Uncertainty dominates Malaysia’s property sector

By Poovenraj Kanagaraj

The Covid-19 outbreak has caused a global disruption, causing economies around the world to be under stress which in return has led to industries such as aviation and tourism to be affected from the very start of the pandemic.

In Malaysia, different sectors have already seen the impacts arising from the outbreak. With the Movement Control Order (MCO) in place, the country’s entire economy has been put to test and this includes the property sector.

According to IDEAS senior fellow, Carmelo Ferlito, the property market will be under stress from different perspectives. He points out that projects under construction cannot go ahead under the MCO and with a dominant climate of uncertainty, investments are on hold both for commercial and residential properties.

In recent weeks, tenants of both commercial and residential units have been affected in their capabilities to pay rents. Ferlito points out that this is particularly true for activities within the malls and for individuals who are losing the job and in return will affect landlords as well.

“Such difficulties add on to the structural difficulties experienced by the industry in the past few years, where both the residential and the commercial sector have faced a slowdown,” says Ferlito.

Putrajaya had recently announced three stimulus packages in order to better aid Malaysians as well as businesses in the country, in particular SMEs. Ferlito points out that the stimulus package recently announced is more oriented toward the generality of the public and presents further measures for SMEs.

He further points out that the property market, together with all other industries can enjoy some of the credit facilitations or loan payment deferral which are introduced however, nothing specific is foreseen for the property market

“It has to be said that, according to some studies, the construction sector is the one that has cash enough to stand longer than other sectors,” Ferlito says.

He also cautioned that if the MCO were to last longer than expected, property segment will remain stand still with some projects abandoned for good and some firms will face bankruptcy however the extent of the impact will still very much depend on the MCO duration.

Foo Gee Jen, group managing director of CBRE, who shares a similar sentiment with Ferlito stressed that the property market will not be exempted from a pandemic of this magnitude.

“The property market is known to be lagging behind economic changes, thus there may not be significant changes in the first-half of 2020 while economies around the world are still contemplating and domestic consumption and investment behaviours are unlikely to change immediately either once the MCO is lifted,” Foo says.

He added that the effects would be more evident in the second half and challenging times are to be expected ahead.

Impacts vary according to segments

As for the residential market, Foo says the market has been on the bear run prior to the pandemic and the market is anticipated to remain subdued in short to medium term. Lack of spending confidence and more stringent lending policies are expected to deter residential purchases as well. A similar effect will be seen on new launches and price appreciation as Foo points out, will take a back seat.

CBRE Malaysia managing director, Foo Gee Jen

“By segments, the conventional housing segment could be lesser impacted compared to the stratified properties with higher density intended for tourism and accommodation for expatriates as sharing communal space may be perceived as a risk during this sensitive time,” Foo opines.

“Challenges may be felt first-hand by the mid and lower range housing that caters to the vulnerable B40 and certain portion of M40, especially the self-employed and daily wage earners,”  he added.

He is however optimistic that in the long run, organic drivers such as urbanisation and population growth shall continue to induce stabilising effect on the residential market.

In regards to the office sector, CBRE Malaysia told Business Today that the sector is likely to experience a more minimal adversity in short to medium term since office tenancy by default, has longer lease term. Foo points out that that the MCO does induce organisations to be more agile in their operation and it is an eye-opener to remote work arrangement.

“The greater threat to the office actually lies with the ongoing oil price war in the international market. If the race to bottom persists, another gust of headwinds could await the oil and gas industry in the country. As the industry is one of the nuts and bolts in Malaysia’s economy, it’s downfall will certainly trigger a damaging chain effects in the downstream,” Foo stressed.

Data by CBRE Malaysia shows that occupancy rate of Klang Valley’s office market – which measures 112 million square feet in size – is still hovering slightly above the healthy benchmark of 80 percent. Rental has also remained stable in the past few years as well and there is 10.2 million square feet of office space in the pipeline to be completed in the next two to three years.

