Kedah – Industrial potential in 2021

March 10, 2021 editor

The moniker as the “rice bowl” of Malaysia may soon be overshadowed by the ambitious plans of the Kedah State Government if they all come to fruition as laid out in the plan. From the proposed Kedah Aerotropolis to the various industrial parks, Kedah has the makings of an industrialised destiny if only there are equally enterprising entrepreneurs that can dream up big ideas and morph them into a workable reality. The opportunity is there, it’s up for the takers; just as how Kedah birthed two prime ministers of Malaysia.

Residential review and outlook

The residential property market in Kedah registered a decline of about five per cent in the volume of transactions in the first nine months of 2020 compared to the same period in 2019 whilst the value of the transactions went up by three per cent This could be due to more properties being transacted in the higher-priced categories compared to the same period in 2019.

In terms of pricing, the house price index for the state registered an increase to 183.6 as at the halfway mark in 2020 compared to 176.3 as at the second half of 2019. The average house price nudged up slightly from RM229,151 to RM238,635. Most of the residential properties transacted in the past three years were between RM100,001 to RM300,000, and there was a higher interest for landed residential properties with terrace houses being the most popular.

In the overhang properties category, defined as completed properties but remained unsold after nine months, there were 1,341 units or only 4.2 per cent out of a national total of 31,661 units of overhang properties. As for unsold units, Kedah ranks amongst the lowest in the country with 1,367 units which were still under construction as at the first half of 2020 or only 1.8 per cent compared to the national total of 74,230 units.

It is hardly a surprise that the Covid-19 pandemic has had an impact on property sales in Kedah. Just as the country was being affected from early 2020 which then led to a series of lockdowns imposed by the government under the various phases of the Movement Control Order (MCO) beginning 18 March 2020, sales activities took a hit and ground to a halt. To resuscitate the market, the government reinstated the Home Ownership Campaign (HOC) from June 2020 to May 2021. Supported also by the low-interest rate regime, the mechanism generated buying interest from the public especially when the government began loosening travel movement under the Recovery MCO phase. The situation in the secondary market was nevertheless sluggish, probably due to the lack of incentives to motivate purchase and job security of the workforce was put on the line.

In 2021, Kedah’s residential subsector is expected to remain subdued seeing that the continuation of the pandemic will result in lower consumer confidence, thus affecting the volume of transactions.

Office review and outlook

Over in the office sub-sector, the supply of purpose-built offices in Kedah have remained stagnant over the years with no new projects being undertaken and only increased by about two per cent from 2018 to 2019. As there was very little new supply coming onto the market, there was a noticeable trend of improving occupancy rates as reflected by the seven per cent improvement from 84.5 per cent in 2018 to 90.8 per cent in the first half of 2020.

With most Kedah businesses operating from the shop-houses type of premises, winds of change may be beginning to blow as Kedah-based property developer Imperio Group announced plans to undertake an integrated commercial development on a 3.7-acre plot of land in Simpang Kuala in Alor Setar comprising retail, hotel, office, co-working spaces and residential components.

Moving into 2021, the purpose-built office market will remain stable as occupancy rates seemed unperturbed due to limited new supply.

Industrial review and outlook

The volume and value of industrial property transactions in Kedah peaked in 2019 with 161 properties changing hands worth a total of RM307.89 million. This represents a big jump compared to 2018 which registered 145 units and RM141.82 million in volume and value respectively. In this regard, it was noted that the Kedah state government announced several major projects back in 2019 which involved an estimated cost of more than RM3 billion. These included the development of manufacturing industries and a logistics hub in Sidam near Kulim and a petrochemical industrial park in Gurun. The Bukit Kayu Hitam Special Border Economic Zone (SBEZ) also contributed to improved overall industrial development activity in the state.

The momentum was however not sustained as both the volume and value of transactions came down in 2020. The volume and value of industrial property transactions recorded for the first nine months of 2020 saw a decline of three per cent and 40 per cent respectively compared to the same period in 2019. The decline could be due to the implementation of the Movement Control Order (MCO) in the first half of 2020 which affected economic activities everywhere including Kedah. The majority of industrial property transactions over the past three years were of the RM1,000,001 and above category followed by those between RM500,001 and RM1 million.

In spite of the pandemic disruption, the Kedah State Government had in the second half of 2020 announced that they were working closely with the Northern Corridor Implementation Authority (NCIA) to roll out more human capital and high-impact infrastructure projects that were already approved by the Northern Corridor Economic Region (NCER) Strategic Development Plan 2021–2025. This will likely lead to more investments into Kedah and increase job opportunities for the state.

Another positive development is the first dedicated Rubber Industrial Park in the country dubbed The Kedah Rubber City (KRC), hailed as the biggest contributor to the state’s investments from the manufacturing sector. Phase 1 of KRC comprising foundation and infrastructure works commenced in December 2019 and was completed at the end of 2020. Operations as such are expected to begin in the first quarter of 2022. A notable transaction in KRC in 2020 was the acquisition of 105 acres by Hong Seng Consolidated Bhd for RM46 million to set up their nitrile butadiene latex plant. It is also worth noting that after manufacturing, logistics, and the bio-agriculture industries are the second and third largest contributors to Kedah’s investments.

The much talked about Kulim International Airport (KXP) project or Kedah Aerotropolis shall help facilitate logistics and industrial development in the state, and boost the socio-economic development of the region should the project take off successfully. It is also estimated that KXP alone will create 15,000 new jobs on a development site exceeding 4,600 acres. Complementing KXP nearby is the Sidam Logistics, Aerospace, and Manufacturing Hub (SLAM) which is yet another mega project that focuses on high-value industries such as logistics, aerospace and manufacturing. SLAM has the potential to attract over RM18 billion and create close to 25,000 new jobs once it is fully completed by 2050.

Another project that will further enhance the state’s economic status is the Kedah Science and Technology Park (KSTP) located in the Bukit Kayu Hitam SBEZ, designed to be a modern industrial park catering to global research centres which focus on agriculture, agro-science, information, communication and technology (ICT) and green technology.

Given the scale of the industrial projects as announced by the Kedah State Government and its potential for a state-wide socioeconomic impact, Kedah’s industrial sub-sector may see growth in 2021.