2015 is expected to be a challenging year ahead for the Malaysian property market. Still, there are opportunities to be sought by both locals and foreign investors.
By Khalil Adis
The mass market and mid range property sector will continue to drive the domestic market this year due to the loan curbs imposed by the Malaysian government in 2014 for multiple property owners.
In a recent survey, iProperty.com, citing statistics from Bank Negara, said there was a decline of 4 per cent from a peak of 15.8 per cent in “credit-fuelled speculative purchases of residential properties from borrowers with three or more outstanding housing loans.”
They now make up for only 3 per cent of housing loan borrowers.
As such, the market will favour first timers as they are able to get up to 90 per cent loan and are considered as genuine home owners.
In addition, major urban centres across the country are expected to see strong demand for affordable homes due to the federal initiated PR1MA scheme.
Under this scheme, individuals or households earning between RM2, 500 to RM10, 000 can qualify for homes ranging from RM100, 000 to RM400, 000 that spans from Johor all the way to Penang and even Sabah and Sarawak.
“Malaysia’s relatively young population and labour force, increasing urbanisation, and general inclination to own a house, are factors that are expected to sustain strong demand for affordable residential properties in major urban centres, likely outstripping supply over the near and medium-term,” said iProperty.com in its second half of 2014 survey.
Most homes in the Klang Valley area are already out of reach for first time homeowners averaging more than RM600, 000.
Therefore, this market will primarily be driven by middle income and well-to-do locals as well as foreign investors.
Properties in prime areas are priced from RM2, 000 per sq ft onwards.
Last year, Kuala Lumpur’s prime areas witnessed a flurry of high-end condominium launches last year in Bukit Bintang and KLCC like Harrod’s and Banyan Tree averaging at RM3, 000 per sq ft.
Despite the prestige of such brand names, many locals tend to shy away from such projects due to overall quantum price.
However, high net worth Malaysians may still snap up such projects as these are considered “trophy properties”.
Even so, they are not likely to live in the area, preferring to rent it out or use it as their holiday homes.
For foreigners, these projects will be very popular due to the increase in minimum purchase price and their location right smack in the city centre.
On 1 March 2014, the minimum purchase price for foreigners buying properties in Kuala Lumpur was increased from RM500, 000 to RM1 million.
Hence, if we use RM2, 500 per sq ft as a price gauge, a studio apartment of 500 sq ft can easily fetch RM1.25 million.
According to DTZ Research, the third quarter of 2014 saw a healthy amount of new supply with the completion of another five high-end residential projects adding a total of 574 units to the market.
For the first three quarters of 2014, a total of 1,892 units have been completed.
The new completions in the third quarter were mostly located in the city centre, namely Brunsfield Residence@U-Thant (93 units), Madge Mansions (52 units), One@Bukit Ceylon (354 units) and an unnamed high-end residential development at UThant by Bandar Park Sdn Bhd (12 units).
Only one development, Kenny Hills Residence (63 units) is located outside the city centre.
Data from DTZ Research also shows that another 4,604 high-end residential units are expected to enter the market by the end of 2014.
Amongst the major developments expected to be completed in the fourth quarter of 2014 are The Elements (1,040 units) by Elite Forward, Sky Residence-Phase 2: Celesta & Divina (450 units) by SP Setia and Icon Residence (260 units) by Mah Sing Group.
For locals who are thinking of buying a home in the Klang Valley area, it is best to get small units like a studio as they can be easily rented out and sold to both locals and foreigners as their quantum price will be within the range for both locals and foreigners.
In addition, such units are limited in supply making them a rare find.
According to DTZ Research, the high-end residential market in Kuala Lumpur saw marginal growth in the rental values.
Average rents increased 0.7 per cent quarter-on-quarter, from RM3.59 per sq ft per month in the second quarter to RM3.61 per sq ft per month in the third quarter,
Moving forward, average rents are expected to fall due to the almost 6, 000 supply of new units will be coming on-stream in city centre from 2016 onwards.
Also, data from National Property and Information Centre (NAPIC), showed that Kuala Lumpur has an existing stock of 427,231 units with an incoming supply of 51,104 units.
All these factors will put pressure on rental yields.
For those who are thinking of renting out their properties, it is best to take a long-term investment horizon by focusing on capital appreciation.
The luxury sector also saw marginal growth in capital values.
