Challenging times in Johor and Penang
Eugene MahalingamThe Star/ANNSunday, Dec 06, 2015
THE slowdown in the current property sector has seen transactions, be it primary or secondary, winding down within the Klang Valley this year.
Unfortunately, the situation in other prime markets, such as Johor and Penang, has been less than stellar this year - with industry specialists predicting it could take a while for the glut to recover.
Johor-based KGV International Property Consultants (M) Sdn Bhd director Samuel Tan Wee Cheng says 2015 has been a challenging one for the Johor property market.
"It has had to undergo various adjustments such as the goods and services tax (GST), loan approvals, ringgit depreciation and above all, a sense of uncertainty due to the state of economy both nationally and globally.
Landserve (Johor) Sdn Bhd executive director Wee Soon Chit says he expects the uncertainty in the property market to continue into next year due to the weak economic condition.
"The property market is rather weak. This coincides with the traditional holiday/festive season from end-November to February. Less people are likely to commit themselves during this period, but we foresee stronger interests on properties in the second quarter of next year."
On the bright side, Wee says the weaker ringgit has definitely made property prices comparatively cheaper for Singaporeans and other foreigners.
"While the weaker ringgit appears to attract more crossings into Johor Baru for food and grocery shopping, it may not necessarily benefit the property sector here.
"The slowdown in the property market, the concern about the general economy and oversupply situation, however, makes them more cautious about property investment here."
Additionally, Wee says the weaker ringgit benefits Malaysians who work in Singapore.
"This group contributed to significant demand for properties and we expect them to continue to form the bulk of the property purchases."
Tan, meanwhile, feels that with the volatility of the ringgit, Singaporeans will be cautious with any investments in Johor.
He adds that developers are holding on to their prices now, despite rising construction costs and GST.
"Ultimately market forces will determine the selling prices."
Commenting on the residential sub-sector in Johor, Tan says there has been an oversupply of high-rise properties, but points out that demand for units are still popular in selective areas.
"Prices of landed properties are too high for the younger generation. Serviced apartments of about 900 sq ft, priced at RM500 (S$167) per sq ft or thereabouts are still within their means.
Wee concurs that high-rise residential sub-sector in Johor has been affected this year.
"Concern about an oversupply situation as well as occupancy issues have seriously impacted demand for this sector. The presence of giant developers from China like R&F Properties, Greenland and Country Gardens developing huge waterfront projects certainly have also caused concerns.
"It is a buyer's market now and some of the developers are said to be willing to give up to 20 per cent price discount - especially on the high-end products."
The landed residential sub-sector, naturally, has performed better than the high-rise sub-sector, says Wee.
"This sector is comparatively doing better than the non-landed sector but there is also pressure on the pricing.
"No significant drop in prices yet but lower demand means more pressure on prices. We expect prices to ease slightly but not as high as those in the non-landed sector."
He says higher interest rates and borrowing costs will certainly have a negative impact on property buying.
Tan concurs that while transactions within the low-rise property sub-sector has performed better - it is however more expensive.
"Over the next few years, these will be developed further away from the city with a 'no frills' design. They will be smaller but more affordable."
He says the deluxe-type properties priced at RM500,000 will continue to attract buyers who purchase for their own.
"These investors are generally more resilient to market changes and will see property investment as a hedge against inflation or simply a means to upgrade their lifestyle.
"In the immediate term, it will have an impact as borrowing cost will be higher. However, if this is factored in over a longer period, people will still buy as housing is a need, not a want. It is a question of adjusting to this changing landscape."
The situation in Penang
Raine & Horne Malaysia senior partner Michael Geh says that in Penang the residential property market has contracted by almost half since its peak in 2011.
"The market recorded total transactions of 9,667 in the last quarter of 2011 which is the highest number of transactions in the past four years before it saw a drastic drop of about 48.47 per cent in the first quarter of 2012 to only 4,981 transactions.
