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CBRE-WTW Launches Asia Pacific Real Estate Market Outlook 2020

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CBRE – WTW one of Malaysia’s most prominent valuers, estate agents and market research consultants recently launched its latest Asia Pacific Real Estate Market Outlook 2020 report.

The report covers various product segments in the property industry throughout multiple Malaysian states including the Klang Valley, Penang, Johor and East Malaysia, covering the property market outlook for 2020 with hindsight on the activities that transpired within the previous year.

In an excerpt from the report, Foo Gee Jen, Managing Director of CBRE-WTW comments that the Malaysian property market did regain some strength in 2019, attributable to continued market resilience and market players who have remained unwavering despite the economic turbulence.

“Over-supply, down trending transactions, weaker prices are symptoms of market uncertainty which may be due to inconsistency of government policies and lack of comprehensive and timely market information,” he states in the report. “While the over-supply is currently found in almost all sectors, this could be addressed in the mid-term if the economy turns around to prospects of high sustainable growth from its current outlook of uncertainty and doldrums. Bottom line, we want carefully crafted government policies which are then implemented consistently, long term.”

Klang Valley

Under the Klang Valley segment, the report states that the area, which constitutes about one-quarter of Malaysia’s property market, grew by 1.3% in volume to 77,241 in 2018 but transaction values declined by 2.7% from 2017 to RM65.7 billion.

“Third quarter of 2019 saw an improvement when transaction volume expanded 7.7% (20,626 transactions) while value increased 13.7% (RM15.8 billion).”

The report also adds that residential transactions for residential components in the Klang Valley increased, but overhang units also went up.

“As of Third quarter 2019, the residential sector in the Klang Valley reported an 8.7% growth in transactions to 15,973 units and 4.2% to RM8.33 billion in value from a year ago. Klang Valley’s residential overhang increased by 5.1% year-on-year (y-o-y) and 2.4% quarter-on-quarter (q-o-q) in Third quarter 2019 to 12,007 units. Close to one-third of the overhang in Klang Valley was made up of residential properties priced between RM200,000 and RM500,000.”

In the Klang Valley office market, four new office buildings increased the purpose-built office space to 111.9 million sq ft.

“Vacancy rates rose by 1.0% y-o-y (Third quarter 2018: 18.6%) and may breach the 20% mark by 202 in view of the 10.23 million sq ft pipeline,” the report states.

It further adds, “the average office rental rate and yield were at RM6.95 per sq ft and 5.5% to 6.0% respectively as of Third quarter 2019. Exchange 106, Sapura HQ, HSBC headquarters and Affin headquarters – each commanding more than half a million sq ft of space – are upcoming completions.

On the retail front, the report states that this segment remains unchanged with a generally healthy retail revenue and sustained shopper footfalls; same occupancy and rental rates.

“The incoming supply of retail space outside Kuala Lumpur is 5.6 million sq ft compared to 1.49 million sq ft in Kuala Lumpur city.”

In the report, it further adds that the industrial sector continues to be the bright spot as approved investments for manufacturing from January to June 2019 in the Klang Valley was RM5.99 billion of which 63% was contributed by foreign investment.

“Major highlights in the Klang Valley’s industrial market would be the West Coast Expressway (WCE) that will boost connectivity and spur the logistics activities. The ongoing development of Digital Free Trade Zone (DFTZ) in Sepang is anticipated to stimulate higher growth in air logistics activities”

Hotel and tourism shines equally as bright as the industrial segment, according to the report as tourist arrivals for Malaysia rose 4.9% y-o-y from January to June 2019.

“Average occupancy rates (AOR) of hotels in and outside Kuala Lumpur were 81% and 64% respectively in Third quarter of 2019 while the average room rate (ARR) increased marginally to RM260 per room.”

Penang

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On the Northern front of Penang, property transaction activities continue to be lackluster through January to September 2019. According to the recently released statistics by the National Property Information Centre (NAPIC), a total of 12,647 properties were transacted in Penang State between January and September 2019, representing a marginal increase of 0.4% compared to the corresponding period of January to September 2018.

“The total value of properties transacted in Penang State was approximately RM6.51 billion between January to September 2019, a reduction of 13% compared to the corresponding period of January to September 2018. The prevailing subdued market would extend to 2020 due to the challenging market scenario as well as lack of boosters in the property market.”
The report adds that according to a recently released property overhang data for the second quarter of 2019 by NAPIC, the volume and value of unsold units remain a concern.

