On the map: The real estate market continues to expand with various new projects

Sustained economic expansion, a youthful and growing population and an investor-friendly market amenable to foreign and domestic investments have continued to drive Malaysia’s real estate market forward in 2013. Despite concerns about market overheating and growing vacancies in some subsectors, property values have continued to climb in recent years, albeit not at the blistering pace which characterised the sector from 2009 to 2012. Government efforts to cool the market have had some effect on curtailing growth starting in the last quarter of 2013, although market forces have also influenced the course correction. As property values have levelled off and vacancy rates edged upwards, transactions have likewise fallen off as of late.

In spite of the checked growth, most observers in the real estate sector see little chance of a wholesale crash of the market as Malaysia’s property market has historically been less prone to dramatic fluctuations than other major regional markets. Singapore’s housing price index plummeted from 140 to below 100 from 1997 to 1998 after which housing prices remained largely static from 1998 to 2007, before embarking again on another rapid period averaging nearly 15% growth starting in 2007, according to a report by Singapore’s Housing and Development Board (HDB).

Instead of the pronounced peaks and valleys which characterise other more volatile regional property markets, Malaysian growth charts tend to resemble steps, increasing incrementally over a period of strong growth during the boom years and remaining static during the bad. Such stability along with relatively less expensive real estate when compared to other regional economic centres has so far continued to make the country an attractive destination for investment.

On The Map

The strongest growth in terms of value and new stock added over the past decade has centred around the industrial and economic hubs of the country, primarily Kuala Lumpur (KL) and the surrounding area, Selangor state, Penang to the north-west, the administrative centre of the country in Putrajaya, and Iskandar located in Johor State adjacent to Singapore. The greater KL area and Iskandar in particular outpaced national population growth over the past three decades, increasing demand for all types of property. Growth in the greater KL area increased by 3.6% during the 1980s, 4.8% in the 1990s and 3.1% in the 2000s, according to Bank Negara Malaysia (BNM) data, much faster than the national average of 2.64%, 2.60% and 2.17% for each respective decade. The population boom in Iskandar was even more pronounced, expanding at rates of 5.0%, 4.9% and 3.8% for each decade.

“Demand in the Klang Valley and in Penang is high, as the two areas have high populations and large industrial bases. Supply has yet to catch up with demand in these areas, especially in terms of affordable, middle-income housing that costs around RM100,000-400,000 ($31,210-124,840). In general, real estate prices and cost of living prices have been increasing at a faster rate than salaries,” Ranjeet Singh, COO of property developer Global Oriental told OBG. Non-residential projects have included the $7.87bn Tun Razak Exchange (TRX); ongoing mixed developments of KL Metropolis ($4.55bn investment), KL Eco City ($1.8bn) and the $580m Damanasara City; shopping complexes Tradewinds Centre ($1.51bn) and recently completed Nu Sentral ($180m); and commercial office buildings Menara Kembar Bank Rakyat (RM460m, $143.57m), Menara Shell (RM1.2bn, $374.52m), and the planned Warisan Merdeka Project ($1.52bn).

New Vision

Two projects in particular – TRX and Warisan Merdeka – are set to redefine the skyline of KL, with the former mixed-use development billed as Malaysia’s Canary Warf and the latter set to overtake the iconic Petronas Towers as Malaysia’s tallest building at 118 floors. Named for the father of Malaysia’s prime minister, the TRX project has been envisioned as a self-contained financial district including investment-grade office space, city residential stock and prime retail mall space along with hotels, cultural and leisure facilities spread over 70 acres of prime freehold land with construction of the first stage of development expected to be completed by 2016. Funded by Permodalan Nasional Berhad (PNB), Menara Warisan would be the third-highest building in the world at 600 metres, behind only the UAE’s Burj Khalifa (828 metres) and just one metre below Saudi Arabia’s Royal Clock Tower Hotel (601 metres). After various delays, construction work began on the foundation of the skyscraper in March 2014, with the project scheduled for completion sometime in 2018. The tower is being built on a 19-acre plot in the vicinity of Plaza Rakyat and will house a gross floor space of 3m sq ft and 2.2m sq ft of net floor space upon completion.

Riding The Rails

Within KL the expansion of the mass transit system is set to reshape the real estate market and its relationship with its suburban fringe territory. Heavy investment in the rail system is expected to extend transportation availability across hundreds of kilometres of railway and dozens of stations in the coming years, creating a host of property hotspots. This increased accessibility provided by the extensions of the light rail transit (LRT) and mass rapid transit (MRT) extensions, combined with the availability of high-quality office space at competitive rental rates, should accelerate the decentralisation process of the city centre already underway. Within KL the MRT scheme is targeting a number of prominent suburban areas for service including Pandan, Mont Kiara, Serdang, Cyberjaya, Putrajaya and areas to the north and south of Klang and Shah Alam, and Selayang.