According to DTZ Research, average capital values increased 0.7 per cent quarter-on-quarter, from RM758 per sq ft in the second quarter of 2014 to RM763 per sq ft in the third quarter.
This is expected to increase marginally, barring any economic crisis.
Areas near the MRT extension, spanning from Sungei Buloh to Kajang Line are expected to be popular among locals as it will ease their commute time to Klang Valley, where many jobs are located at.
In addition, there are still affordable properties that can be found here from below RM600, 000 – well within the affordability price range for locals.
For locals, buying a property near the upcoming MRT stations will increase the overall desirability, rentability and capital values of your property as they will be in demand once the MRT line is completed in 2017.
For foreigners, they might skip Selangor altogether,
This is because there seems to be some sort of anomaly in Selangor’s property market as the minimum purchase price for foreigners has been increased to RM2 million effective 1 September 2014 in Zones 1 and 2.
The two zones include the Petaling, Gombak, Hulu Langat, Sepang, Klang, Kuala Selangor and Kuala Langat districts.
This is rather odd as the entry price in these areas are well below RM1 million.
As Selangor is located outside the Klang Valley area, the minimum purchase price here should follow Kuala Lumpur’s as not many foreigners will need a big space just to qualify for the RM2 million ruling.
In view of this, foreigners may be better off buying a property in Kuala Lumpur instead where the entry price is around RM1 million.
According to data from NAPIC, Selangor will have the largest incoming supply for new homes in Malaysia as at the second quarter of 2014 bringing it to a total of 156, 296 units.
Those who are thinking of renting out their units will face great competition once these units come on-stream in 2016 to 2017.
Therefore, properties that are located close to the MRT lines will be very much in demand and can command higher asking price.
Properties near to upcoming MRT stations with interchange stations such as Kwasa Damansara in Kota Damansara, Sungei Buloh and Kajang will be highly sought after.
Kwasa Land Sdn Bhd is currently building a township in Kwasa Damansara for bumiputeras measuring 2,330 acres.
The township will be served by two MRT stations and four expressways – NKVE, Guthrie, NSE and the proposed Dash Highway.
In Kajang, a PR1MA housing project near the Kajang KTM and MRT stations are in the supply pipeline to be launched in the future starting from around RM158, 000.
Properties near to MRT stations generally command a five to 10 per cent premium in pricing compared to others.
Penang will continue to be popular among locals and foreigners as it is a major tourism destination with plenty of good food and old world charms unique only to the island.
In January, Penang scored a major feat when Britain’s respected newspaper, The Guardian listed the island as number 8 in the Top 40 global destinations.
This, in addition to Georgetown listed as an important UNESCO World Heritage Site, has resulted in increasing tourist arrivals and a popular destination for retirement.
According to media reports, citing Chief Minister Lim Guan Eng, Penang saw international and domestic arrivals increasing by 8 and 33 per cent respectively in 2014.
This is expected to have a positive impact on its property sector, particularly under the Malaysia My Second Home (MM2H) programme.
Penang is one of the top retirement destinations under this scheme.
Since March 2013, more than 21, 000 applicants have been approved and Penang has always come out top.
Due to its booming tourism industry and island effects, Penang has the second highest price index in Malaysia after Kuala Lumpur according to data from NAPIC,
For locals who find property prices here too expensive but still want to live on the island, fret not.
PR1MA homes in the pipeline include one in Bayan Lepas, not far from the airport and another in Bukit Gelugor.
In fact, Bayan Lepas is the next hot spot as it is close to the second bridge, free trade industrial zone and the airport.
However, the federal government has yet to announce their indicative prices for the PR1MA housing projects.
Other new hot spots where developers have been acquiring land parcels include those near the second bridge on the mainland.
Since the announcement of the second bridge in 2006, land prices have grown by leaps and bounds.
Data from Henry Butcher showed that land prices were around RM8 per sq ft in 2006 but has since moved up significantly to RM50 per sq ft.
EcoWorld and Mah Sing Group are developing projects at Batu Kawan and Seberang Prai respectively, not far from the second bridge.
The traditional prime areas of Gurney Drive, Georgetown, Tanjung Tokong, Tanjung Bungah and Batu Ferringhi will still be popular among foreign investors.
However, expect traffic congestions from Gurney Drive all the way to Batu Ferringhi in the future due to new projects that have been approved and future land reclamations for Eastern & Oriental Berhad’s project at Tanjung Tokong.
