Limited by strict regulations governing the use of the majority of Brunei Darussalam’s 5765 sq km of land, a heavy public presence in the market and a small population, the country’s real estate sector differs from those of many of its larger neighbours. Several factors continue to drive up demand in the residential market, particularly in the capital of Bandar Seri Begawan. Economic diversification efforts have helped boost the industrial property segment as the state has invested heavily in infrastructure for both greenfield and brownfield industrial sites across the country, though the commercial and retail segments remain static due to the limited market size. The real estate sector accounted for 2.38% of national GDP in 2013, worth BN$480.1m ($377m), up from BN$445.7m ($350m) in 2012 and BN$443.1m ($348m) in 2011, according to the Department of Economic Planning and Development (JPKE).
Available Stock
With a relatively small area available for development, growing demand for housing exerts pressure on available land and natural resources. In line with the Sultanate’s commitment to environmental preservation, in August 2012 39.12% of the country’s total landmass was categorised as a forest reserve and 45.51% as state land and thus unavailable for commercial development, according to the most recent data from the Lands Department within the Ministry of Development (MoD). Another 7.69% was restricted as onshore concessions held by Brunei Shell Petroleum, leaving less than 10% of the country for development. Of this, 4.38% was privately held, 2.14% was gazetted for commercialisation and 1.16% was temporarily occupied. According to a 2011 report issued by the Lands Department, 74% of the 23,885 ha of private land available at the time (up to 25,279 ha by mid-2012) was dedicated to agricultural use, leaving around 16% for residential property, less than 9% for mixed-use residential and commercial, and 1% each for commercial and industrial properties.
In Demand
Residential property values in 2013 grew in line with past years at approximately 10%, driven largely by the ongoing land shortage, increases in labour and construction material costs, and overall inflation. Brunei Darussalam’s national housing stock will stand at about 55,200 at the end of 2014, according to National Housing Scheme (NHS) estimates. The supply of domestic residential stock continues to lag behind demand despite the rapid expansion of public housing since 2007 for several reasons. The number of eligible candidates for public housing has overwhelmed the capacity of the government to house them, resulting in a significant backlog and wait times that have exceeded 10 years at times. In 2013 houses under the NHS ranged in price from BN$45,000 ($35,334) to BN$95,000 ($74,600). These start with the most budget-friendly option of terraced houses at BN$43,000 ($33,800) to BN$45,000 ($35,334), followed by semi-detached houses at BN$55,000 ($43,200), with detached houses representing the upper end of the price scale between BN$75,000 ($59,000) and BN$95,000 ($74,600). The subsidy afforded to eligible citizens averages between BN$27,000 ($21,200) and BN$29,000 ($22,770). For the private sector, changes and restrictions on foreign ownership as well as limited land are the primary restrictions on bringing new stock to the market.
Despite a substantial increase in productivity that now sees the government bring some 2400 new units to the market annually, the challenge of further reducing the gap between public housing supply and demand remains significant. As a result, only around half of eligible applicants for public housing were able to purchase their homes as of mid-2011 due to a shortfall of more than 16,000 homes. However, a recent redoubling of government efforts led to a surge in building with thousands of units scheduled for completion in the next three years. In the long term, the NHS hopes to reduce the wait time in high-demand districts to less than five years by 2021 by building at least 10,000 new homes during each five-year National Development Plan (NDP).
New Stock
Brunei Darussalam is currently in the midst of its most aggressive housing campaign ever in an attempt to address the shortage. The NHS is targeting construction of 18,000 new homes from 2013 to 2021. After a successful 2013, building contracts continued to flow in 2014 and many large-scale projects were initiated. Among the most significant of these was the June signing of Bina Puri Holdings to construct 1000 new homes at Kampong Lugu within 24 months at a cost of BN$109.5m ($86m).
These new contracts come close on the heels of several recently completed housing developments including the 4000-home Kampong Mengkubau housing project in Jalan Mentiri in April 2014. The BN$300m ($235.6m) project carried out by the Brunei Economic Development Board (BEDB) included 2400 terraced houses and 1600 semi-detached houses over a 309-ha site, as well as public facilities such as a school, mosque and commercial area. This was later followed in June the same year with the handover of 1542 new homes in the Brunei-Muara District, mostly with semidetached and terraced homes in the Tanah Jambu and Meragang areas. Another 213 residents received semidetached and terraced homes in the Kampong Katok B area under the Indigenous Land Award Scheme, while 349 others got similar-style homes in Kampong Luga.
