Local property deals to contract up to 10pct this year

KUALA LUMPUR: Transaction volume for local property is expected to contract between 5.0 and 10 per cent this year from the industry average of 300,000 units to 350,000 units per year.

However, market observers said the contraction was not an indication of poor sentiment but rather a mitigation effect arising from the Covid-19 pandemic.

Triterra Metropolis Sdn Bhd chief executive officer Christopher Lim said the government’s initiative for the property sector on the six-month moratorium had stabilised the market in preventing unnecessary “panic” during the crisis.

“We believe the local property market may see a surprise uplift due to expected recovery in economic growth next year as well as the possibility of moratorium extension and the government’s Budget for 2021,” he told the New Straits Times (NST) via a virtual interview recently.

He said the government had been supportive of the local property market by allowing foreigners to buy properties value from RM600,000. This had resulted a spike in transaction volume of 280,000 and 328,607 units recorded in 2018 and 2019 respectively.

“Loan on the third property is also capped at 70 per cent loan and lower percentage of real property gain tax have help to boost demand for property market in the last few years,” he said.

Savills Malaysia executive chairman Datuk Christopher Boyd said the next three to six months would be crucial period to observe the real economic consequences of the pandemic.

“Right now, we can only take a view based on a small amount of data and a large amount of anecdotal evidence. The market has not seen any panic-selling or obvious consumer behavioural change as yet, as the economy has just been reopened for a month after a long pause,” he told NST.

He said the volume of residential transaction in the first-quarter (Q1) of 2020 had fallen by 11 per cent year-on-year (YoY), primarily due to the Movement Control Order (MCO) that cut the “trading days” in Q1 to just 87 per cent (88 days) of the full 90 days.

“Using a linear forecast, transaction volume in the second-quarter (Q2) of 2020 may fall by circa 60 per cent as the Conditional Movement Control Order (CMCO) lasted for most of the Q2,” he said.

However, he said transaction volume may fall by 20 per cent, if not more, for the full year of 2020, as the local economy had been halted for almost three months this year.

Boyd said demand for office space would remain stable, but rents would continue to be very price-sensitive if office space was required to be redesigned to respect social distancing measures.

“The new design can only fit some 50 per cent of original workforce within the same space. This should negate the impact of reduced staff count in the office,” he said.

Boyd said the local property sector could see selling pressures in both the sub-sale and auction markets, which will further soften the market.

“Even now, in our valuation practice, we have noted the rise in the number of impending foreclosures, and this is of concern,” he said, adding that those who struggle with cashflow would not be able to serve their loan obligations and the declining employment rate.

Carey Real Estate managing director Nixon Paul said the upper and middle-income class havd been taking advantage of buying properties this year as prices were “below market price”.

“These segments of buyers have steady cash flow and they have not been adversely affected by the current pandemic as they have more stable job and saving as well as less problem in financing,” he said.

However, Paul said uncertainty was the main concern affecting the property market.

He said demand for residential properties between RM500,000 and RM1 million and commercial (above RM2 million) were encouraging, amid the ongoing Covid-19 crisis.

“Typically, investors for commercial property look for rental yields averaging 5.5 per cent to 7.0 per cent on a yearly basis. People still buy property for their own stay (residential) middle and upper middle income bracket.

“Buying sentiment for commercial property also record a strong traction, particularly in good and prime locations for warehousing and industrial land,” he said.

Meanwhile, Lim said there would be a paradigm shift in some sectors in the real estate, citing that players would need to reinvent to brace the current challenging business environment.

He said there would be people constantly moving or migrating out of Malaysia and some would return back. This will in turn cause a paradigm shift where some sectors of the real estate market will be big winners and some would need to reinvent themselves.

“With a challenging economy and potentially a work-from-home culture that came with the pandemic, one may generalise that offices may be affected.

“However, this may not be true where there may be a paradigm shift favouring certain sector of offices. Factory offices may migrate to new offices to mitigate the risk of being overcrowded with factory workers,” he said.

He said the movement was not necessarily detrimental to the office spaces as there would be a new beneficiary to replace their predecessor.

“There will be a movement that affects dimension (size) and migration of commercial property. Offices will likely move to more sophisticated building that can cater to the new normal operating environment,” he said.

Therefore, he said invention would be necessary during a crisis as it causes some shifts in demand, depending on specific requirement.

For commercial property, he said the strata grade A segment would be highly in demand due to sophistication and reasonable space businesses can maintain resulted from the needs to downsizing or upsizing.

“Businesses need to go for advanced building with social distancing capability and high-speed lift to adapt its operations in new environment. The common denominator is to have a uniform management of the building, which would lead to a pent up demand,” he said.

Lim said property developers should provide buyers with the right development in the right concept, pricing and locations to match consumers’ expectation.

“Family-size residential averaging from 1,000 sq ft to 2,500 sq ft are the bread and butter for landed properties or strata. We believe this segment would cater to the basic needs of a growing family.

“Malaysia has about 30 million population. Of the total, 7.5 million population are in the Klang valley. Consumers are now sophisticated and unique as they need to find the right location, pricing and products,” he said.

Paul said the local property market for residential segment could take time to recover due to oversupply issue, while expecting that property developers were rather cautious of launching their new products.

Overhang units in residential property reduced 5.1 per cent to 30,664 units with a total value of RM18.82 billion in 2019, from 32.313 units (RM19.86 billion) in 2018, according to National Property Information Centre (NAPIC).

Total residential property launched in 2019 recorded at 123,825 units. Of the total units, 75.2 per cent or 93,161 units were sold, while the remaining 24.8 per cent (30,664 units) were unsold.

Source: NST