Positive side of property slowdown

Cooling measures implemented by Govt taking effect

While 2015 is a challenging year for property developers, the slowdown in the industry can be a good thing as it can prevent a crisis driven by speculative buying.

Since 2009, the Government has introduced a slew of cooling measures which have slowed down property transactions.

These measures have moderated residential property growth from more than 30% down to about 20%, PublicInvest Research analyst Tan Siang Hing said in a report.

On top of that, he said tighter lending from the banks had also restricted demand, resulting in fewer applications for loans. “The cooling measures have successfully stemmed unhealthy speculative buying and introduced more discipline in lending,” he said, adding that on top of that, the post-goods and services tax (GST) hangover on consumer demand would flatten property sales guided by developers.

“But the targets still seem healthy with most targeting RM2bil-RM3bil levels,” he said.

The report showed that downtrend in the fourth quarter of 2014 (4Q’14) after transaction value declined 14.2% year-on-year to RM38.6bil and volume slumped 4.5% year-on-year to 94,523 transactions.

It reversed the cumulative increment in the first three quarters when value rose by 15.8% and volume climbed 2.6% to 289,537.

“If anything, it signals that the deliberate measures to cool the market so far have effectively contained property prices from spiralling out of control,” he said.

High-end condominium market suffers

Overall average prices in the residential segment decreased by 3.2% in 1Q’15 quarter-on-quarter to RM749 psf from RM774 psf in the last quarter of last year as cooling measures took effect.

DTZ Research, the research arm of property consultant DTZ Nawawi Tie Leung Property Consultants Sdn Bhd, urged developers to rethink strategies to attract demand, forecasting that many would be turning to more affordable housing if their land banks were suitable.

“We are watching very carefully certain segments that display signs of oversupply. That’s why landbanking is very important to us. There’s a peak and downturn in every property cycle, so we must be prepared to weather the downturn. That is why for this year’s launches, we feature a good mix of high-end products as well as affordable ones,” UEM Sunrise Bhd managing director and chief executive officer Anwar Syahrin Abdul Ajib told StarBizWeek in an earlier interview.

According to DTZ Research, average rents of high-end condominiums in Kuala Lumpur have gone down 2% to RM3.42 per sq ft (psf) per month, from RM3.49 psf per month in the previous quarter.

An additional 6,562 condominium units are expected to enter the market in the remaining quarters, with some 7,939 units expected to be completed by this year end, DTZ Research said, adding that the higher new supply would put some pressure on rental values, especially in the city centre.

Among major developments expected to be completed this year are 441 units at Banyan Tree Residences in Jalan Conlay and M City Residential Suites in Jalan Ampang, which has 1,118 units.

DTZ Research reported 1,377 condominium units were completed in Q1, more than 10 times than that of the same period last year.

Office spaces and mall developments to continue

DTZ Research reports some 6 million sq ft of office units are expected this year.

At the end of last year, office space in Greater Kuala Lumpur stood at 96.6 million sq ft, a 2.9% increase from 2013’s total stock, according to Savills Research Malaysia’s first half of 2015 Kuala Lumpur Investment report.

The report alludes to three office buildings that were completed in Kuala Lumpur in the second half of last year – Menara Hap Seng 2, Menara MBMR and Sunway Velocity V Office – all three of which represent about 720,000 sq ft of office space.

It’s less than the 5.1 million sq ft completed in 2015, most of which were located in KL Sentral.

So far, office rental rates have not fallen and are not expected yet due to the inflation sentiment in the country.

“Despite a rapidly growing supply and intensifying competition in a tenant’s market where opportunities to shop around are plenty, good offices in central locations will continue to do well,” Savills Research Malaysia said.

It said demand for office space in Kuala Lumpur was traditionally driven by the oil and gas, banking as well as finance sectors.

“But with oil prices going down, oil and gas players would be cautious about expanding or relocating in 2015,” it added. Meanwhile, the Goods and Services Tax and weaker consumer sentiment do not seem to affect the development of new malls, DTZ said.

It alluded to developments such as Bukit Bintang City Centre, a joint venture between UDA Holdings Bhd and Eco World Development Group Bhd as well as the former Pudu Jail site, which will comprise strata offices, office towers, a hotel , serviced residences as well as a lifestyle mall of about 1.2 million sq ft.

UDA Holdings would also turn Bukit Bintang Plaza into a 60-storey luxury condominium with a three-level mall podium through a joint venture with Tradewinds International Sdn Bhd, a subsidiary of Tradewinds Corp.

Property market under control

In 2014, the Malaysia House Price Index (HPI) rose 7% year-on-year.

“The HPI has moderated and we believe it should, given the cooling measures,” Tan said.

“KL, Selangor and Penang saw the rise in house prices moderating to 5%, 6% and 8% on-year. Surprisingly, Johor’s house prices rose above the average price growth after registering a 11% growth. Ultimately, the “smooth” decline in demand will be good for the sector in the long term to ensure a steady and sound growth.

That is essential, given the elevated household debt to gross domestic product (GDP) ratio currently, Tan said.

While the pace of the ratio increase appears to have moderated, much still needs to be done. Secondly, there continues to be expectations for healthy economic growth of 4.5%-5.5% interest rates to stay low for now.

That is another positive from the cooling measures – household indebtedness can be controlled.

Unless the country faces external shock, the property sector should continue to see healthy demand, Tan said. - By The Star