Malaysia's apartment segment seen a slowdown in transactions

The residential property sector has been affected by Bank Negara Malaysia’s cooling measures and poor consumer sentiment, creating a slowdown in transactions across the board. But the outlook for 2016 and 2017 is especially difficult for the condominiums and apartments segment, which has become an increasingly popular slice of the property market.

In the second half of 2015, sales of apartments and condominiums rose by 120% on the same period a year earlier, from 779 to 1844, according to the Real Estate and Housing Developers’ Association. The segment accounted for more than half of all property transactions in the third quarter of 2015, according to the Valuation and Property Services Department.

Surplus Stock

There are too many of these units coming on-line and not enough properly financed buyers to purchase them. The high-rise premium residential unit segment is thus set to see a particularly challenging few years. The country has an oversupply of premium apartments, with many units measuring less than 46 sq metres going unoccupied, according to Foo Gee Jen, managing director of CH Williams Talhar & Wong. Around 13,000 high-rise apartments will be completed in 2017, adding more stock to a saturated market. The picture is no better for short-term investors. “Property speculators who have bought into high-end condominiums in hope of flipping it for profit will be suffering this year because there are no demands for their properties and there is a glut of such properties,” Siva Shanker, chairman of the Malaysian Institute of Estate Agents, told press.

Selangor

In the second half of 2015, the high-end condominium segment in Kuala Lumpur was “sluggish” and potential buyers and investors were taking a wait-and-see approach, according to property consultancy Knight Frank. However, it said that as a result, it also saw signs of a “greater level of product innovation and marketing strategies”. In a bid to attract buyers and investors seeking rental returns and capital appreciation, some developers are offering leaseback arrangements and pool management schemes with guaranteed rental returns. “We are concerned about the future supply, as we will see a 37.2% increase in new high-rise units injected into the market,” said Foo. “By 2017, we will have 49,752 high-rise residential units in Kuala Lumpur”. Kuala Lumpur had 36,252 existing luxury high-rise residential units in 2015.

To stem the tide of supply, the Selangor government recently announced it would retroactively suspend the approval of any new property projects involving serviced apartments, small office home offices, and small office versatile offices for six months. The suspension will be applied to all applications submitted after January 1, 2016. Real estate analysts generally considered this a step in the right direction, if perhaps a bit tardy. “The government should have done this two years ago,” Siva Shanker told local press.

Johor

In Johor Bahru, developers are adopting a cautious approach to project launches, particularly in the high-rise residential segment due to a slow absorption rate, according to Knight Frank. The Johor government has introduced cooling measures that include withholding building permits for serviced apartments and applying a 1% tax levy on the gross development value of those under construction.

Penang

High-rise residential transactions have slowed as potential buyers and investors wait for more affordable units to enter the pipeline in Penang. This is understandable, as between the second and third quarters of 2015 the National Property Information Centre recorded a 19% increase in the average transacted price for a condominium in the north-east district of Penang island. However, investors may spot an opportunity in the oversupply. The real estate website PropGoLuxury has reported a 45% surge in inquiries regarding Kuala Lumpur luxury properties. Foreign buyers are in a prime position to invest in a wide array of high-end condos entering the market.

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The Report: Malaysia 2016

Construction & Real Estate chapter from The Report: Malaysia 2016

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