The ongoing Klang Valley MRT project is expected to complete its first phase of development traversing the city starting from the north at Semantan Portal at Jalan Duta to the southern end of the tunnel at Maluri Portalalnong by 2016. The second phase connecting Semantan to Kajang is slated to become operational by July 2017. Additional lines planned for the larger MRT plan include the circular “red” line to facilitate orbital movements linking areas such as Mid Valley, Mont Kiara, Sentul Timur and Ampang and the North-South line to link developing areas with the eastern half of the city centre (including Kampung Baru and the TRX). The state-of-the-art KL – Singapore high-speed rail (HSR) connecting the two cities would also open up significant development opportunities along its corridor in addition to being a crucial component of the Iskandar Malaysia project. Not counting the two endpoints of the RM40bn ($12.48bn) railway, five intercity transit stops will be built at Seremban in Negeri Sembilan, Ayer Keroh in Malacca, Muar, Batu Pahat and Iskandar Malaysia in Johor along 330 km of track. As of March 2014, the project was in the pre-tender second phase of the project with completion targeted for 2020. Other undeveloped areas outside these suburbs will also be opened up. While large tracts of this land are currently held by private plantation companies such as Sime Darby and could be developed into built-up areas, substantial suburban areas to the north and east of KL remain restricted as natural forest areas which could complicate any development plans.

Alternative Lifestyle

The largest real estate development project in the country is the transformation of southern Johor into a new residential, commercial, leisure and light industrial centre of Iskandar situated just across the Straits of Johor from Singapore. Iskandar is comprised of five major flagship zones of Johor Bahru city centre and central business district, a commercial zone surrounding Senai airport, Nusajaya mixed-use area and two new industrial zones. The advantages for the endeavour are clear, as it possesses several strong economic and logistical linkages to both the bustling economic activity in neighbouring Singapore to the south and KL to the north.

A key component of Malaysia’s long-term economic development strategy, the Iskandar development had attracted RM129.42bn ($40.39bn) in investment since the plan’s inception as of October 2013, according to the Iskandar Regional Development Authority (IRDA). Roughly 65% of this, or RM84.61bn ($26.41bn), was sourced from local investors with the balance (RM44.81bn, $13.99bn) pooled from foreign investors. As a testament to the attractiveness of the Iskandar, a number of heavyweight foreign investors such as Temasek, Ascendas, CapitaLand, China’s Country Garden and Australia’s Walker Corp have all become involved in the project. Capital inflows are expected to hit RM25bn ($7.8bn) in 2014, up slightly from the RM22bn ($6.87bn) recorded in 2013. Singapore has been the largest foreign investor to date, with Singapore-based companies involved in some of the biggest projects to date including Danga Bay (which Temasek Holdings and CapitaLand are invested in), the Irban Wellness Township in Medini (Temasek) and the construction of a RM3bn ($936.3m) Auto City by Singaporean millionaire Peter Lim, which will include the construction of a Formula One racing circuit.


Early development has focused on Nusajaya, which is expected to form the economic backbone of Iskandar, and includes no less than eight signature developments: Puteri Harbour Waterfront Development, the Southern Industrial and Logistics Clusters (SiLC), Afi at Healthpark, EduCity, the International Destination Resort, Medini, Nusajaya Residences and Kota Iskandar. The master developer of the 22,000-ha Nusajaya is UEM Sunrise (formerly UEM Land Holdings), which also holds more than half of its landbank. The project reached a number of milestones in 2013 including the opening of the Legoland Water Park in October. The Danga Bay project also experienced a slew of activity in 2013, with both China’s Country Garden Holdings and a partnership between Singapore’s Temasek and Capital Land inking deals to purchase land in Danga Bay from Johor-based Iskandar Waterfront. The former project has an estimated gross development value of approximately RM18bn ($5.62bn) and will include 9000 units of luxury condominiums, bungalows and shopping centre on a 28-ha parcel. The Singaporean purchase of RM800m ($249.68m) made in February 2013 will similarly be used for the construction of luxury condominiums, shopping malls and bungalows at Pulau A with an estimated overall development value of RM8bn ($2.5bn). Another Singaporean outfit, Albeto, increased its holdings during the year through the acquisition of six parcels from Malaysian company Infinite Rewards. This followed another deal with Infinite Rewards subsidiary Reflection Oasis for 268 ha, bringing its total land bank to approximately 487.57 ha distributed over 13 parcels. These parcels have included the Lido Waterfront project, according to global property consultancy Knight Frank.

