Malaysia captures investor attention
1st February 2015
One year on from the introduction of hard-hitting government cooling measures to curb speculation, the real estate market is moving on all compass points.
The second most livable city in Southeast Asia according to the Economist Intelligence Unit (EIU) 2013 Liveability Ranking of 140 cities, Kuala Lumpur has traditionally been the hub for Malaysia’s real estate scene, but a couple of other destinations are now stealing the march on the country’s capital.
Stable economic growth is supporting development across the majority of asset classes, and the country recorded a 9.6% increase in the construction sector in Q3 2014, with the residential segment accounting for 18.6% growth.
However, the last 12 months have been somewhat subdued, due to the impact of 12 months of cooling measures affected by the government in late 2013 in order to curb the dramatic speculative spiralling of property prices.
This is being exacerbated by last year’s Bank Negara Malaysia (BNM) rulings, which has also seen banks adopt a more cautious stance when it comes to lending, with a tightening of available financing and higher rejection rate preventing local buyers from getting on the property ladder.
A newly mandated government requirement forcing developers to register the name of buyers of more than four houses at one time with the Urban Wellbeing, Housing and Local Government Ministry, is also part of the strategy to encourage long term market stability.
In April 2015, the new goods and services tax (GST) will also be implemented. Add to that the fact that overseas investors are locked into a minimum property purchase price of MYR 1 million [USD 287,000] (doubled from the original MYR 500,000 in the 2014 budget) and many experts would say that a flatline year is on the cards.
But while fewer transactions are being concluded, as per National Property Information Centre data, in specific in-demand districts and locations where prime units are flourishing, transaction values are on the up.
In both the residential and commercial sectors, Malaysia continues to be an attractive proposition, as Amy Wong, Executive Vice President, CB Richard Ellis, Malaysia explains: “The short answer is that our prices are much more affordable compared to other cities like Singapore, Jakarta, or Ho Chi Minh. We also have a fairly regulated environment, so we’re not as haphazard to transact in, which makes the transaction process easier to manage.”
KUALA LUMPUR AND BEYOND
The sixth largest country in Southeast Asia, it’s not just Kuala Lumpur that is capturing investor attention. “Greater Kuala Lumpur has traditionally always been an investment hotspot in Malaysia, being the capital city and a hub for finance, oil and gas and other economic activities, but we are also seeing increased interest in Iskandar Malaysia, which benefits not only from large areas of greenfield development, but also from its geographic position bordering Singapore,” says Wong.
“Penang also has its fair share of interest, being a key location for MNCs such as SanDisk, Seagate, Hewlett Packard, as well as Singapore’s investment arm Temasek Holdings,” she adds.
And despite the market softening of the last 12 months, domestic demand is still an important factor. “In terms of residential properties it is still primarily a local market, with our young and growing population driving the demand for housing,” notes Wong.
“For office and retail space, at the moment, most of the buyers and sellers are from the local pool of major investors, firms and funds. However, we see the Tun Razak Exchange project inducing a change as it is drawing increased interest from international investors into the local market,” she says.
The country also has a well-established line-up of credible developers. Says Wong: “Malaysia has a rather impressive list of home-grown residential developers who have since expanded their portfolio overseas.”
CBRE’S The Edge Malaysia Property Excellence Awards for 2014 saw familiar names such as Sunway, SP Setia and UEM Sunrise dominate the top 10, along with Sime Darby Property, Garmuda, Tropicana Corp, IGB Corp, Eastern & Oriental, Mah Sing Group and IOI Properties.
FOCUS ON OFFICE SPACE
As well as activity in the residential sector, which has a strong focus on high-end units, Malaysia – and Kuala Lumpur specifically – is also looking at opportunities in the office market.
With the growth in office supply for the capital stacked at 6.1 million square feet with an additional 4.17 million square feet pegged for 2015, there’s a lot of desk space set to come on-stream.
Says Wong: “Demand for office space is expected to be supported in particular by the Economic Transformation Programme (ETP), provided that more jobs are created; as well as by the usual key players such as oil and gas firms and the financial sector, both of which are the largest office occupiers in Kuala Lumpur.
“The leasing market is still primarily a tenant’s market, due to new completions constantly being poured into existing stock. Due to this, we see a 3% rental growth due to inflation, although there will be a 6% increase on paper when the GST comes into effect on 1st April 2015.”
The appeal of Grade A space is another factor driving development. “New builds continue to be in demand, particularly MSC-status buildings with green accreditations. Buildings with such qualifications usually meet minimum Grade A standards. We are also seeing more MNCs looking to relocate to green buildings as part of their global CSR initiatives,” remarks Wong.
Malaysia’s retail sector had a slow year in 2014 but, nonetheless, a total of 12 new malls added their floorspace to the local shopping scene in 2014, and international retailers are still eyeing brand expansion opportunities in the country, as Wong explains: “There continues to be a steady influx of new-to-market retailers coming into Malaysia, although generally, 2014 was a relatively slow year for retail. Leasing rates have held, as there were no major rent reviews this year.
“Malls are, and will continue to be, the main weekend hangout destination for Malaysians.”
According to Knight Frank’s Malaysia Real Estate Highlights H1 2014 report, Kuala Lumpur’s residential market continues to gain momentum at the high-end with eight luxury projects adding 1,659 units to the mix.
Despite lower transaction volume, secondary market prices held firm, whereas primary market performance was up and down with new launches dependent on location, product and pricing amongst other key factors.
The high level of existing supply coupled with the impending entry of some 2,884 units expected by the second half of 2014 will exert pressure on both rental and secondary sales market, particularly in locations where there are weak occupational demand and significant project completions.
A wealth of Kuala Lumpur and Penang-based developer projects covering the residential and commercial sector set the tone for 2014 activity according to Knight Frank with a number of important tourism and hospitality sector developments playing a major role including the Subterranean Penang International Convention and Exhibition Centre (SPICE), which is scheduled for completion this year and the Penang Waterfront Convention Centre (PWCC) in 2017.
Hotel openings for the period 2015-17 will also add new room stock as well as economic opportunities with boutique, luxury and serviced suites properties coming up.
Infrastructure development is the catalyst for future market development with the new Sultan Abdul Halim Muadzam Shah Bridge and state government focus on the Seberang Perai South growth corridor of Batu Kawan, prompting developer interest with numerous blueprinted residential and commercial projects and an increasingly competitive retail market.
One of Malaysia’s most active development regions, supported by development to the tune of an estimated MYR 138.61 billion [USD 39.72 billion] (as of April 2014), led by investment from Singapore, Iskandar Malaysia has also benefited from tax break and incentive package advantages designed to propel the southern Peninsula to world-class metropolis status by 2025.
Residential sector development in the last 12 months has included a number of well-received launches including high-rise and landed developments such as Eco Spring and Eco Summer’s terraced and semi-detached community, Oleander by IOI Properties and the Avira Garden Terraces.