“Should the oil and gas industry enter into a downturn, office supply in Klang Valley will come into the picture,” Foo told Business Today.

As for the retail and hotel segments, CBRE Malaysia says malls in sub-prime areas may see increasing vacancy rate and the upcoming ones could expect difficulty in securing tenants. While the services industry contributes to more than 50 percent of the country’s Gross Domestic Product (GDP), Foo says it is also the likeliest industry to experience longer lasting adversity from the pandemic.

“On the other hand, businesses are staring at a possibility of capacity reduction post-MCO may it be due to labour shortage or mandatory requirement by the authorities,” Foo told Business Today.

The retail and hospitality segments which are in the eye of the storm are expected to foresee a painstakingly slower recovery after the impacts arising from the outbreak subsides.

Foo stressed that e-commerce has to be the breath of fresh air in the gloomy retail and tourism markets where a number of e-commerce platforms have acknowledged surges in their orders for groceries and food deliveries in particular.

“This may be the time for offline retailers to explore omnichannel while hoteliers could undertake enhancement actions such as renovations, upgrade, innovative marketing, collaborations among many others to future proof themselves,” Foo says.

One of Malaysia’s leading mixed developers, Mah Sing, told Business Today as Mah Sing is heavily reliant on technology, their employees are working from home using collaboration tools, which have been implemented companywide for some time now.

Mah Sing founder and managing director, Leong Hoy Kum

Founder and managing director, Leong Hoy Kum pointed out that Mah Sing employees are using online platforms to showcase their products currently with most of their new projects available for viewing via virtual showrooms. “Our property advisors are also available to video chat with potential buyers,” he said.

Furthermore,another segment of the market that will face an inevitable temporary slowdown according to Foo is the industrial segment where industrial sector is foreseen to moderate as well as on both local and foreign fronts.

According to CBRE Malaysia, from a long-run perspective, the industrial sector will continue to be the bright spot in Malaysia’s property market with logistics and warehousing being the silver linings. “The economic fundamentals and the prospects of industrial sector of Malaysia with reference to high value manufacturing, regional logistics and distribution are still very tangible,” Foo says.

Moving forward

CBRE’s managing director, Foo told Business Today there are a few curative and corrective measures that could be considered moving forward, for one, getting the government to bring back another edition of Home Ownership Campaign (HOC) to spur the soft residential market.

He added that the new HOC should be broadened to cover both the primary and secondary markets with indiscriminate rebates for properties for all prices.

“Unsold bumi lots holds back cashflows of developers, there should be simplified mechanism for quicker release of the unsold bumi lots,” Foo stated.

He has also pointed out that recognising a possible higher incidence of project delays after this couple with prevailing residential overhand in which the authorities must assess the demand and supply condition before granting new approvals.

Mah Sing’s Leong also shares a similar sentiment to Foo as he proposes for the continuation of the HOC, not only for ongoing and completed residential projects, but to also extend to commercial developments.

“We hope the government can consider introducing a new HOC scheme with additional incentives such as higher margin of financing for first property, reinstating maximum loan tenure for 45 years, lower interest rate for first property as well as considering the developer interest bearing scheme (DIBS) for first-time homebuyers.

“I would start with a gradual lift up of the MCO, in order to restore economic activities,” Ferlito on the other hand says while expressing that he is quite sceptical on the efficacy of the stimulus package, as it both massive, too general and short-sighted.

“The Government, on the advice from public health authorities, should create a zoning system for production clusters or territories as a basis to gradually allowing employees to return to work and businesses to resume operating,” he added.

However, in terms on how the property market will shape in the second half of the year, Ferlito says he is not very positive as he does not see signs of a different policy.

“The situation is very difficult to predict now. we do not have a clearer picture of the medical situation and signs of easing the MCO, the economy (which is not an it, but a group of he and she) will keep on suffering,” Ferlito stressed.

 

 

 

 

 

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