This article first appeared in City & Country, The Edge Malaysia Weekly on October 25, 2021 - October 31, 2021

The property sector is poised to experience a 3% to 5% growth in the coming year, despite the Covid-19 pandemic and other disruptions in the market, according to Rahim & Co International Sdn Bhd.

“There was a slight pick-up in 1H2021 before the full Movement Control Order was imposed and we anticipate the market picking up next year,” Siva Shanker, its CEO of real estate agency, tells City & Country via Zoom.

“It is a confluence of the pandemic and other factors such as political instability. Nonetheless, the overall sentiment appears to have improved and is more positive given the accelerated vaccination rollout and how the nation has adjusted to the new normal.

“Moving forward, we expect the market to grow [a conservative] 3% to 5% next year. It will be an L-curve growth, where it is potentially a flat line or a slight growth upwards. It will be a slow, steady and organic growth, although not a miraculous one.”

Of the residential, commercial and industrial segments, Siva reckons that industrial will take centre stage next year, given the amped-up demand for logistics businesses. “Industrial is the segment to look at and it should drive the economy forward next year,” he opines.

“The industrial segment has remained strong and steady despite the current situation. This is primarily due to the fact that the industrial market is close to an equilibrium [in terms of supply and demand] because there is very little speculation.”

Meanwhile, the total volume and value of property transactions in Malaysia increased between 1H2020 and 1H2021, Siva says.  “The volume went up by 21%, whereas the value increased by 32%. Nonetheless, the three-month lockdown [from June to August] impacted the market significantly and caused it to dip. [The positive gains of] 2H2021 will neutralise [the losses of] 1H2021,” he adds. 

“In 4Q2021, we see sentiment becoming more positive as the economy reopens. We expect either flat or a small growth during this period. We have started to receive more enquiries and have better properties to sell as well.”

Diversification of asset classes and shophouses

Siva advocates more diversification in terms of asset allocation when investing in the property market. “About 65% of the property transactions in Malaysia are in the residential segment, which appears to be the case for most countries. The trouble is that we are ignoring the other [viable] asset classes, especially industrial [which takes up only 1% of the total transactions].”

He adds that the remaining transactions are for commercial properties (7%), agricultural land (21%) and development land (6%).

In the commercial segment, the office market may experience a level of recovery next year with the return of the workforce, but with hybrid arrangements, says Siva. “In fact, a lot of the companies are already operating at 80% capacity in offices.”

He adds that office supply and occupancy rates suffered in 2020 due to the work-from-home arrangements. The overall incoming supply of office space stood at 27,019,200.78 sq ft while the occupancy rate was 80.2% in Malaysia.

Currently, there is an oversupply of office blocks, but an interesting area to look at are commercial shophouses, says Siva. “The shophouses could be a booming area as they are always occupied and in demand, especially in the Klang Valley.

“It is a good market for those who would like to run their business without paying a premium for an office block space. It is a great investment.

“However, because of the mad rush for residential properties [and speculation], most developers used their commercial lots to develop serviced apartments [with 30 to 50 plot ratios] and sold hundreds of units instead of 50 shophouses. The shophouses are worth considering.”

He adds that policymakers should further regulate business owners and vendors [via taxes] and encourage the use of commercial shophouses for their businesses. “That way, all the shophouses will be fully occupied, which will drive rents upwards, along with values. As a result, there will be a buoyant market for commercial shophouses [especially those on the ground floor].”

As for the residential segment, Siva maintains that landed homes will lead the market in the coming year. “Landed residential properties have always been the gold standard. Terraced and semi-detached units are the ones to look out for in this segment, whereas for condominiums, so long as they are priced well [RM600,000 to RM800,000] and are in good locations, they should perform well too.”

Siva highlights the disparity between the primary and secondary markets for residential properties. “The primary market only takes up about 15%, whereas the secondary market takes up more than 80%, in terms of the total transaction volume. Here is the problem — all the focus is on the primary market when in fact, the secondary market has been the main driver of this segment

“Perhaps it is worthwhile for the Home Ownership Campaign (HOC) to be open and extended to the secondary market as well. The same applies to the Real Property Gains Tax (RPGT) and stamp duty exemptions. These will help the primary market because both markets are intertwined.”

Siva notes the current trends and market disruptors in the property sector. Among them are transport-oriented developments (TODs), co-working spaces and serviced offices, co-living spaces, Airbnb, the preference to rent instead of buying, millennial purchases, the nomad mindset and the e-commerce industry.

“Co-working spaces may present a serious threat to traditional office space, likewise with co-living [and the traditional serviced apartment space]. Airbnb may disrupt the hotel industry, but due to the pandemic and safety and cleanliness issues [and lack of regulation and standards], it may not be [as popular] as before,” he says.

“Young purchasers in the market are also disruptors, with the preference to rent [rather than buy, and to move frequently], which results in a lack of certainty when it comes to the tenure. E-commerce is also seriously threatening the traditional retail space.

“Looking ahead, it appears that the political situation has stabilised a bit until the next general election. So, we are on slightly firmer ground.

“We have cornered [but not yet conquered] the Covid-19 situation as well, and there is news of medications that will help with the infections. So, all this will help accelerate the economy and the property market. We believe that the worst is over and that we are at the bottom of the curve. We should see an overall improvement.”

Siva says developers will be looking at land-banking opportunities during this time. “Based on our observation, we have seen developers gearing up to buy more land. It will take a couple of years for the process of approvals and the planning of the developments, so they are utilising this time for their future projects. We foresee a lot of development sites being snapped up in the next couple of years.

“In terms of our own portfolio, we have a 17.26-acre redevelopment land in Petaling Jaya that fronts the Federal Highway, and also Menara PJD along Jalan Tun Razak in Kuala Lumpur.”

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