Ownership
Property ownership in Brunei Darussalam is largely limited to Bruniean citizens, but recent changes to the Land Code have loosened these restrictions in theory in some areas. According to the seven major laws pertaining to property transactions, residents (citizens, permanent residents or foreigners with work permits) of Brunei Darussalam may register as owners of strata units, while only citizens of Brunei Darussalam can register as owners of landed property.
Land tenure title registration is divided into five categories. The first is a freehold title that is granted in perpetuity, while leasehold titles are granted by the state for a set term of 25, 50 or 99 years with the possibility of an extension. The most recent addition is the strata title under which an individual unit within a larger building may be leased for a period of 99 years. For commercial property, locally incorporated or registered firms as well as Brunei Darussalam residents may be registered owners of land for long-term leases of up to 60 years and are granted the right to sublease. Lastly, the government may also grant renewable one-year temporary occupation permits on state land for agricultural, commercial, housing or industrial purposes.
Land Strata Act
A crucial regulatory issue that private real estate developers and homeowners have been following in recent years is the development and implementation of Brunei Darussalam’s Strata Title Act. First signed into law starting in 2009, a strata tile allows single units within a larger building to be sold individually without the corresponding land deed.
The passage of the act signifies increased sophistication in the real estate sector, and should help provide greater stock of more affordable housing. Under the law, a foreigner registered as the owner of a strata title unit may also remain in Brunei Darussalam even after the expiry of his or her work permit and can use the property as collateral.
Although the act allows both foreigners and Bruneians to purchase these stand-alone units for a term period of up to 99 years, uncertainty within the marketplace has caused a lag in uptake. Through 2013 there were only a handful strata title properties available on the market as banks and developers remained uncertain as to how the process would alongside other existing and seemingly contradictory laws. Compounding the problem is the lack of existing stock that can easily be converted into multiple strata title units, along with traditional preferences for landed property.
Slow Adoption
Some of this reticence stems from a March 2012 decision announced at the 8th Legislative Council meeting that new amendments to the Land Code would ban the practices of proxy sale of land to foreigners and permanent residents using the power of attorney (PA) and trust deeds (TD). Not only would the PAs and TDs no longer be recognised as viable mechanisms in land deals involving non-citizens, but the laws would also be applied retroactively, resulting in the conversion all existing property owned through PA and TD into 60-year leases. In closing this loophole, the amendments are intended to more strictly enforce Bruneian law that states that only Bruneians may own a land title in the country, leaving strata title holders who do not technically own any land in a gray area.
This confusion was evident midway through 2013 after the new Land Code amendments were implemented and financial institutions responded in various ways depending upon their interpretation of the changes. Baiduri Finance noted in a June 2013 report that it would approve home loans to permanent residents or foreign nationals provided the property fell under the strata title system. Statements by Standard Chartered Bank indicated a similar stance, while HSBC said it would continue to accept mortgage applications from permanent residents but that they would be approved on a case-by-case basis. Bank Islam Brunei Darussalam (BIBD) told local press that the bank would not accept applications from permanent residents and foreigners until it received confirmation from the Lands Department that it could do otherwise.
In spite of these difficulties, developers remained optimistic in early 2014 that they would soon gain approval for new multi-storey apartments. Assuming these petitions are green lighted by the Lands Department, this should lead to a new surge of large residential building starting as early as 2015. This growth trend in the private sector, combined with ongoing building of government housing units, is expected to bring substantial new stock to the market through 2017, whereupon supply and demand could be balanced enough to lead to a slowdown in market growth.
Measuring Up
Although Brunei Darussalam has made strides to modernise its real estate sector in recent years with new legislation such as the Strata Title Act and Valuers and Estate Agents Act in 2009, the country still has room to improve in terms of implementation and efficiency. The country ranked 116th out of 188 economies in property registration in the World Bank’s 2014 “Doing Business” survey, down one spot from its 2013 mark of 115. The primary reason for this relatively low score is the time it takes to register a property in the Sultanate, which averaged 298 days. This was the third-highest tally of all 188 economies polled, bettering only Kirbati with 513 days and Haiti with 312 days. It was well above the East Asian and Pacific regional average of 81 days, as well as the OECD average of 24.1 days. The primary reason for the extended wait times is obtaining the memorandum of transfer, which took on average between six to 12 months.
