Penang property prices stay firm despite uncertainties

The property market may have hit a plateau but those out shopping for landbank are not holding their breath. Land prices are not expected to dip in the near future as owners anticipate that developers will attempt to lock in land for development purposes when times improve, says Raine & Horne International Zaki + partners director Micheal Geh.

Presenting The Edge/Raine & Horne International Zaki + Partners Penang Housing Property Monitor for 2Q2008, Geh points out that land values in Penang Island have almost always experienced a constant increase, even in the last property downturn during the financial crisis in the 1990s. What's more, market sentiment is that land prices are expected to rise, come the next property boom.

Then again, no one has a crystal ball to forecast how long the trying times will last. "It's uniquely Penang... property prices on the island are holding out. How much it will sustain will depend on how fast the political uncertainties in the nation are resolved and how soon fuel prices will level off to a fair level," says Geh. He adds that generally, developers remain very optimistic about land acquisition in Penang due to higher gross development value and demand from both local and international buyers.

Geh notes that there have been fewer launches after the March general election. Political uncertainties are causing industry players to take a cautious approach. Factors impacting negatively on the market currently, he says, are the fuel price hike, soaring construction costs, low profit margin or maybe even deficit margin for contractors. Deferred mega infrastructures like the RM2 billion monorail and the RM1.5 billion Penang outer ring road project are not helping. The result is a slow take-up rate in the construction sector.

He expects transactions to slow in 2H2008 but future launch prices, especially of high-rise homes, will rise by at least 15% to 30%. For instance, more high-rise projects in Bayan Baru and Bayan Lepas are expected to be sold for at least RM350 psf against the recent launches in Tanjung Tokong and near Jelutong Expressway of between RM280 and RM330 psf , he says.

This will in turn expand the supply of such price-range properties while the supply of medium-cost homes of RM250,000 and below will shrink.

On sampling for the Penang Monitor for 2Q2008, Geh points out that property prices, especially in the sub-sale residential segment surveyed, have remained generally steady with fewer transactions.

Is the recent recognition of George Town as a world heritage site by Unesco a boon for the property market? Geh says it is not likely to have immediate impact on the value of properties within the heritage enclave. "Let the euphoria settle first. A lot of matters and issues will have to be resolved first before property value appreciation can happen in the heritage enclave."

Geh says statistics show the market is cooling with developers holding back launches due to current market uncertainties. For 1H2008, Penang only saw three property launches, with a combined stock of 207 units. Of these, 60% were priced at RM250,000 while the rest were houses costing more than RM250,000. The launch prices are also at a 30% premium to those on the secondary market, he says.

The three launches were Surin in Tanjung Bungah by Bolton Bhd, Alila Horizon by Hunza Properties Bhd and The Spring by IJM. Surin, with 390 units of 1,300 sq ft onwards, was launched at RM424,000 onwards. Targeted for completion in 2011, Geh says Surin has set a new benchmark of RM236 psf within the Tanjung Bungah neighbourhood. Alila Horizon was unveiled at an average of RM290 psf while The Spring, launched in May at around RM250,000, was completely sold out within a couple of hours. The secondary market for The Spring is currently tagged at RM320,000 onwards, Geh notes.

He says the current buying trend is "buy now or regret later" for the middle income group as affordability is the main consideration when purchasing a house. The middle income group makes up 70% of the population in Penang.

Despite a drop in secondary market transactions, Geh says values of land with development potential stand firm. He cites the case of a tract with approved building plan in Balik Pulau — the asking price is at least RM35 psf, or about 300% higher than it was six years ago, he says. He also points to a tract of development land with beach frontage along Gurney Drive which was sold to a Kuala Lumpur-based developer for RM380 psf, a new benchmark in the area.

According to Geh, there was a marginal dip (5.1%) in the number of housing property that changed hands in 1H2008, from 3,820 in 2H2007.

The monitor also shows that rentals have generally remained stable in 2Q2008. Rentals for 1-storey terraced houses in Jelutong have improved by 4.8%, while 3-storey bedroom apartment/condominium (excluding luxurious type) have increased by 4.3%.

He anticipates the property market to be flat for the next quarter due to political uncertainties, which he sees as temporary.

By Rosalynn Poh (The Edge Daily)

1 comment

April 19, 2010 at 10:29 AMCeage

Penang property is due for a correction when interest rate goes up in the next few months. The price hike was mainly caused by investor taking profits, buying and selling, not pure demand. If you look around, there is an oversupply in Penang and occupancy rates are very low. You even see a lot of vacant shops on prime area left unvacanted. Rent return is Penang is very low compared to KL, rent return of less than 5% is overpriced as the value is not corresponding with the rent yield! This is a sign of property bubble!