Luring Commuters

Iskandar Investment Berhad (IIB) concluded some deals in 2013, the largest of which was a RM4bn ($1.25bn) joint venture project with and Mammoth Empire Holdings. The Medini Empire project will be built on two parcels totalling 9.71 ha near the Legoland park and will include offices, hotels, serviced apartments, retail space, a convention centre, a concert hall and a cinema upon completion in 2018.

Apart from the large mixed-use and leisure projects in Iskandar, the major selling point of the development is as a residential destination to lure commuters from Singapore. While property in Singapore can be vulnerable to dramatic downward corrections at times, much of the property across the Straits of Johor is still viewed as undervalued as it is generally cheaper than other places in ASEAN. If Singaporeans were not already persuaded by financial arguments to take up the commute, new levies imposed by the Singaporean government (along with similar developments in Hong Kong) could further tip the scales in Malaysia’s favour. Any population migration to Iskandar on a large scale, however, will likely be delayed until much of the health, education and transportation infrastructure is in place to support the families of potential residents.

“The 15% levy imposed by Hong Kong and Singapore on property purchases made by foreigners will not have a huge exodus of demand from expats. However, if Malaysia improves its infrastructure, both hard and soft, and addresses the supply of quality educational establishments, those expatriates living in Hong Kong and Singapore may have to think long and hard about moving. At the moment 30% of the property market is made up of expatriates,” John Loi Hieng Yee, managing director of construction and property developer SaraTimur, told OBG.

Despite Iskandar’s attractiveness as an alternative to Singapore, there remain some concerns. “I think we are building far more stock than there are people who will live there,” Siva Shanker, president of the Malaysian Institute of Estate Agents, told OBG. “This will mostly be due to the fact that we are not developing industries which will attract people in terms of employment opportunities, both from Singapore and Malaysia. Industry was once the driver of the sector; now it is an afterthought and the project is primarily about lifestyle.” These concerns were evident in events in 2013 such as the announcement by the Crescendo Corporation that it intended to convert 60 acres of its industrial land in Nusa Cemerlang Industrial Park in Nusajaya in order to develop it into high-end commercial and residential projects. Regardless of potential detractors, foreign and domestic investors have so far displayed a interest with projects already underway and a host of additional prospects waiting in the wings. In the second half of 2013 alone 17 new major residential projects were launched in Johor ranging in size from 161 units to 9000 units, according to Knight Frank data.


Of all the property segments the residential market has seen the highest amount of activity over the past decades as Malaysians purchase their first homes and later upgrade as they become more affluent. The country has also become an increasingly attractive destination for foreigners to purchase second homes or simply as a financial investment, although this practice is tailing off due to new measures introduced by the government targeting non-Malaysian speculative investors. “The government and BNM recently took a series of pre-emptive macro-prudential measures, such as the higher real property gains tax and the end of the developer interest-bearing scheme for new property purchases in order to help mitigate the risk of an asset bubble,” Chung Chee Leong, president and CEO of Cagamas, told OBG. “These measures should be sufficient to deter excessive speculation in the local residential property market.”

Along with factors such as a rise in building costs, the average house price in KL has increased 3.72 times from 1990 to 2012, growing at an average rate of 6.15% per annum, according to data from the National Property Information Centre. Residential units in Selangor grew at a compound annual growth rate (CAGR) of 4.91% over the same period of time with Johor posting a 3.06% CAGR. After years of confident investor sentiment regarding growth, opinion began to turn neutral starting in late 2012, a trend which lingers as the market absorbs new stock and the government rolls out new cooling measures (see analysis). As of early 2014, these instruments have garnered mixed reviews from sector participants who are seeking market stability on the one hand while still maintaining an environment conducive to profitability.

The delivery of a steady stream of high-end property continued in 2013 with more than 3500 new units hitting the greater KL market in 2013, according to Frank Knight. These include six major projects which came online in the first half of the year: Casa Residency (188 units in KL City); towers 1A and 1B of Setia Sky Residences (422 units in KL City); towers A and B of Verticas Residensi (308 units in KL City); Seri Ampany Hilir (40 units); 28 Mont’ Kiara (460 units in Mont’ Kiara); and Kiaramas Danai Block B (166 units in Mont’ Kiara).


