KNIGHT FRANK REAL ESTATE REPORT REVEALS WE’RE NOT OUT OF THE WOODS YET, BUT THERE ARE SOME POSITIVES TO HOLD ON TO
BY Chris Prasad
The prolonged lull in the property market is now reaching a point of immense frustration for industry players. Investors are still suffering the jitters, while banks are doing no favours to those in genuine need of a home purchase with their ultra-conservative lending regime.
Global property consultancy Knight Frank Malaysia offered little by way of good news in their latest Real Estate Highlights research report for the first half of 2017. According to the report, the property market remained subdued for the first two quarters, while potential investors continue to adopt the “wait-and-see” attitude.
The report looked into the market performance across the various property mix – Residential, Office and Retail – as well as prevailing trends and the outlook in various regions of Malaysia, namely Kuala Lumpur, Klang Valley, Penang, Johor Bahru and Kota Kinabalu.
Managing director of Knight Frank, Sarkunan Subramaniam, said despite the subdued market in 1H2017, bright sparks come in the form of signs that the economy on the whole is rebounding. Furthermore, the strength of the Malaysian ringgit seems to be regaining lost ground.
“The stable employment market amongst other positive developments, offers a ray of hope for recovery in the high-end condominium market. While in the office sector, the quality of office stock continues to be upgraded to cater to the requirements of large corporates and multinational companies,” said Sarkunan.
He said with the increase of supply and competition, malls are facing challenges in sustainability in the retail market. Operators are refurbishing, rebranding and repositioning their malls to improve footfall. Fashion and F&B related trades no longer have the same power to increase footfall, so shopping centres are starting to promote experiences instead of products, such as transforming car-parking areas into an indoor kart zones.
Moving forward, Sarkunan believes that Malaysia will remain an attractive investment destination with its stable property market and relatively low entry prices that continue to offer reasonable returns.
Here are the key findings from Knight Frank’s Real Estate Highlights 1H2017 report:
Kuala Lumpur High End Condominium Market
The market remains subdued with lesser market activity and developers are scaling back on new property launches.
Secondary pricing in selected locations remained flat while rentals continue to be under pressure.
With potential purchasers and investors waiting on the sidelines, developers continue to tweak their marketing strategies to sustain earnings through “stock clearing” of completed and on-going projects.
Kuala Lumpur and Selangor Office Markets
The quality of office stock continues to be upgraded with the completion of more Grade A and dual-compliant (MSC+GBI) buildings that cater to large corporates and multinational companies.
Meanwhile, refurbishment and redevelopment opportunities abound for well-located older and lower grade office stock.
Additionally, the scheduled full completion of the Sungai Buloh-Kajang MRT Line (MRT Line 1) is expected to boost demand for offices in established and upcoming decentralised office locations.
Klang Valley Retail Market
Retail sales for 1Q2017 dipped by 1.2%, compared with the corresponding period in 2016, as consumers continue to adopt cautious spending habits amidst rising living costs.
The oversupply situation is not improving, and the cumulative retail stock has increased by 1.1 million sq ft with the completion of MyTown Shopping Centre in 1Q2017.
In response to challenges in the retail market, operators are taking proactive measures to refurbish, reconfigure and reposition their shopping centres to improve footfall and maintain competitiveness.
Penang Property Market
The market remains lacklustre with the residential sector still in consolidation mode. However, in the office sector, some buildings have achieved slight increases in occupancy levels and rentals.
The increasing supply of shopping mall space and opening of new outlets is becoming a huge challenge to mall owners and landlords who are trying to keep both occupancy and rental levels up.
Johor Bahru Property Market
China’s capital controls on outflow of funds to overseas investments have had an effect on the Johor market, adding more friction to an already slower-than-expected pace.
Despite the soft market conditions, however, Johor remains a bright spark in the property sector, as total transacted value of industrial properties increased 75.5% year-on-year (y-o-y) as of 1Q2017.
In the office sector, new office buildings are being constructed in the city fringes and Iskandar Puteri, especially Medini being the hotspot.
As of 1Q2017, total cumulative committed investment in Iskandar Malaysia stands at RM227.67 billion.
Kota Kinabalu Property Market
The slowdown in market activity in Kota Kinabalu looks set to continue in 2017 as it will take some time for the market to fully absorb the incoming units of high rise residential projects.
High rise residential units make up 34% of total residential stock and expected to further increase with major influx of units in the pipeline.
The office sub-sector continued to hold steady with both occupancies and rentals maintaining at relatively healthy level.
In view of the high impending supply, the retail sector is facing a more challenging phase to sustain. Overall occupancy rates are anticipated to be affected with new malls entering the market and slower take-up rate for new retail space.