign investors are looking to provide mezzanine funding for some distressed assets. That’s not to say there are many distressed assets but a lot are under pressure... and these could be eyed by foreign investors.

My wishlist is for the market to benefit from certainty after the general election, and for the polls to take place earlier in the year so that there will be no more speculation for the rest of the year. If that is the case, we will see some steadiness in the next five years or so.

I hope the ringgit will recover, investor sentiment will improve and the market will move upwards.

Eric Lim
President
Malaysian Institute of Estate Agents

Generally, the market for 2017 moved sideways, with moderate growth depending on the location and type of properties. Demand tended more towards owner occupation than investment or speculative activity. Lending restrictions by financial institutions played a major role in this shift.

The primary market demand was for affordable properties priced between RM300,000 and RM500,000. The take-up rate for such properties was positive, with location the deciding factor for the majority of buyers.

Moving into 2018, we are more positive in our outlook, in line with economic growth. In 2017, most property launches have been high-rise developments in the affordable range and this segment seems crowded. We expect pent-up demand for mid-range properties in the RM600 to RM800 psf range, which has been neglected. We also see demand has been very strong and encouraging for the mid to high-end market.

We may also see a rise in new developments in less developed locations as purchasers seek more affordable homes for their own occupation in conducive locations. This is especially so for landed property where launches declined last year due to the scarcity of land in developed locations.

Purchasers should take this opportunity to check projects close to the new MRT and LRT stations in the Klang Valley. Access to public transport is a major advantage for residents. The rental demand potential at favourable yield will definitely be a boon. Such properties are more sustainable and have greater potential for capital appreciation.

For those who prefer landed properties, look for new launches on the outskirts of the Klang Valley that offer a conducive living environment as well as larger space at lower cost. This can be found in townships with commercial components that offer conveniences.

My wishlist for the property market would be:

Tang Chee Meng
Chief operating officer
Henry Butcher (M) Sdn Bhd

The Malaysian property market continued to be subdued in 2017. The volume of transactions declined in the first half although interestingly, the value of transactions recorded a slight increase. The stock of unsold residential properties went up in 1H2017, with the bulk comprising houses priced above RM500,000.

Although residential properties costing above RM500,000 formed the largest portion of new launches in 2017, the most active segment was affordable homes, whch saw designated government agencies like PR1MA launching more projects priced between RM200,000 and RM400,000 in partnership with private developers. Private sector developers also refocused their attention on smaller-sized homes priced around RM500,000 and below as market demand for properties above RM700,000 continued to be sluggish.

We believe the market will continue to be sluggish in 2018 although some improvement may be seen when the dust settles after the 14th general election. With a possible freeze in approvals of high-end condominiums, serviced apartments, office buildings and retail malls priced above RM1 million, we could see fewer launches of such projects over the next few years, and this may help to clear the oversupply. The focus of the residential market in 2018 will continue to be on affordable homes and small-sized units.

With the announcement of a 50% tax exemption on rental income not exceeding RM2,000 in Budget 2018, investors will have an added incentive to invest in completed residential properties in the secondary market, particularly in locations popular with the middle-income group as well as yuppies in the early phase of their careers who are not ready to own their own homes. Suburbs served by the LRT/MRT/monorail will have an added advantage as access to public transport is still an important consideration to this group, although most may own cars.

First-time homebuyers should take advantage of the new affordable home launches by PR1MA and other agencies as well as private developers as they can now enjoy access to the step-up end financing scheme,  which was previously restricted to buyers of PR1MA homes. As house prices have stablised and in fact, declined in some areas, homebuyers should take advantage of the situation and the many incentives and easy payment schemes offered by developers to buy their own homes.

While the government’s focus on the affordable homes sector is good and is to be lauded, National Property Information Centre statistics show that the unsold stock of houses categorised within the affordable home range is still very significant, and not only those within the high-cost categories. As Bank Negara Malaysia’s concerns about the high household debt is valid and merits careful monitoring and control, a proper balance should be struck to ensure that the qualifying criteria are not set too high such that there is a high drop-out rate of buyers due to ineligibility for the loan quantum that they need to help them purchase their homes.

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