Under the procedure, every transfer in Brunei Darussalam requires the approval of His Majesty in Council, which is a council of officials representing the Sultan. The other six procedures required one day to carry out, with the exception of two applications to the Lands Department that require seven days and the register transfer at the Land Office/Registry that requires some 15 days. The country fared much better in terms of the cost of registration at just 0.6% of the value of a property, as compared to regional and OECD averages of 4.5% and 4.4%, respectively.
Commercial, Retail & Hotels
In contrast with the decidedly under-supplied residential segment, the commercial and retail markets are attracting substantially less interest from developers. The overarching basis for stable demand with little growth comes down to the limited size of the market with a total population of around 400,000. Large-scale, high-end shopping malls that are sprouting up rapidly in larger markets supported by high populations like Malaysia and Thailand are currently unfeasible in Brunei Darussalam as potential international tenants that are the primary occupants of these shopping centres are focusing efforts on more concentrated population centres. As a result, traditional strip mall and commercial complexes of three storeys or less will continue to dominate the retail market as larger shopping centres struggle to maintain high occupancy rates. Served by the largest shopping mall in Bandar Seri Begawan, the Yayasan Sultan Haji Hassanal Bolkiah Complex along the waterfront, as well as the more recently completed The Mall in Bandar Seri Begawan, the mall segment is unlikely to be able to support another major entrant. A proposed 4-ha shopping mall in Mukim Mentiri announced in August 2012 by local cooperative Koperasi Bumiputera Bersatu had not progressed as of August 2014.
Similar constraints are also affecting the commercial office space market, though the government is developing several new light industrial ventures with commercial space in an effort to support high-tech business ventures. One of the largest these projects is the three-phased development of Anggerek Desa Technology Park carried out by the BEDB. This includes the iCentre incubation facility launched in 2008 that houses up to 16 information and communications technology firms, as well as the seven-storey Knowledge Hub completed in 2010. A third eight-storey building that will focus on commercial ventures and house local small and medium-sized and foreign technology companies is on track for completion by October 2014.
Financing
Financing remains relatively inexpensive in Brunei Darussalam following a revision of rates affecting personal loans and the retail sector. In March 2013 the Autoriti Monetari Brunei Darussalam announced several new measures to “guarantee savers are rewarded with reasonable returns and to promote savings culture among the public”. Of perhaps the most interest to real estate financing sector was a provision revising the maximum effective interest rate or annualised profit rate to not more than 4.5% per annum for residential property loans.
As a result of the revisions, banks operating in the country responded with changes of their own regarding mortgages loans in order to maintain growth while still complying with the law, according to bank press releases and statements to local media. After a short period in which HSBC froze loan applications, the bank adjusted to the new terms by shortening loan repayment periods to 10 years and reducing the maximum financing from 100% of a property’s value to 70%, as well as cutting previously offered subsidies for land valuation, insurance and other related costs. Baiduri Finance reduced its financing to between 89% and 90% of a property’s value in April 2013 to compensate for lower monthly balances.
Standard Chartered Bank also stated in April that it would reduce its subsidies from 5% of the overall loan to 3%, though it would still finance up to 100% of property value depending on the applicant’s qualifications. BIBD revised its home loan package to remove subsidies and separate insurance and other related costs from the home loan, but did not reduce its maximum loan repayment period of 25 years and noted that it would still finance up to 100% of the property value.
While these new measures will have some impact on the private housing market, public housing financing still offers numerous financial incentives for its participants. In addition to purchasing homes at a subsidised cost that equal on average 70% of their total value, the government also grants an extended loan repayment period of up to 30 years and will even offer a separate loan of up to BN$25,000 ($19,630) for the purchase of land, according to the Lands Department.
Outlook
Significant restrictions on land use along with a strong presence by the government in the real estate market – particularly the residential segment – will compel the state to take a leading role in the real estate market in the near future. Pent-up demand will continue to bolster residential property values, leading to growth in both the public and private markets. This growth trend within the private sector, combined with ongoing building of government housing units, is expected to bring substantial new stock to the market through 2017, provided issues with the strata title are resolved. If this happens, supply and demand are likely to move closer to equilibrium, leading to a slowdown in market growth. Without the prospects of greater demand, the country’s small population and limited spending power is not enough to entice developers to build large-scale Western-style shopping malls where major global brands act as tenants. As such, the retail and commercial segments look to remain static with stable but limited demand growth in the short term, while hotel stock remains adequate for the time being.
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