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Malaysia's property market buoyed by steady economic growth

More enquiries and investment activities expected in second half of 2018.

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Penang has the highest approved foreign direct investments in the country at RM8.5 billion in 2017.

THERE are clear signs of improvement in the property market, and it is expected to pick up with more enquiries and investment activities moving into the second half of 2018 and into 2019.

This follows the historic conclusion of Malaysia's 2018 General Election and is further supported by steady growth in the economy with a 4.9 per cent expansion for 1H2018 and favourable labour market conditions.

In the Kuala Lumpur residential segment, potential buyers and investors are switching from a wait-and-see approach to genuinely seeking for good bargains in the market. At the same time, developers are now aggressively promoting their products by conducting nation-wide roadshows.

Prices and rentals of most high-end condominium and serviced apartment schemes, which are believed to have bottomed out, continued to hold steady although they remain under pressure in some places due to a mismatch in supply and demand and the issue of affordability.

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A gentle recovery in the residential market is expected with more launches next year and as Malaysia returns to the radar of investors with renewed confidence as more clarity in the policies of the newly-elected government unfolds.

Meanwhile, in the tenant-led office market, the outlook remains challenging as supply continues to outstrip demand. With no immediate catalyst to boost demand, we expect developers to adopt a more cautious approach prior to launching new office developments (enbloc or strata) by undertaking proper feasibility study.

Completed and ongoing rail infrastructure within Greater Klang will continue to drive demand for office space in established and upcoming decentralised office locations.

In the short term, active enquiries and leasing activities from co-working operators exploring new setup or expansion in prime office buildings, in tandem with rising demand for flexible work space among a multitude of occupiers, bode well for the office market. We also see some returning interest from the oil and gas and its related sectors as crude oil price look to stabilise.

The overall occupancy rates for Kuala Lumpur City and Kuala Lumpur Fringe remained resilient at circa 79 per cent and 84 per cent in 1H2018, with average monthly rentals of RM7.16 (S$2.38) per sq ft and RM5.72 per sq ft, respectively.

Well-located Grade A office space continue to command higher asking rents, ranging from RM6.00 per sq ft to RM11.00 per sq ft per month.

The three-month tax holiday effective June 1, 2018, following the zero rating of the Goods and Services Tax, has boosted the retail industry and spurred spending on goods and services.

With improved market sentiments, the Malaysia Retailers Association revised its full year 2018 retail sales forecast from 4.7 per cent to 5.3 per cent.

Despite the disruption of e-commerce, physical stores remain relevant evident from the rise of omnichannel retail. Online retailers are setting up outlets in shopping centres and more brick-and-mortar stores are launching e-commerce sites.

Changes in the retail landscape have led developers and operators of selected shopping centres to embark on asset enhancement initiatives, investing more in entertainment and service-related trade to enhance consumers' shopping experience.

Also, amid challenges in the retail industry, selected global and local brands continue to see opportunities in the Klang Valley retail market - evident from their debut and expansion plans.

Popular and established shopping centres enjoy high occupancies and resilient rental rates.

In Kuala Lumpur City, the fully-occupied Suria KLCC and Pavilion Kuala Lumpur command gross monthly average rentals of RM24.00 per sq ft to RM26.00 per sq ft, while in the city fringe, the popular Mid Valley Megamall and The Gardens Mall enjoy gross monthly average rentals of RM17.00 per sq ft and RM16.00 per sq ft, respectively.

Penang, the Pearl of the Orient, topped with the highest approved foreign direct investments in the country at RM8.5 billion in 2017. The encouraging flow of both foreign and local investments into the state, coupled with positive key economic indicators, show that the general sentiments are gradually improving.

Tourist arrivals to Penang are set to increase further with more international airlines flying directly into the state. In 2017, passenger traffic at the Penang International Airport hit 7.2 million.

The residential sub-sector in the state continues to remain dominant in overall market activity although consolidation is still ongoing. There were no launches of high-end condominiums in 1H2018. Prices of high-end condominiums continue to hold firm although asking rents are noted to have dipped slightly due to the soft market.

The office sector, which registered slight improvements in both occupancy and rental levels in 1H2018, is expected to remain resilient with no immediate incoming supply.

The rents for prime office buildings in Georgetown range from RM2.80 per sq ft to RM3.80 per sq ft per month with overall occupancy of circa 94.5 per cent.

As for the retail sub-sector, the outlook is expected to be challenging in view of further incoming supply by 2019, namely Sunshine Tower with circa 900,000 sq ft of space.

Occupancy rates for prime shopping centres on the island currently range from 80 per cent to 90 per cent, while for the secondary centres the range is generally from 70 per cent to 90 per cent. The rental rates for ground floor retail lots in prime shopping centres range from RM12.00 per sq ft to RM37.00 per sq ft per month.

The medium- to long-term prospects for Malaysia remain favourable with higher transparency and accountability expected from the new government.

  • Writer is executive director, Research and Consultancy, Knight Frank Malaysia