According to data from NAPIC, Penang has an existing stock and incoming supply of 383,017 and 64,224 residential units respectively.
Majority of the incoming supply will be on the northern part of the island where future land reclamations for Eastern & Oriental Berhad’s project is located at.
In addition, almost 1,500 residential units will be coming up in Batu Ferringhi
According to media reports, the Penang government recently approved an increase in density for an upcoming development here from 15 units per acre to 30 units in January.
Traffic congestion has always been a problem in Penang, particularly from Gurney Drive to Batu Ferringhi.
Previously, it was a one way road but the state government has since changed that so that vehicles can ply both ways.
Still, traffic congestion remains a problem, especially during public holidays and weekends.
The next mixed use development overlooking Ferringhi Park will dwarf other developments in the area and will add to the notorious traffic jams.
The area is popular among foreigners and there will be a high likelihood of vacant units as most foreigners view their investment here as holiday homes.
This will put pressure on rental yields.
In view of this, the property market will be challenging for investors.
Affordable to medium priced homes will see transactions in the resale and rental markets as they are geared towards locals.
High-end homes will be better off for your own stay and capital appreciation.
On the overall, the “island effect” will continue to see capital appreciation on Penang as majority of the areas that can be developed on the island are located in the coastal areas.
However, the incoming huge supply, especially in northern Penang will be a cause for concern.
The residential property sector will be challenging and primarily driven by local buyers.
There are four projects of choices for bumiputeras spanning from Tebrau to Pasir Gudang with
The starting prices for the projects in Tebrau and Pasir Gudang start from RM180, 000 to RM185, 000 respectively onwards.
There is no indicative pricing yet for the projects in Masai and Pulai.
Pasir Gudang and Masai will be the new hot spot as it will enjoy the economic spillover from the largest oil and gas hub in Pengerang.
In addition, a new mixed-use development that will be coming up in Taman Seri Albion by UM Land is expected to create some 12, 000 jobs.
In other developments, the Bus Rapid Transit (BRT) line is expected to commence their service this year.
Therefore, areas along the BRT lines spanning from Bukit Chagar to Tebrau, to Senai and Nusajaya are worth looking into.
Foreigners will still look to Medini and Nusajaya as the latter is exempted from the minimum purchase price and Real Property Gains Tax (RPGT) while Nusajaya has better infrastructure and is well-planned.
JB Sentral is also expected to be popular as it will serve as a gateway to Singapore once the cross border rail service connecting Johor Bahru’s Rapid Transit System (RTS) connects to Singapore’s MRT by 2018 to 2019.
Expected to be in Bukit Chagar, the area will be popular among Singaporeans and Malaysian Permanent Residents (PRs) they can buy a freehold property in JB Sentral with full condo facilities whereas in Singapore, they can only buy an HDB flat.
In addition, the opening of Sungei Segget by end 2015 and various Johor Bahru rejuvenation projects will result in a positive impact on property prices in JB Sentral.
This, together with the newly refurbished Menara Komtar JBCC and Angry Birds Theme Park will further add vibrancy of the area especially the tourism and retail sectors.
Commercial properties will be popular as they are in limited supply compared to residential properties.
Data from NAPIC showed that as of the second quarter of 2014, the existing stock and incoming supply for shop units are 70,792 and 14,657 units respectively.
In comparison, there is currently an existing stock and incoming supply of 710,324 and 131,994 residential units respectively.
The main driver for the buying activity in the commercial sector will be the GST on commercial properties to be implemented on 1 April 2015.
Thus, some investors will look to buying commercial properties before the ruling kicks in.
Oversupply in the residential sector has been a huge concern and it appears the state government is acting on it.
It recently announced it will be putting a freeze on the supply of serviced apartments.
For investors who are thinking of selling their properties, it is best to take a long term investment horizon due to the huge supply coming on stream in 2016 to 2017.
This will put pressure on rental yields and result in high vacancy rates, especially in the Danga Bay and JB Sentral area.
In addition, as a foreigner, you will need to pay for Real Property Gains Tax (RPGT) should you sell your property in the first five years at 30 per cent.
On the overall, the strength of the Singapore dollar versus the weakening Malaysian ringgit will continue to spur investment across the causeway.
However, sales volume will not be as robust as before.