DESPITE being considered one of the more “stable” sectors within the Malaysian property market, the industrial sub-sector is also seeing its fair share of overhangs.
According to the Valuation and Property Services Department’s (JPPH) in its latest Property Overhang report, the number of unsold completed industrial units totalled 1,047 worth RM1.65bil for the first quarter of this year.
While nowhere near the level of overhang in the residential property sub-sector, in ringgit value, it represents a rise of nearly 50% from RM1.11bil in the first quarter of 2017.
So the big question is – if the industrial sector is a stable segment – why then the huge jump in the number of overhangs?
Axis REIT Managers Bhd head of investments Siva Shanker says the bulk of the overhang is from the small cookie-cutter units such as terraces and semi-Ds, which are in fact in oversupply.
“A lot of these units are actually bought by investors and speculators, who plan to buy and then flip (for a higher price),” he tells StarBizWeek.
“Much like the residential segment, many of these speculators may have problems either securing a loan or getting a tenant to rent out the place when the units are ready. Hence, the overhang.”
The “smaller units” that Siva is referring to comprises units that are 100,000 sq ft in size and below. These are, however, unlike the “juggernaut” factories or industrial complexes that may range from 500,000 sq ft to one million sq ft.
“There are no speculators here as the financial outflow for these units is just too high. These units are built to suit – they’re built because there is already a waiting buyer or tenant.
“Anyone that needs something that big is usually a specialist in that area,” says Siva.
According to JPPH’s report, there were a total of 464 units and 364 units of unsold terrace and semi-D properties respectively in the first quarter of 2018.
However, there weren’t any unsold flatted factory or industrial complex units during the period.
Similarly, there were also zero unsold flatted factory or industrial complex units in the first quarter of 2017, while unsold terrace and semi-D properties totalled 380 units and 269 units respectively during the period.
Siva, who was previously president of the Malaysian Institute of Estate Agents, says the industrial property sector is still the most stable sub-segment within the local property market.
“In comparison with the other sub-sectors like residential, commercial and office, where there is a huge oversupply, the industrial segment is very small and is close to equilibrium.
“By that, I mean that the level of supply and demand is almost on par,” he says, emphasising that the industrial sector is considered “one of the sturdiest segment” because of the minimal level of speculation within the sector.
According to JPPH, the number of unsold completed residential units – including serviced apartments and small office home offices (SoHos) – totalled 34,532 worth RM22.26bil for the first quarter of this year.
This represents an increase of 55.72% in the number of unsold units compared to a year ago, when unsold units totalled 22,175, inclusive of serviced apartments and SoHos, which are built on land zoned as commercial but have a residential element to them.
In ringgit value, this represents a rise of 67.82%, from RM13.27bil a year ago to RM22.26bil as at March 31, 2018. Excluding serviced apartments/SoHos, about a third of all residential units in their respective price segments remained unsold.
In a statement recently, Savills Malaysia managing director Datuk Paul Khong said improved market sentiment, especially after the elections in May – would certainly boost foreign direct industrial investment into Malaysia.
“Coupled with surging domestic consumption, the prospects for the industrial and logistics market are very positive,” he said in a statement, adding that the segment should see rising rental rates that have lagged behind recent strong increases in industrial land values.
“Good news for real estate investment trusts and other funds which are focused on this market sector,” he says.
According to JPPH, the industrial property sub-sector has weathered the past couple of years well and is poised for good growth.
“The industrial sub-sector despite contributing the least to the overall property market, plays a significant role in generating investments and employment opportunities.
“As Malaysia embraces Industrial Revolution 4.0 and the digital economy, a different ball game is expected of the industrial property sub-sector,” it said.
Industrial Revolution 4.0 refers to the paradigm that machines are now able to autonomously adapt and coordinate their tasks to meet human needs.
According to JPPH’s report for 2017, the industrial property sub-sector recorded 5,725 transactions worth RM11.64bil in 2017. As at the end of 2017, there were 113,173 existing industrial units, with an additional 5,675 units in the incoming supply and 7,513 units in the planned supply.