“Residential properties continue forming the bulk of the property overhang in terms of total units and value of unsold units in Penang state. Under the buyers’ market, there are opportunities for good buys. There has also been increased interest by prospective purchasers from Hong Kong for residential properties in Malaysia, including Penang, due to the current unrest and chaos in their country.”

As landowners rationalise their property portfolio under the prevailing lackluster market, more lands are made available for sale. Hence, it is an opportune time for developers and investors with the financial strength and appetite to enhance their land bank.

“In 2019, developers which have entered into Sale and Purchase Agreements (SPA) to acquire sizable lands in Seberang Perai include Tambun Indah Land Berhad and Scientex. Sizeable development land will also be made available from land reclaimed for the future phases of The Light township and the ongoing reclamation of Seri Tanjung Pinang phase two and the foreshores of Gurney Drive and Queensbay.”

The Penang State Government is set to implement the Penang South Reclamation (PSR) project, the development of three man-made islands with a total size of nearly 4,500 acres. The Environmental Impact Assessment (EIA) report of the PSR project has received conditional approval and a masterplan design competition has been rolled out inviting multi-disciplinary consortiums to provide a development concept for PSR.

On the Penang Transport Master Plan (PTMP), the report states that the PTMP will set the framework for an integrated and modern transport system.

Iskandar Malaysia

In Iskandar Malaysia, Johor, the report states that transaction activities for residential properties in the South are recovering. In the first nine months of 2019, 16,709 properties were transacted in Iskandar Malaysia, a growth of 2% as compared to 16,358 properties in the corresponding period of 2018. Total value amounted to RM9,399 million, a growth of 7% from RM8,746 million in first quarter Third quarter of 2018.

“Landed residential remained stable while high-rise residential continued to be plagued by oversupply. House buyers shifted to the primary market, thanks to government initiatives encouraging price discounts. Purpose-built office sector in 2019 saw vacancy rates rise due to the influx of new office buildings in recent years. Downward adjustment for rental rates are expected as the building owners complete for tenants.”

In the retail sector, Iskandar Malaysia welcomed five new shopping malls in 2019. Shopping malls which are located at strategic locations and well-designed for various activities will command high occupancy rates and footfall.

The hotel sector remained healthy in the short term with another four hotel projects launched in 2019, adding up to 12 on-going projects. The recent completion of several serviced apartments projects and increasing trend of apartments online booking has undeniably exacerbated the competitiveness of the hotel market.

For the Iskandar Malaysia industrial sector, the report states that it remained active with both transaction volume and value of industrial properties showing positive growth. The total approved investments in the manufacturing sector for Johor state was RM14 billion in the first half of 2019.

The area of Iskandar Malaysia is also currently under planning to be expanded. It will be doubled up from 2,217 sq km to 4,749 sq km to include Simpang Renggam and Renggam in Kluang district, Pontian town in Pontian district, and Pengerang and Desaru in Kota Tinggi. The region will then be named Greater Iskandar Malaysia.

“The spending patterns of these consumer groups are expected to moderate. In addition, Singaporeans are anticipated to reduce their spending in Iskandar Malaysia as well as putting off property investments. Singapore-based companies might also be influenced to scale back investments.”

For Johor Bahru infrastructure, the Malaysian government has agreed to proceed with the Rapid Transit System (RTS) with an estimated cost of RM3.16 billion. Three new agreements with the Singapore government will be signed by the end of April 2020, barring any amendments of the scope and structure of the project with a target for completion in 2024 or beyond.

“The government has also called for a tender to appoint both the commercial and technical advisory consultants to review the feasibility of the High Speed Rail (HSR) project to assist the government in making a decision before the end of May 2020.”

East Coast

In the East Coast, 50% of land area in Peninsular Malaysia comprises the states of Kelantan, Terengganu and Pahang. It is home to over 4.5 million people and according to the report, is transforming into a distinctive, dynamic and competitive destination for investments.

“In June 2019, the Federal Government through the East Coast Economic Region Development Council (ECERDC) launched the ECER Master Plan 2.0 (2018 to 2025). The ECER Master Plan identified seven Key Development Areas (KDA) or Nodes of development. This will be a major boost to the East Coast region.”

Business activities in the East Coast revolve around the timber and fisheries industries and in recent years, the petrochemical industry has become an integral part of the economy. Tourism and the service sectors have also become two high areas of employment and very important cogs in the machinery of economic growth.

