Penang property boom fuelled by capital appreciation, strong industrial and tourism growth

[KUALA LUMPUR] When Eastern and Oriental (E&O) – one of Penang’s premier property developers known for its upscale projects – unveiled The Lume in August, it sparked a flurry of interest.

With price tags starting at RM2.2 million (S$667,385), the luxurious condominium offers expansive layouts of at least 1,722 square feet, breathtaking sea views and an enviable location within the nearly 308-hectare Andaman Island development.

The hefty selling price did not deter the early birds, with a quarter of the 261 units snapped up within several weeks of the launch.

This was disclosed by Nik Amlizan Mohamed, chief executive officer of Malaysia’s public pension fund Kwap, during the Invest Malaysia event in September.

Kwap, the statutory body responsible for managing public employee pensions, owns 20 per cent of Persada Mentari – the joint venture company developing Andaman Island – through its subsidiary Kwest. The remaining 80 per cent is held by property developer E&O.

Premier destination in high demand

Property consultants are unsurprised by the strong interest in The Lume and other similar projects, noting that Penang continues to be one of Malaysia’s most coveted locations to buy a home, attracting local buyers and foreign investors alike.

The National Property Information Centre (Napic) reported that a total of 1,232 residential properties were launched between January and June in Penang. Some 546 units, or 44.3 per cent, were sold.

Despite its relatively small size, Penang has consistently had robust property transactions over the years, ranking third in Malaysia in terms of transaction volume and value, behind only Klang Valley and Johor.

Last year, the total number of property transactions in the state climbed 5.1 per cent to 24,683, amounting to RM17 billion – a 28 per cent increase from the previous year. Of these, 76 per cent were residential properties, with 18,663 units worth around RM8.2 billion changing hands.

JLL Malaysia’s managing director Jamie Tan said several factors contributed to the rising demand, including effective city planning, high liveability standards, a strong track record of capital appreciation, and a friendly business environment for investors.

Juwai IQI co-founder and group CEO Kashif Ansari pointed out that land scarcity and anticipation of a growing population, following robust industrial and tourism activities, will continue to support property demand in the state, especially on Penang island.

“It’s also one of the most desirable places in the country for foreign buyers who wish to live in Malaysia or have a second home here. In Penang, there is a large group of foreign buyers from China, Europe, Japan, South Korea, Singapore and Indonesia,” he told The Business Times.

In 2022, there were more than 127,000 foreigners living in the state, which had a population of over 1.7 million people at the time, data from the Department of Statistics Malaysia showed.

Silicon Valley of the East

Often referred to as the “Silicon Valley of the East”, Malaysia’s northern state has transformed over the past 50 years, evolving from low-value industries into a high-value technology hub, attracting major tech companies such as Intel, AMD and Osram.

With the realisation of investment projects, particularly in the tech sector, Kashif expects Penang’s population to continue growing as more talent from other regions moves into the state. The influx of skilled professionals is likely to drive increased demand for properties, further boosting the real estate market.

“Penang might be the second-smallest state, but it stands out as a major economic success in Malaysia. As a global tech hub, it has attracted substantial foreign direct investment, fostering a mature ecosystem to draw even more investors,” he told BT.

For the first six months of 2024, Penang realised over RM31 billion of investments in key sectors, including high-value manufacturing, advanced services and modern agriculture.

In 2023, the state recorded RM71.9 billion in investment inflows – the highest in Malaysia – driven by foreign direct investments, which accounted for RM61.7 billion.

Big energy

After a record-breaking year in 2023, property transactions in Penang slowed in the first half of 2024, with 11,181 properties valued at more than RM7.2 billion.

Transaction volume and value were down by 1 per cent and 20 per cent, respectively, compared to the same period a year earlier.

Juwai IQI’s Kashif believes this slowdown is only temporary following the record-breaking year in 2023. “Nevertheless, when compared to the same period last year, the transaction volume and value of the first half of 2024, remain very close to last year’s level,” he added.

JLL’s Tan shared a similar view, noting that Penang’s property transaction has rebounded after experiencing slow down during the Covid-19 pandemic period.

“In the first half of 2021, property transactions surged due to pent-up demand and low interest rates. By early 2023 and into 2024, transactions stabilised above pre-pandemic levels, reflecting ongoing interest in Penang’s real estate market,” he added.

Rising prices

Kashif emphasised that property price appreciation in Penang remained attractive to investors, with an overall price appreciation of over 6 per cent over the past five years.

He observed that landed properties recorded significant price increases, with bungalows appreciating around 16 per cent, and terraced houses posting a capital appreciation of around 10 per cent between 2019 and 2023.

For example, a double-storey terraced house in the Jalan Burmah area sold for RM1.3 million in 2019, and a similar property was sold at RM1.7 million in 2024, reflecting a 30 per cent price increase.

According to Napic, the average price of a house in Penang was RM471,980 in the first half of 2024 – the second highest in Malaysia. This is up slightly from the average of RM466,074 in 2023.

For investors looking at rental income, rental yield is about 3.5 per cent this year, lower than other cities in Malaysia, such as Kuala Lumpur’s average yield of 4.3 per cent, due to stiff competition and change of state government policy.

In May 2023, the Penang state government officially banned all short-term rentals, including Airbnb. The ban applies to all residential units and aims to address numerous complaints about disruptive tourist behaviour.

Commercial properties, such as service apartments and Soho (small office home office) units, are excluded from the ban.

JLL’s Tan said the ban may affect investors who are looking at generating rental income from short-term rental, but the impact is not significant, given the increasing demand for long-term rental due to robust industrial activities.

Kashif echoed this sentiment, noting that the improved living environment following the ban may lead to higher property values.

Overhang issue

Looking ahead, property consultants remain optimistic about the outlook for Penang’s property market, citing a healthy pipeline of new developments and a steady decline in overhang properties.

According to Napic, Penang recorded the third-highest number of residential property overhangs in 2021, with nearly 5,500 units launched but remaining unsold over a nine-month period.

However, by the first half of 2024, the number of unsold units halved to 2,400, reflecting growing demand for properties in the state.

Napic also projects an incoming supply of nearly 27,000 new residential properties in the coming years, further reinforcing the market’s potential.

Tan noted that as house prices continue to rise, future new launches will shift towards smaller units with built-ups around 600 to 800 square feet, to address affordability concerns.