There are too many offices, malls, hotels and high-rise residentials and few affordable housing projects
IT was a somewhat sombre 8th Malaysian Property Summit on Wednesday with property consultants and a taxman highlighting how prices will move post-goods and services tax (GST) as a result of an over supply in most sub-segments. There will be more clarity by the middle of the year.
The main take-away was the over supply in high rise residentals, hotel rooms, office and retail space. The shortage is in affordable housing, shop houses, industrial land and landed units.
The event was organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) .
Says organising chairman James Wong: “There is a mismatch of what the market demands and what’s available, with developers not paying attention to affordable housing the last two years as they concentratre on high-end and upper middle housing.”
Jones Lang Wootton senior vice-president David Jarnell says 2015 will be an “extremely challenging year” for developers who will have to be less greedy. “The sector is definitely moving into slower growth,” he says during a panel discussion.
PEPs president Datuk Siders Sittampalam says the impending GST will not have a major impact on pricing.
“The fundamentals of the market will affect pricing. But the GST will affect developers’ cost,” he says.
Obervers say unlike in Thailand, Singapore, Australia and Hong Kong, when the GST – or its equivalent – was introduced, there was a mild property boom in these countries. But this did not happen in Malaysia. Buyers and real estate personnel are waiting to see how prices will move after April.
The general sentiment is that developers may have to absorb the GST and the days of pricing one launch higher than the previous one are over.
Presenting his paper on office space, Christopher Boyd of CBRE, says as of the end of 2014, total office supply stands at 96.6 million sq ft, excluding those in Putrajaya and Cyberjaya.
It was less than 10 million sq ft in the early 1970s.
“We have more office office space than Singapore, same level as Manila and Bangkok,” he says.
Last year, only 300,000 sq ft of space was absorbed by the market, six times less than in 2013, he points out.
Occupancy, currently at about 80%, is expected to deteriorate this year and beyond. Likewise, rental rates. The market is seeing a flight to quality and older buildings will struggle, but tenancies tend to be “sticky” as contracts are already signed and it costs to move, he says.
Occupancy is expected to move downwards with 18 million sq ft scheduled to be completed by end of 2017 in Greater KL, he says.
Falling oil price may affect demand as traditionally, oil and gas and banking/finance sectors require large amounts of office space in central/strategic areas in the city.
Oil and gas (O&G) players will be cautious about expanding or relocating in 2015, he says.
Rentals of quality offices are above RM8 per sq ft, with three offices breaking the RM10 mark, namely Menara Petronas, Menara Maxis and Integra Tower at The InterMark.
“Landlords of better quality new buildings have remained steadfast, and for the most part, held rents firm or raised them slightly. But is this situation going to last in 2015 as the over supply situation starts to be felt, and O&G prospects drop out?
Retail and hospitality
The retail scene tend to work in tandem with the hospitality sector. Adzman Shah Mohd Ariffin, ExaStrata Solutions chief real estate consultant says the rising number of malls and the increase in integrated developments which combine residential with retail component will further weaken sentiment. The increase in online shopping is another factor.
Adzman says 10 malls are due to enter the market this year, offering 5.25mil sq ft of net lettable area in the Klang Valley, with five million sq ft more in 2016/2017. Mall owners are doing all sorts of promotions and shows to attract shoppers because when they peg rental to sales, the onus falls on them to make sure their tenants do well. Occupancy from 2009 to the first half of last year was about 85%.
In the hotel sector, there is an over supply of rooms, says James Wong of VPC. He says there are about 200,000 hotel rooms in Malaysia with occupancy of between 60% to 65% compared with 80% to 85% in Singapore and Thailand.
Hotel room rates are the second lowest in Asean after Cambodia when in terms of economic status, Malaysia is in the Top 5.
“Local authorites do not know what the other local authorities are approving,” he says. Based on his research, there is a huge oversupply, with 60,000 rooms in the four to five star category, with the Klang Valley having 21,000 of them. The hotel and tourism sector attracted a total of 69 projects with approved total investments of RM3.88bil in the first half of 2014. Domestic investments accounted for most at RM3.7bil or 96%.
The number of approved hotel/tourism projects declined by 15.85% in the first half of 2014 compared with the same period a year ago. Capital investments declined by 41.67%.
Foo Gee Jen from C H Williams, Talhar & Wong says the number of serviced residences in the Klang Valley has overtaken those of condominium units.
Serviced residences are residentials built on commercial land. Their monthly service charges and utilities will be priced about 25% to 30% higher than a condomium project, which is built on residential land.
In 2010. the ratio between the two was 60% condominiums and 40% serviced apartments. It is now 46% condominium and 54% serviced residences.
He also drew focus on the dire shortage of affordable housing and the two million families who earn RM3,000 or less a month. Their affordable level is RM200,000.
This group represents a third of the country’s household and their needs have not been met even as the Government goes about talking about affordable housing priced at RM400,000 a unit. By The Star