Strong economic growth has also impacted commercial space as businesses continue to require greater amounts of office space while a growing middle class is driving growth within the retail segment. While developers have responded enthusiastically to demand for office space, demand and occupancy have fluctuated recently as new stock dilutes the market. Growth is focused around the economic centres of Penang, KL, Prutra Jaya and Johor. The total inventory of office space contributed by purpose-built office buildings increased by 58,358 sq metres from the third to the fourth quarter in 2013, from 18.91m sq metres to 18.96m sq metres, according to NAPIC. The privately-owned purpose-built office supply stood at 13.95m sq metres in 1417 buildings as of the fourth quarter in 2013, up 3.8% from the 13.44m sq metres of stock spread over 1413 buildings available the previous year, according to NAPIC. Despite new private space coming on-stream in the year, vacancy rates have declined on from 23.1% in the last quarter of 2012 to 22.2% in 2013. Indeed, the amount of unoccupied office space has remained virtually unchanged at 3.10m sq metres.

Rental rates in some areas remain under pressure from the supply of new space hitting the market each quarter, particularly in the Klang Valley. After declining from around RM6.5 ($2.03)/sq ft per month in 2009 to just around RM6 ($1.87)/sq ft per month at the end of 2011, prime office space rental rates climbed back to near 2009 levels by mid-2010 only to have remained under the RM6.5 ($2.03)/sq ft ceiling since then, according to data from Knight Frank.

Non-prime office buildings have fared slightly better, increasing from around RM4.5 ($1.40)/sq ft per month at the end of 2011 to approximately RM4.9 ($1.53)/sq ft through the third quarter of 2013.

KL boasts the highest concentration of private office space in the country by a wide margin, accounting for more than half (51.6%) of Malaysia’s commercial office space. At the end of 2013 KL was home to 7.21m sq metres of private office space in 353 buildings out of a total existing stock of 7.63m sq metres, according to NAPIC. While vacancy is rising in these commercial centres, demand for new stock has so far counter intuitively remained strong due to the fact that a substantial portion of office space located in KL’s city centre is becoming outdated, with much of it having been constructed up to two decades ago.

Owners of older buildings in the area have been offering various incentives to attract prospective tenants in order to compete with increasing pressure from new stock, boasting modern facilities, improved security and green features. The availability rate within the city centre fell 0.7% in 2013 from 22.5% to 21.8%, with a total of 1.57m sq metres of lettable space available, according to NAPIC. The city centre had the largest amount of available office space, accounting for one-third of all available area with 522,290 sq metres, down 0.1% from the previous quarter. This was followed by the Golden Triangle area with 500,790 sq metres, suburban areas with 376,140 sq metres and the Central Business District (CBD) with 170,940 sq metres.

Office Space

Some of the major projects that have successfully come online in 2013 and early 2014 in KL include the 33-story Menara Shell located in KL Sentral, as well as a number of new buildings constructed along the fringe areas of the city, in areas such as KL Sentral, Mid Valley City, Bangsar and Pantai. These include Menara LGB containing 386,000 of sq ft net lettable area (NLA), Menara Kembar Bank Rakyat (1.3m sq ft of NLA) and Menara 1 Sentrum (440,000 sq ft of NLA). Selangor was the second-largest market for office space with a total existing stock of 3.07m sq metres at the end of 2013 with another 363,284 sq metres of incoming supply planned.

As a result of the high levels of supply and more projects scheduled for delivery in the coming year, the challenging leasing environment has led some developers to adopt a more cautious approach by deferring the construction of some projects, commencing building only upon securing pre-leasing commitments from potential anchor tenants. That being said, high-quality dual compliant (MSC and GBI) buildings will continue to be popular among multinational companies and tenants in the reinvigorated oil and gas industry, particularly those located within prime office locations in the KL city centre and the surrounding area.


The years of double-digit growth that had fuelled increasing investment in the Malaysian real estate market appear to be ending, with slower expansion in the near future. By restricting financing to reduce the sector’s exposure to overvaluation, the government is likely to be successful in curbing some speculative investment in the short term, but continued interest in a perceived undervalued market remains a long-term incentive for investors. Although investment in the residential sector is expected to remain firm within the short term, particularly with regards to mid-range projects, the market is likely to continue its correction course throughout 2014. Current trends of stock expansion outpacing occupancy rates within the commercial subsector are expected to continue and likely accelerate due to the number of large-scale commercial projects ongoing in the Klang Valley. However, the dilution of the office space market will be offset by increasing activity in the oil and gas sector and demand from other multinational companies. Residential investors remain concerned by the frequency with which the tax structure has been altered, and its effects on the sector’s long-term stability. The real gains property tax swung from a 30% sliding scale to 5% following the Asian financial downturn and has been reinstated at 30% as of 2014, while other sector-wide changes have also come into force over the past two years.


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The Report: Malaysia 2014

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