Re-examining the market

BASED on the property market outlook report by CH Williams Talhar & Wong Sdn Bhd (CBRE WTW) for Malaysia, there was a 5% decline in volume (the number of property transactions) but a 7% increase in value recorded in the third quarter of 2017, compared to the third quarter in 2016.

The residential sector also dominated the overall market attaining a 62.1% share in volume and 48.7% in value. Slower absorption rates were reported, causing an increase in unsold residential units, covering both completed and under construction units. The estimated figures stood at 146,497 units in 2Q 2017, compared to the historical average of 72,000 units per year between 2004 and 2016.

From 1H in 2016 to 1H in 2017, housing starts went up by 16% totalling 67,662 units – hence, the government recommended a freeze on residential developments of homes priced over a million each.

According to the National Property Information Centre (Napic), the office space vacancy rate stood at 23.6% in Q1 2017. Considering the incoming supply of another 38 million sq ft, vacancy rate is expected to escalate to 32% by 2021, meaning a vacant one in every three offices.

The scene on the commercial side is none the less worrying what more with the 140 new shopping complexes targetted for completion by 2021.

Existing supply of commercial space will increase – in the Klang Valley by 70%, Penang by 40%, and Iskandar Malaysia by 150%, amid vacancy rates of 13.4%, 30.6% and 24.2% recorded at 1Q 2017. These numbers gave rise to the recommended freeze by the government, for office and retail developments.

Helping to level out the "pessimistic outlook" are two sectors that appear to be less affected by the impending glut – hotel/tourism and industrial. Still, with GE14 just around the bend, the market is indeterminate. According to CBRE WTW's report – "What seems evident is that we can anticipate further market turbulence in 2018".

Central Klang Valley High-Rise

In brief, the market is focused on established and matured areas near to KL city centre which cover these areas – Golden Triangle and its fringe areas and Metropolitan KL encompassing Ampang Hilir and U-Thant, Bangsar, Damansara Heights, Kenny Hills and Mont Kiara/Hartamas areas. According to the report, these areas "look to be doing well".

Still, the industry backdrop illustrates a soft market. However, condominium sales in KL is still considered steady, evidenced in slightly improved sales rates, relatively unchanged occupancy rates in recent years, and a smooth flow of new launches. The occupancy rates and performance of existing condominiums are reported to likely improve.

Klang Valley Landed Residential

An eventful 2018 is expected in this sector as transaction activity rose during 3Q 2017 by 39.9% y-o-y. The overall House Price Index (HPI) for Selangor also increased by 1.5 points, similarly in KL. Over a million units of landed properties were recorded across the states of Selangor, KL and Putrajaya, with more expected to enter the market over the next two to three years.

According to the report, new developments of townships concentrated in the southern and northern parts of the Klang Valley are deemed to help retain market interest and demand for landed residential property. With the anticipated MRT Line 2 and 3, DASH 2, West Coast Expressway infrastructure developments running along, connectivity between city centres and surrounding areas is expected to generate a more positive impact to the landed residential sector in the Klang Valley.

What was exciting was the issue of affordable homes where a mismatch in affordability was considered to be more acute in urban cities like Selangor, Kuala Lumpur, Penang and Johor.

The Household Income and Basic Amenities Survey Report 2016 for Selangor by the national statistics department reported an estimated 13.34% or 200,000 households in the B40 bracket (earning a monthly household income of less than RM3,860). 43.4% of those in this group in Selangor were reported to be renting houses which suggest a demand for some 94,000 residential properties eventually. To capture this demand, pricing within the buyers' affordability will have to be studied.

Affordable housing developments were noted in the report, situated to the north and south of Klang Valley – Putra Heights, Danau Perintis Shah Salam 2 and Cyberjaya among others. Under the rakyat-centric programmes, more houses were completed in 3Q 2017 and more are expected to enter the market with Budget 2018 allocating RM2.2 million for such houses.

The words of CBRE WTW Foo Gee Jen as per the report: "As far as the real estate industry is concerned, robust economic expansion in early 2017 somehow has not spilt over to the property market as the year closed. Nonetheless, optimists are suggesting that the property market shall see the light at the end of the tunnel in 2H 2018. That would be desirable but buckle up, as uncertainties will still linger on in 2018".

With the GE14 up our alley and the fine-tuning of the housing ministry's Housing Data Bank System Portal to be accessible to all this year, not to mention the changes (hopefully beneficial to the people) in the National Housing Policy – DRN 2.0 for 2018-2022 – let's hope the sluggish market will receive a new breath of life with the development of these schemes.

Follow our column next week sharing more information on the industry outlook, including views of other professionals in the field.