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 will 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 center 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 for the young and first time home buyers. 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 like the federal government led PR1MA, and those by various state government housing initiatives, 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 needs. Most affordable housing schemes are looking at home prices of RM150,000 (BND50,110) 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 (BND167,224) and below. Be it an apartment or a landed home, 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, but 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 Kuala Lumpur, Penang or Iskandar) will see high incoming supply at least until 2018. 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 amongst 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 Malaysian 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 home owners 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 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 becomes the bigger priority instead. The recent reduction of the Statutory Reserve Rate (SRR) for banks in Malaysia highlights Bank Negara’s move to protect the banks and improve liquidity. A reduction in rates will reduce 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 be completed by end 2016, will give commuters an idea on what the MRT can do to improve public transportation in the 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, home owners will benefit from paying a premium to live next to it. Expect more developers and homeowners to jump on this band wagon.
/8/ Land reclamation will be BIG initiatives in Johor, Penang and Melaka
While Singapore and Iskandar Malaysia are no strangers to land reclamation, we see similar initiatives in Penang this year, with the first 110 acres to be reclaimed just off the popular 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 3rd link to the mainland. Melaka has reclaimed land towards Klebang, and there is a likelihood of Chinese involvement going forward. In Iskandar Malaysia, Chinese 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 2nd 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 Kuala Lumpur itself, especially in Bandar Malaysia. Bandar Malaysia is the location of the High Speed Rail (HSR) station for Kuala Lumpur and 2 proposed MRT stations. This makes the 500 acre tract a choice target for Chinese developers as it is also 10 minutes away from KLCC. Lim and China Railway have a formidable network of Chinese developers and have a track record of attracting them in Iskandar Malaysia.
/10/ Higher interest in overseas properties from local investors
The recent volatility in the Ringgit, falling oil prices and political uncertainties spawned by the 1MDB scandal, have prompted some Malaysians to think about parking money overseas. While locations such as Australia and the United Kingdom 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.
This article first appeared in The Edge Property Singapore on 26th Feb 2016.