Tourism is proposed as a major stimulant to the Terengganu economy and the state is planned to be the dynamic Tourism Gateway to the East Coast. The investment and development of the new Kuala Terengganu City Centre (KTCC) will strengthen the image of Kuala Terengganu as a vibrant Heritage Waterfront City.

Sabah

For Sabah, based on NAPIC’s Property Sales Data for third quarter 2019, Sabah registered a total of 6,496 transactions amounting to RM3.607 billion for third quarter 2019, a 5.3% and -2.7% y-o-y change in volume and value transacted, respectively.

“Within the same period, transaction volume and value in Kota Kinabalu (including neighbouring districts of Penampang and Putatan), rose by 3.1% and 4.6% to 2,783 transactions and RM1.786 billion respectively. Transaction activities improved for all sub-sectors, save for the agriculture sector, but this did not have a significant impact in the market as the latter only formed a very small portion of transactions. Total transacted value for agriculture and development land sub sectors declined whilst residential, commercial and industrial segments reflected an increase. The residential sector forms the largest segment in Kota Kinabalu’s property market registering 77% of total transactions.”

In the commercial property sector, the report states that the overall glut for retail and offices still persists, especially in newer developments with pick-up expected to be gradual at the expense of depressed rents.

“In the housing sector, stratified high-rise developments continue to outnumber landed residential developments. New developments for the latter are mainly situated in areas further from central or prime suburban areas given lower land cost in secondary localities. Ongoing landed housing developments are taking place in areas such as Menggatal and Sepangar in the north and Kinarut in the south.”

Sentiment is generally cautious in the condominium sector, the reports adds, with the softening of transaction activities and concerns of surplus for new units from ongoing pipeline supply. Nevertheless, developments with central locations offering good products with competitive pricing by developers with proven track records could still pique buying interest.

“There has been a noticeable rise in commercial suite developments (for short-term stay or Airbnb use) launched or opened for sale/registration of interest in the past one to two years. The motivation for this would be two-pronged – Sabah’s growing tourism sector and the moderated high-rise residential segment. Smaller units translate to lower pricing for better affordability for buyers and enhanced saleability for developers. However, increased participation from developers is likely to see keen competition in this sector.”

The report adds that the tourism sector continued its growth trajectory with a y-o-y growth of 8.9% in visitor arrivals to 3.4 million, up to October 2019. Several new major hotels were announced in 2019; namely, One Beach Resort (Club Med Borneo Kota Kinabalu) in Kuala Penyu district and three city hotels within Kota Kinabalu CBD. Projected visitor arrivals to Sabah for 2020 is 4.18 million with an estimated spending of RM8.96 billion. In line with Visit Malaysia Year 2020, various programmes coupled with more aggressive promotions will be implemented. The Sabah International Convention Centre (SICC) is expected to be operational in 2020, providing an avenue for growth via the MICE (Meetings, Incentives, Conferences and Exhibition) market.

On the Sarawak property front, the Malaysian Valuation and Property Services department expects property market activity in 2019 to stabilise.

“Judging from the increased volume (2019: 4.7%; 2019: 7.4%) and value (2018: 7.4%; 2019: 22.9%) of total property transactions for the State, with better performances in almost all sub-sectors, the market for 2019 is anticipated to pick up. The residential sector will continue to dominate the market in terms of volume and value, and expected to move slowly but steadily. The high rise residential sub sector will continue to face challenges in view of the significant increase in supply. Take-up rates of the latter would be subject to pricing, location and other unique selling points.”

In Sarawak’s industrial, agricultural and vacant land sectors, it is expected to register slow but steady growth whilst excess of units are still observed in the commercial sector, particularly retail units and shop offices.

“Overall overhang for 2019 has increased compared to 2018. High property prices, stricter lending policies, volatile macroeconomic conditions and weak consumer sentiments, remain challenging for the property sector in 2019,” the report states.

It further added that the increase in Real Property Gains Tax (RPGT) and the imposed 5% RPGT on properties sold after the fifth year of purchase will dampen genuine sales. However, decline in value is not evident. Major infrastructure projects under the Eleventh Malaysia Plan are expected to be the catalyst for growth.

“The recent announcement by the State Government to develop two million hectares of land for agriculture to enable the State to become a net food exporter by 2030 will mean an increase in demand for agricultural lands. Thus, the agricultural sector is one to look out for in the near future.”

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