"The corresponding value of transactions also dropped from RM2.27bil in the fourth quarter of 2011 to RM1.5mil in the first quarter of 2012."
Geh says the market was a lot more volatile in 2012.
"In the second quarter, the transactions increased by about 38.68 per cent to 6,908 transactions valued at RM1.92bil in the second quarter. It dropped slightly to 6,398 transactions in the third quarter. The market plunged again by 22.17 per cent or to 4,979 transactions in the last quarter.
"The market continued to contract in 2013 where transactions dropped slightly by 786 transactions to 4,193 transactions (with a total value of RM1.55bil) in the first quarter and it remained stable with slight increases throughout the year bringing the total transactions to 17,700 units with a total value of RM7.1bil for the year."
According to Geh, high-end high-rise units are selling well in good prime locations.
"Landed residential units seem to hold their values because of scarcity of land on the island. In butterworth the price of landed is strong," he says.
This year, Geh says the Penang market contracted by about 26.17 per cent to 3,834 transactions worth a total RM1.55bil compared to the last quarter of 2014.
"If compared to the same quarter of last year, the market also saw a contraction of about 10.65 per cent or a by 457 transactions.
"In the second quarter of this year, the market improved slightly from the first quarter by only 75 transactions to 3,909 units with a value of only RM1.59bil. When compared to the second quarter of 2014, the market contracted by 17.39 per cent or by 823 transactions."
Geh also believes that the contraction in the market in Penang could also be due to the strict loan requirements with lesser loan approvals.
"The drastic catalyst for the penang property market is 2016 would be how the market will react to the announced Public Transportation Plan. LRT station site's proximity areas will see existing values remaining steady and even soar with optimism of ease in moving around the island.
Penang Bridge catalyst
According to C H Williams Talhar & Wong's (WTW) Property Market Report 2015, overall, landed residential developments are focusing on Seberang Perai due to the availability of lands with a comparatively lower land cost as compared to Penang Island.
"In Penang Island, 985 units of landed residential came into the market in 2014. The construction and completion of the Second Penang Bridge has been a catalyst for new developments in the southern region of Penang Island.
"The existing supply in North-East district is slightly ahead of South-west district (namely 51 per cent of existing supplies in north-east district and 49 per cent in south-west district)."
Citing the National Property Information Centre, existing supply of landed residential was 141,599 units of which 104,804 units (74 per cent) are in Seberang Perai and 36,795 units (26 per cent) in Penang Island.
"Scarcity of land in Penang has driven up land cost and snowballing into the hike of prices for newly launched projects. As a result, sales in the primary market showed signs of slowing down compared to 2013.
"In the secondary market, prices have generally remained stable or increased slightly from last year, backed by the fixed land supply."
Although more attractive and relatively affordable condominiums are being launched in the market, landed residential properties remained the preferred choice of accommodation for Penang residents, WTW says.
"The prices of newly-launched houses continue rising unabated to new benchmark levels. Older residential units in established and growing neighbourhoods such as Greenlane remained highly sought-after despite higher asking prices.
"The steep hike in prices is expected to taper off in the near future with more choices of new housing accommodation entering the market."
Existing supply of high rise residential in Penang State, meanwhile, according to WTW, is about 46,000 units with a majority of the units located within the North-east District (67.6 per cent).
"Several newly completed projects in 2014 include One Tanjung, Summerton, Light Collection II, The Peak, Maritime Suites, Golden
Triangle, Elite Avenue and Elite Heights. New launches in 2014 have been less compared to previous year.
"The condominium market in Penang continued to be the most active property sector in Penang with a large number of projects launched and under construction. However, due to the various cooling measures implemented, challenging economic outlook and weakening sentiment, most of the surveyed newly launched projects received slackening response compared to previous years."
With more choices of new housing accommodation entering the market, the steep hike in prices over the last few years, has tapered off, says WTW.
"Yields have been compressed as increase in rentals have been much slower than capital prices."
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