What to expect in Malaysian real estate this year

By Ryan Khoo / Alpha Marketing | February 29, 2016 10:00 AM SGT
Going by all readings and forecasts, the Year of the Fire Monkey is going to be turbulent for all of us. While I am no feng shui master, I shall jump on the bandwagon and make my 10 predictions of key trends in the Malaysian real estate scene in 2016.
1) Affordable housing will take centre stage
Malaysia’s population crossed the 30 million mark in 2014 and the median age is still young, at 29 years. Housing demand is still strong, especially among the young and first-time homebuyers. However, despite the recent housing boom in Malaysia, there is still a huge mismatch of demand and supply as most property developers had focused on the higher-end segment instead of first-time purchasers.
Public housing initiatives such as the federal government-led PR1MA, and those by various state governments, including buy-to-let programmes, have seen tremendous take-up and will continue to do so as the government steps in to try and meet the demand for basic housing. Most affordable schemes are looking at home prices of RM150,000 ($50,110) and below.
2) Absolute price quantums will matter
In today’s market, buyers are still keen to look at properties with price quantums of RM500,000 and below. Be it an apartment or a landed unit, anything within this price range will still see healthy interest and transaction activity. Not only are they friendlier on the wallet for down payment and financing purposes, they are also perceived to be at baseline prices that are unlikely to drop further. Developers who can create products within this price range will do well.
3) Supply still outweighs demand
Overall, the market is still in a situation where supply is higher than demand particularly in the higher-end segments. Like Singapore, Malaysia (whether it is Kuala Lumpur, Penang or Iskandar) will see high incoming supply at least until2018. This puts downward pressure on prices as homeowners have more choices, be it in the primary or secondary markets. A weak global economy means that demand is not increasing rapidly either. High transaction activity will be limited to the more affordable pricing segments of the market.
4) Prices to stagnate, but with limited distressed sales
Despite the slower market, prices should stagnate as holding power is still strong among homeowners and Malaysians have a high savings rate. The number of distressed sales will be limited, barring any unforeseen economic shocks. Despite high profile layoffs by banks and Malaysia Airlines, and weakness in the oil and gas sector, it is still a tight labour environment for employers and generous severance pay will allow time for these workers to re-enter the labour market.
5) Short-term rentals becoming popular
“Homestays” or short-term rentals are becoming popular as homeowners try to push up their rental yields. Airbnb and other online hosting platforms allow homeowners to reach out to a wider tenant pool. Coupled with other leisure activities, homestays are becoming a niche tourism market in Malaysia. Well-managed, short-term rental properties can push gross rental yields to above 10%. The sharing economy brought about by Airbnb will embed itself well in real estate.
6) Interest rates to trend downwards
With GDP growth now estimated to slow to 4%for 2016, interest rates in Malaysia will actually trend downwards instead of upwards. Inflation should be quite benign, with GST offset by lower oil prices. Growth will become the bigger priority instead. The recent reduction of the Statutory Reserve Rate for banks in Malaysia highlights Bank Negara’s move to protect the banks and improve liquidity. A reduction in rates will decrease the pressure on mortgage repayments and help preserve stability in the system. Malaysia is not alone in this respect: Countries such as Japan, India, Australia and Canada have made similar moves.
7) Transport-oriented developments will start to prove their worth
The first phase of the Klang Valley MRT Line 1, expected to be completed by end-2016, will give commuters an idea of what the MRT can do to improve public transport in traffic-clogged Kuala Lumpur. Many property projects launched in recent years have touted their proximity to the MRT stations. With the transit system finally operational, homeowners will benefit from paying a premium to live next to it. Expect more developers and homeowners to jump on this bandwagon.
8) Land reclamation will be big initiatives in Johor, Penang and Melaka
While Singapore and Iskandar Malaysia are no strangers to land reclamation, we will see similar initiatives in Penang this year, with the first 110 acres to be reclaimed just off tourist haven Gurney Drive. There are plans to reclaim another 1,500 acres towards the south of the island. Proceeds from the land sales will help fund the Penang government’s transportation programme, which includes new highways, an LRT and an undersea third link to the mainland. Melaka has reclaimed land towards Klebang, and there is a likelihood of Chinese involvement going forward. In Iskandar Malaysia, China developer Country Garden has gone full steam ahead with its 3,400-acre Forest City development featuring smart-city technology and unique architecture. Some 200 acres have been reclaimed so far, visible today from the Second Link to Singapore.
9) Chinese property developer participation in Klang Valley will increase
Chinese developers have been a strong presence in Johor. With the recent 60% equity sale of Kuala Lumpur’s Bandar Malaysia to a consortium led by Tan Sri Lim Kang Hoo and China Railway, I expect more Chinese developers to now buy land in KL itself, especially in Bandar Malaysia, the location of the high speed rail station and two proposed MRT stations. This makes the 500-acre tract a choice target for Chinese developers as it is also 10minutes from KLCC. Lim and China Railway have a formidable network of Chinese developers and a track record of attracting them to Iskandar Malaysia.
10) Higher interest in overseas properties by local investors
The recent volatility in the ringgit, falling oil prices and political uncertainty spawned by the1MDB scandal, have prompted some Malaysians to think about parking money overseas. While locations such Australia and the UK have always attracted interest, investing in property overseas will get more popular as Malaysians start hedging their investment positions in assets other than those denominated in ringgit. Emerging markets such as Cambodia and Vietnam, previously ignored by Malaysians, will appeal to the sophisticated investors.
Ryan Khoo is co-founder of Singapore-based Alpha Marketing, a real estate investment consultancy that focuses on the Malaysian market, especially Iskandar Malaysia. The views expressed here are his own. He can be contacted at ryan.khoo@alphamarketingsg.com.
This article appeared in The Edge Property Pullout, Issue 717 (February 29, 2016) of The Edge Singapore.